Ethereum's Proof of Stake Testnet is Now Live, With Limited Functionality

The developers of Ethereum (ETH), the world’s largest platform for building decentralized applications (dApps), have launched an Ethereum 2.0 proof-of-stake (PoS) testnet.

According to a Medium blog post, published on May 7th, 2019, by Preston Van Loon, the co-founder of Prysmatic Labs (an organization focused on scaling the Ethereum protocol with sharding and PoS), Ethereum 2.0 will feature significant improvements in security.

One-Way Smart Contract Will Be Used To Upgrade To Ethereum 2.0

The set of upgrades associated with Ethereum 2.0 will also help achieve greater decentralization and allow the smart contract platform to scale, in order to facilitate the development of enterprise-grade dApps.

As noted in Preston’s blog, the updates related to Ethereum 2.0 will not be activated through a hard fork (backwards incompatible upgrade). Instead, value will be transferred from Ethereum’s current proof-of-work (PoW)-based blockchain to the PoS-enabled network through a one-way smart contract.

Using Shards For Parallel Processing

In addition to moving to a PoS-based blockchain, the Ethereum 2.0 upgrade will add sharding updates. These upgrades will include separate chains which manage smart contracts and transactions associated with them. A “Beacon Chain” will be used to coordinate the processes handled by the different chains (or shards).

According to Preston, “having shards [on blockchain networks] allows for horizontal scalability of the system, as transactions can be processed in parallel compared to the current Ethereum proof-of-work chain.”

Smart Contracts Not Supported On Testnet

Preston confirmed that Ethereum’s testnet is publicly accessible and that there’s also a website available which provides instructions and guidance on how to begin staking on the network.

Notably, Ethereum’s testnet does not include support for smart contracts and there’s only one client which can be used to access it.

Moreover, the overall configuration of the current testnet is reportedly a lot different from what the platform’s developers are planning to release when the Ethereum 2.0 mainnet goes live.

Staking After Ethereum 2.0 Upgrades May Not Generate Significant Profits

Recent reports suggest that staking, after Ethereum 2.0 related updates have been activated, will not yield significant profits.

According to a proposal by Ethereum co-founder, Vitalik Buterin, transaction validators on the smart contract platform may receive 5% interest (per annum) on a minimum deposit of 32 ETH, an amount currently valued at approximately $5,500. However, the net profit an Ethereum validator can expect to make, after paying for electricity consumption and the costs of hardware equipment, is estimated to be only around $41 (or a 0.8% return on investment).