Ethereum 2.0’s Phase 0 Goes Live ‘Successfully’, ETH Drops

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The first of Ethereum 2.0 (ETH 2.0) is now live, with the team behind it describing its launch as successful, while ETH erased all its gains today.

At 12 UTC today, per the Ethereum Foundation livestream and Beaconcha.‍in’s genesis dashboard, the first phase has been launched. The Slot 1, the first that was able to be signed by a validator, was signed with “Mr F was here.”

Rewards and penalties

Rewards are given for actions that help the network reach consensus, said ethereum.org, such as batching transactions into a new block or checking the work of other validators. Validators can also lose ETH for performing malicious actions, going offline, and failing to validate. Penalties for being offline are “relatively mild and equate to about the same as the expected rewards over time,” ConsenSys said. “As long as you are currently participating for at least 50% of the time, you will not lose your stake,” they said.

There is also a more severe penalty called “slashing” – the burning of some amount of validator funds and immediate ejection from the active validator set. This will happen if a validator, for example, creates two beacon blocks in one epoch, or if they try to attack or compromise the network. “The amount slashed is between 1 ETH and the entire stake amount, depending on other factors,” ConsenSys said.

Per a document provided by ConsenSys, which also contains an ETH 2.0 reward calculator, rewards are calculated based on the state of the network upon the end of each epoch, and they will be “highly variable by design”, so “you will only know exactly what your reward is once it is received.” Rewards minus the penalties are transferred every epoch (385 seconds, or c. 6.5 minutes)”.

“Network level reward issuance rates are a function of the total amount of ETH staked and average % online of validator(s),” ConsenSys further explained. Individual validator reward rates depend on the number of validators run and % uptime of the validator.”

Those who don’t have enough ETH to stake can stake their rewards through a staking provider or join staking pools by adding a smaller stake. Staking allows for secure sharding, and shard chains will allow Ethereum to create multiple blocks at the same time, increasing transaction throughput, said ethereum.org.

Signs of optimism and taxes

Just prior to the Phase 1 launch, crypto analytics firm Santiment noted that ETH’s price rising in the past 24 hours suggested “early signs point to optimism over this event.” The firm also stated that ethereum daily active deposits have dropped significantly, which they called “a solid sign for bulls,” as well as that ethereum exchange inflow normalized after last week’s “frenzy of exchange activity.”

Also prior to the big event, a discussion was led online, if not an argument, over taxes. Popular crypto researcher Hasu stated that he doesn’t think “locking ETH in the deposit contract necessarily constitutes a sale,” but that he “won’t be shocked if the IRS [US Internal Revenue Service] argues that it does.” He continued, saying that most exchanges will have two ETHs listed, with “many versions of ETH in the market as a whole,” and that the beacon chain shouldn’t have been launch as is creates way more problems than it solves.” He concluded that “If you receive such a liquid staking token, that is most likely a tax event.”

Bitcoin evangelist at the Kraken exchange, Pierre Rochard, argued that selling ETH 1 for ETH 2 on an exchange, and earning interest on the latter, are taxable events, adding “US Treasury is going to love this “upgrade”!” He added in the comments that this is “not an argument against ETH, it’s an argument against taxation.”

Remember the coin that was created before the Ethereum genesis block that promised you ether if you bought their coin? If you think Coinbase’s Eth2 IOU thing is a different “version” of ether, then you must think that pre-launch, third party IOU token is also a version of ether. https://t.co/Yda8jDfyNv

— Hudson Jameson (@hudsonjameson) December 1, 2020

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Learn more: Ethereum 2.0 Journey in 3½ Phases Is About to Start With Phase 0

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