Rewards and Penalties on Ethereum 2.0 [Phase 0]

An overview of the Proof of Stake implementation of Ethereum 2.0 and the network’s redesigned economics.

ConsenSys Codefi is building the blockchain operating system for commerce and finance to help global markets move towards “Finance 2.0.” A critical part of this effort is enabling the creation and use of natively digital assets that incentivize maximally decentralized networks to reliably serve as backbones for new financial products and markets. Enabling “Ethereum 2.0” and the transition to proof-of-stake is front and center for us, and we are happy to start sharing our experience, expertise, and much more on these topics, including, here, the token economics.

The huge demand on Ethereum 1.0 has sometimes resulted in undesirable user experiences such as lengthy waits for transactions to be included in the chain, and volatile transaction fee (gas) prices. Massive scalability — the ability to process thousands of transactions per second rather than the current 15-or-so transactions per second — has long been part of the plan for Ethereum.

We are now in the first phase — Phase 0 — of the Ethereum 2.0 launch. Once all phases of 2.0 are fully implemented, the volume of transactions will improve dramatically. Two major upgrades in the Ethereum code would make this possible: sharding and Proof-of-stake. This upgrade will result in a network with redesigned economics, consensus, and mechanism of operation, which we will explain in more detail below.