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A certificate of deposit (or CD) is considered a type of savings account, but a CD holds your money for a fixed time period in exchange for a higher rate of interest than a standard savings account.

While a savings account allows you to access your cash at any time, you typically purchase a CD for a set period of time during which you can’t withdraw the funds without paying a penalty. Typical CD terms can vary from one month to five years.

While CDs are generally considered cash equivalents from an investing standpoint, and therefore very low risk, they aren’t risk free. Rather, putting your money into a CD provides a balance between growth opportunity and risk management.

Is a Certificate of Deposit Just a Savings Account?

A CD has some similarities to a savings account, but several differences. It’s a financial product designed to help consumers save their money, and because CDs typically pay a fixed rate of interest they can offer savers a predictable return over time.

However, unlike a savings account, CD holders aren’t able to access the funds in their account whenever they feel like it — at least not without paying an early withdrawal penalty, in most cases. CD holders are also not allowed to deposit more money into an existing CD, generally speaking, although they can buy another CD.

In exchange for giving up the ability to freely withdraw the money in a CD, the institution rewards CD holders with higher interest rates than they’d see in a typical savings account.

What Is APY vs Interest Rate?

Note that when you deposit money into an interest-bearing account, you would earn an annual percentage yield or APY on those dollars. The APY is different than the interest rate because it takes compounding into account.

A financial institution may offer simple interest or compound interest. If the latter, then it also matters how often the financial institution compounds that interest, e.g. monthly or quarterly.

The longer the maturity date and the higher the minimum balance, the higher the annual rate. The average APY for a 5-year CD, as of February 1, 2023, is 1.21%. But a CD with a minimum deposit of $10,000 might have an APY as high as 4.0%, given the current high-rate environment.

What Is a Jumbo CD?

A jumbo CD, which typically has a minimum deposit of $100,000 or more, could offer an even higher rate.

Ordinary CDs are insured by the FDIC up to $250,000, as are jumbo CDs — but any amount in a jumbo CD above $250,000 is not FDIC-insured and subject to risk of loss.

Recommended: Different Ways to Earn Interest on Your Money

How Does a Certificate of Deposit Work?

When a customer goes to open a CD they’ll be asked to put down a lump sum, usually with a fairly high minimum deposit amount — perhaps $1,000 or $5,000.

The initial deposit placed in a CD is called the principal, because it is essentially a loan the consumer is offering to the bank. The interest the customer collects is what the bank pays for the privilege of borrowing their money.

Certificates of deposit also carry a “term,” much like a loan does; the term is the amount of time the funds must be left in the CD in order to glean the advertised interest rate.

The term might be as short as a few months or as long as a decade, and generally, longer terms carry higher interest rates. The day the term is over is also known as the CD’s maturity date.

Long story short: When opening a CD, a customer deposits a set amount of money for a set amount of time and agrees to leave it untouched in return for a relatively high fixed interest rate they’ll earn on the principal once the CD matures.

But how high, exactly, are the rates we’re talking about?

Certificate of Deposit Rates

Certificates of deposit are attractive savings options because they usually offer higher rates than the savings accounts, but are also a lower-risk option than, for example, investing in the stock market.

Since funds in CDs are FDIC-insured, account holders can rest with some assurance that their cash won’t simply disappear (as it might when invested in shares of a company).

As of Feb. 1, 2023, the national average rate for a normal savings account is 0.33% APY, whereas the national average rate for a 12-month CD is 1.28% APY. The national average rate for a 60-month CD is about 1.21%% APY. Online banks typically offer higher rates, closer to 4.0%.

But it’s possible to find CDs with even higher rates than that by shopping around.

Certificate of Deposits: Fine Print

There are a few more things it’s important to know about CDs before deciding to open one.

Generally, CDs automatically renew once the term is up, if the account holder doesn’t take the money out. Generally, the bank will roll over the existing CD into a new CD with the same term. (For example, a one-year CD whose funds aren’t collected on the maturity date would be rolled over into a new one-year CD.)

Most financial institutions offer CD holders a grace period, or a fixed amount of days after the maturity date, during which the account holder can decide whether to withdraw the funds, transfer them to a new account or CD, or allow them to roll over.

Finally, but importantly, most CDs are generally subject to an early withdrawal penalty, which is incurred if the money is accessed prior to the maturity date.

Early withdrawal penalties are determined by each financial institution. Depending on the policy, account holders could lose out on interest, or even lose some of their principal deposit.

Recommended: Reasons Why It’s So Hard to Save Money Today

Certificates of Deposit: Pros and Cons

CDs can play an important role in an overall savings strategy because they balance growth and risk management.

But as with any financial product, CDs have both drawbacks and benefits, which should be considered carefully before opening one.

Pros of CDs

•   Because CDs are FDIC-insured, they’re a relatively low risk account. The FDIC insures up to $250,000, which means if an FDIC-insured institution goes out of business, account holders with a CD would receive their principal and interest, up to $250,000.

•   Higher interest rates are available for CDs than for similar savings vehicles, like savings accounts, making it easier to see a higher return on investment.

◦   For savers who are worried about spending down their savings, a CD provides a safe place to place cash, where it’s locked up for a certain period of time.

Cons of CDs

•   Although CDs carry higher interest rates than some other types of savings vehicles they don’t have the same kind of earning potential that stock market investments can have. By investing your money in a CD you’re losing out on potentially much higher market returns (but you’re also protected from market risk).

•   CD holders generally don’t have the ability to withdraw their money at any time, at least without being subject to a penalty. That makes a certificate of deposit a poor choice for certain savings goals, like an emergency fund, which should be readily available.

◦   Savers will owe taxes on the earnings in the account, which effectively lowers the amount you earn. Be sure to take this into consideration shopping around for the best APY.

Where to Open a Certificate of Deposit

Certificates of deposit are available from a wide variety of financial institutions, including national and regional banks, credit unions, and online-only financial institutions.

Shopping around can help ensure consumers find the best rates and most favorable terms for their needs.

That said, there are also some alternatives to opening a certificate of deposit that are worth considering carefully.

Alternatives to Opening a Certificate of Deposit

Although CDs are a great way to earn interest, they’re far from the only high-interest account option out there. Here are a few options to mull over.

High-Yield Checking and Savings Accounts

Although typical savings accounts offer a relatively low interest rate, high-yield checking and savings accounts are available from some banks.

This option helps consumers combine growth potential with the ability to access their money as they need it, and can be a good alternative to CDs for those who aren’t ready to lock away their money for a year or more.

Certain high-yield accounts may offer a higher APY. However, there may be fine print involved requiring that savers meet certain terms in order to maintain that rate, such as making a minimum number of transactions per month or maintaining a minimum account balance.

It’s a good idea to review all the account terms carefully before opening any kind of financial account.

Money Market Deposit Accounts

Money market deposit accounts are another option which, similarly to CDs, tend to offer higher interest rates than your typical savings account does.

And unlike CDs, money market deposit account holders are generally allowed to write checks or process debit transactions against their funds, which are still covered by FDIC insurance.

While money market deposit accounts can earn higher interest rates than traditional savings accounts, there are monthly restrictions on the number of deposits and withdrawals.

Money market deposit accounts might require a high minimum balance in order to avoid monthly fees.

Stock Market Investments

Finally, for consumers focused on growing their money in the long-term, investing in the stock market can provide a lot of potential for growth.

Historically, the S&P 500 — an index tracking 500 of the largest corporations in the U.S. — has seen an average annual return of 13.8% over the last decade.

Of course, an investment account is very different from a savings account or CD in that there is no FDIC insurance on the funds.

Investments in the stock market are vulnerable to market fluctuation, and there’s no guarantee that investments will be safe and make money.

It is important to remember that investments have no guarantee and are subject to potential losses.

That said, many financial professionals and advisors still recommend long-term investing as one of the best ways to grow wealth over time and as a part of an overall plan for long-term financial goals like retirement.

Alternative Account Options

CDs, money market deposit accounts, and even plain-old checking and savings accounts can all be important parts of a sound financial strategy. CDs in particular can be good vehicles to help augment savings for shorter-term financial goals.

For those looking for an alternative option, SoFi Checking and Savings may be a good option to look into. SoFi Checking and Savings® is a high interest bank account where you can spend and save with no account fees (subject to change).

Plus, you’ll earn cash back rewards on spending with recurring $500 monthly deposits.

Learn more about how SoFi Checking and Savings might help you reach your financial goals.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Does staring at your outdated stairs make you want to climb the walls? You may be considering a staircase remodel or replacement.

A light staircase remodel could cost less than $1,000, while a total makeover could cost $10,000.

The most involved of stair makeover ideas, removing a staircase and replacing it with a new one, may cost $10,000 or more.

How Do You Remodel Stairs?

That’s the million-dollar question, really (and no, that’s not a budget estimate). Staircases are the sum of their parts, and each part is an opportunity to increase visual appeal, the value of your home, and your home equity.

Staircases are more than just a means to move from one level of a detached house or townhouse to another. They can be a major decorative element in a home.

Your staircase remodel may be fairly minor but pack a punch: painting the vertical spindles, restaining treads or risers, and adding a bold carpet runner.

Replacing the handrails and spindles, or otherwise changing the bones of the staircase, may require finding a contractor.

That’s especially the case if you want your staircase to meet current building codes (important for safety and when you’re selling the house).

Understanding the project scope from the outset can help ensure that the staircase remodeling cost makes sense.

Recommended: Home Renovation Cost Calculator

Staircase Elements and Materials

Being familiar with basic staircase anatomy can help you refine project goals and have productive conversations if estimates for the job are required.

The focus here will be on interior stairs.

Treads

The stair tread is the part of the stairway that is stepped on. Treads are often made of wood, although they may have another layer on top, such as tile or carpet.

Risers

Stair risers are the vertical pieces that connect the treads: the piece of the staircase in front of your toes as you’re walking up. Risers might be made of wood or an engineered wood product.

Spindles, aka Balusters

Spindles, or balusters, provide vertical support for the stair railing. Traditional staircases might have wooden spindles, while a more modern stairway might have metal balusters.

Handrails

Also called a banister, this part is simply the rail where you put your hands. Wood, composite, and metal are all standard, although there is room for creativity.

Newel Posts and Caps

The heftier vertical posts that go in line with the spindles and create endings to the railing are the newel posts, and the cap is the decorative element that tops the newel.

Handrails start and end at the newel posts. Materials mirror those of the spindles.

Guardrails

At open spaces on stairs or landings, guardrails must be installed.

Landing

A landing is a horizontal platform that begins or ends a staircase or serves as a transition between changes in stair direction.

Recommended: Average Cost to Remodel a House

Estimating the Project Scope and Cost

Familiarity with the elements of a staircase is helpful when deciding on the design and organization of the staircase remodel, even if it’s going to be done piecemeal, like refinishing the stair treads now and replacing the spindles and handrail later.

If you’re plotting your stair remodel, you have company. There are several reasons that home renovations are on the rise. The work-from-home trend is one.

Your home should be a comfy haven, but it will also likely turn out to be an investment that can help build generational wealth in your family.

Among these stair makeover ideas, minor ones can be done yourself. Others will require a licensed professional and a loan, such as a personal loan, unless you’re paying cash.

Painting the Stairs

Using paint made to withstand wear and tear is essential for the paint job to last. Look for floor, deck, or heavy-duty paint. Water-based, not oil-based, paints will prevent discoloration, especially on light colors.

Painting stairs requires proper preparation (cleaning and sanding), protecting neighboring surfaces, and possibly priming so the paint will adhere correctly.

Count on an average of $600 to paint all the corners, handrails, and balusters, plus $350 to $450 to paint the stairwell.

If this is a DIY job, a gallon of latex paint will average $20 to $50. Polyurethane to help protect the new paint finish might start at $50 per gallon. Sandpaper, paint rollers or brushes, tape, and drop cloths could add up to $70.

Stairs and age are often not a great pairing. As more people consider an accessory dwelling unit for an aging parent, that might mean an adult child moving into the two-story family home.

A new paint job, perhaps using light and dark colors on different parts of the staircase, will go a long way toward making it more inviting. Painting just the risers a bold hue can add interest, and some people even create a painted runner for their staircase remodel.

Refinishing Stairs

Refinishing stairs is a much more daunting task than painting. This involves stripping the current finish with solvents and sanding, which is easier to do on flat stair treads than turned spindles or vertical risers.

You’ll want to check for lead paint before you start stripping the paint.

You’ll need paint stripper ($50 per gallon and up), a premium heat gun (as low as $30), a power sander and sandpaper ($30 to $100), heavy-duty rubber gloves and a respirator mask ($45), and a scraper (as low as $8) to strip the original finish. Oh, and lots of time and patience.

If you’re getting bids to refinish hardwood stairs, the width and length of every step, along with the rise of each, will factor in. The price to refinish hardwood stairs and railings ranges from $4.50 to $8 per square foot for materials and labor.

Recommended: How Much Is My House Worth?

Replacing Staircase Components

Swapping elements like spindles, newels, caps, and handrails for a different style can dramatically change the overall look of a staircase.

If the staircase has historic elements, getting spindles or other pieces to match other elements in the home might require custom work if replacements can’t be found through architectural reuse or salvage sources.

Replacing carpet-covered treads with wood treads can rectify an outdated look, but realize that you may have to contend with lots of nails and staples under the carpet. Crowbar needed, stat. A contractor might charge $75 to $300 to remove the carpet.

The balusters will have to be replaced if you’re replacing the treads.

Here are some average replacement and installation costs, according to HomeAdvisor:

•   Handrail: $340 to $580

•   Newel post: $35 to $550

•   Balusters: $1,200 to $1,600

•   Treads and risers: $1,800 to $2,500

•   Carpet runner: $500 to $2,000

Expect to pay from $70 to $150 per hour on labor, and factor in any necessary permits, HomeAdvisor says.

Another source puts the cost of replacing the treads and risers at $3,000 to $4,000, including the work of master carpenters. Yes, you’ll see a range of estimates out there. If you’re getting bids, a lot depends on where you live, your choice of materials, and the size of the project.

Total Replacement

Completely replacing a staircase is logistically and financially complex, but a millennial homebuyer, for example, might want floating stairs with open risers rather than a chunkier look.

Consulting a building or remodeling professional, such as a licensed construction engineer or residential architect, about safety and fire codes and potential structural implications for the home is a good step to take.

The cost to install a main staircase averages $2,000 to $5,000, according to Fixr. But the site gives a range of $15,000 to $100,000 to put in a floating staircase, so only bids will narrow the true cost of your staircase install.

Competent staircase installers may cost as much as the staircase itself.

Recommended: Common Uses for Personal Loans

The Takeaway

Stair makeover ideas include the fairly simple and the wow-worthy, and the cost of a staircase remodel ranges from a few hundred dollars to tens of thousands. Installing a new staircase will typically require several professionals.

If a staircase remodel or new staircase install is on your mind, one way to get quick cash is with a personal loan. SoFi offers fixed-rate personal loans of $5,000 to $100,000 with no fees and no collateral needed.

SoFi offers unsecured, fixed-rate personal loans that offer lower interest rates than you’ll typically find with credit cards. Checking your rate takes just 1 minute.

Fund your home improvement wish list with a SoFi Personal Loan.

FAQ

How much does it cost to redesign a staircase?

An architect and contractor may be required to structurally redesign a staircase. A staircase remodel, if done by the homeowner, could cost less than $1,000.

How do I modernize my stairs?

Consider changing out dated handrails. Paint can take years off.

Add a punch to the risers with eye-catching paint, tile, or even wallpaper. Consider a bold-colored or -patterned stair runner that allows the stair treads to be exposed at the edges.

A dramatic light fixture at the top of the stairway will offer both illumination and arty interest. And stair cladding — covering the treads and risers with wooden floor planks — will create a big transformation.

How do you renovate stairs on a budget?

Making less expensive changes, like adding a coat of fresh paint, replacing spindles, or adding a runner, can completely change the feel of a staircase — and the living space that surrounds it, making a house feel like a home.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Ethereum 2.0 is the latest upgrade to the Ethereum blockchain network, shifting it from a proof-of-work to a more efficient proof-of-stake consensus mechanism.

As Ethereum gained widespread recognition and adoption within the crypto space in recent years — it’s the second-largest crypto project after Bitcoin — some elements of the network required upgrades. As one of the most innovative blockchains in the DeFi space, Ethereum struggled with transaction times and scalability, among other issues.

The move from a proof-of-work consensus system to a less energy-intensive, more efficient proof-of-stake model aims to address those challenges. This massive overhaul has been termed The Merge.

What Is Ethereum 2.0?

To understand Ethereum 2.0 and its upgrades, you must have a basic understanding of what Ethereum is.

What Is Ethereum?

Ethereum is a form of crypto, of course, but Ethereum is best known as one of the most successful programmable blockchain platforms, with the capacity to support smart contracts, dApps (decentralized apps), non-fungible tokens (NFTs), and other DeFi projects.

The Ethereum native token is the Ether (ETH), and it’s used to fuel operations on the blockchain.

The Ethereum platform launched in 2015, and it’s now the second largest form of crypto next to Bitcoin (BTC), with a market capitalization of about $193 billion, as of Jan. 30, 2023.

Ethereum’s History of DeFi Innovation

The larger idea for Ethereum was to create a programmable blockchain that would enable a sort of free market environment, where developers could create decentralized applications (dApps), smart contract, and other DeFi programs without any control or interference from a third party.

Historically, Ethereum relied on a proof-of-work (PoW) consensus mechanism in order for miners to validate transactions and earn Ether (ETH) or gwei, a denomination of ETH used to pay for DeFi goods and services on the network.

In proof-of-work mining, high-powered computers solve complex mathematical puzzles needed to validate blocks of data or transactions.

Ethereum users can also create code used to build dApps and smart contracts. Smart contracts can execute transactions without a middleman, like a bank or regulator, once certain conditions are met. This innovation set Ethereum apart from other crypto projects, and it has inspired other crypto platforms to launch similar features.

Limitations of Ethereum

Because the Ethereum network has long attracted developers and other innovators, it has experienced growing pains, so to say, that have limited its ability to scale efficiently. In particular, Ethereum has been criticized for long transaction times and high fees.

Ethereum 2.0, or The Merge,”aims “to improve the network’s scalability, security, and sustainability,” according to its creators. As such, it’s hoped that improvements in those areas will be the primary ETH merge impact.

Those goals address several of the network’s key limitations: It needs to be faster, less vulnerable to threats, and eat up fewer resources. Of course, there are challenges to put these changes in place. Programmers have spent many years working on Ethereum 2.0, and though some changes have already been implemented, others will be phased in over the coming years.

How ETH 2.0 Solves Some Limitations

The most critical element of the move to Ethereum 2.0 is the transition from a proof-of-work algorithm that allows the network to be more nimble and efficient. While the proof-of-work system is still used by other crypto networks (most notably Bitcoin), many others are adopting alternatives.

The move to a proof-of-stake consensus mechanism eliminates the need for miners, which reduces the amount of resources required to keep the network’s integrity in check.

While the discussion about proof-of-work versus proof-of-stake algorithms is worthy of a conversation in and of itself (see below), the adoption of a the proof-of-stake system by Ethereum helps solve many of the issues (again, scalability, security, and sustainability) that the network previously experienced.

When Was Ethereum 2.0 Released?

The upgrades to the Ethereum network are being implemented in phases, and many features of the new network were established by late 2022.

The transition began with the introduction of the Beacon Chain in December 2020. During 2022, other upgrades were phased in, including a merge with Ethereum’s mainnet with the proof-of-stake Beacon Chain. The next phase will include a blockchain management strategy known as sharding sometime in 2023 or 2024.

What Are the Upgrades to Ethereum?

As noted above, the move toward Ethereum 2.0, or the Merge, has been accomplished in stages.

The Beacon Chain

The Beacon Chain introduced a new staking concept (proof-of-stake) to the platform. It launched before many other upgrade components because it’s a cornerstone to Ethereum 2.0’s system and needed to be in place for other components to work on top of it. The Ethereum merge date was in September 2022.

The Ethereum Mainnet Merge

The merge concerns the marriage of the existing Ethereum mainnet (Ethereum’s main network) with the Beacon Chain’s proof-of-stake protocol, as discussed.

This change is now live, and as a result, crypto mining is no longer needed to generate ETH, and instead, the network uses a staking system in order to create additional Ethereum tokens. This change has reduced the network’s energy consumption by more than 99.9%.

These two steps — the launch of the Beacon Chain, and the mainnet merge — paved the way for the next part of the transition: The introduction of shard chains.

Shard Chains

By introducing shard chains, which is scheduled to happen within the next year or two, the Ethereum network will have more capacity and speed, giving it the ability to handle more traffic.

“Sharding” is a bit technical, but it basically means that a database will split up to disperse the load of transactions on the network. Sharding reduces congestion and speeds up transactions, allowing the network to store and process more data in a shorter amount of time. Plus, more people will be able to participate on the network after it is sharded.

Ethereum 2.0 Staking

Remember: Ethereum 2.0 represents a full transition to a proof-of-stake protocol from a hybrid system that uses both proof-of-stake and proof-of-work.

Staking, in general, is the process of locking up cryptocurrencies to earn rewards. It’s like putting your cash in a savings account and accruing interest. Staking is a process used to validate data and transactions in a blockchain network, which is why and how Ethereum uses it.

Recommended: What Is Crypto Staking?

Understanding Proof-of-Stake

With a proof-of-stake system, users validate block transactions based on the number of coins they hold. Basically, the more ether a user has, the more mining power they possess. As discussed, mining isn’t necessary under a proof-of-stake algorithm (not the case for proof-of-work).

That means that the process requires less energy and mining power — fewer resources overall — to keep the network running.

The Difference Between Proof-of-Stake and Proof-of-Work

Proof-of-work, conversely, is the original algorithm used by blockchain networks. On this protocol, users “mine” new coins, as they would on the Bitcoin blockchain, to earn rewards.

Mining is extremely energy intensive, which is one reason Ethereum 2.0 is moving to proof-of-stake.

Recommended: Is Crypto Mining Still Profitable in 2023?

A proof-of-stake algorithm will also bring less risk onto the network, has stronger support for sharding, and is more efficient — all upgrades over the proof-of-work system.

Summary: Ethereum vs Ethereum 2.0

To wrap it all up, Ethereum 2.0’s rollout is designed to make some significant improvement over the old Ethereum network, and make it more secure, sustainable, and increase its scalability. Here’s a brief rundown of the major differences, as they relate to crypto investors:

Ethereum vs. Ethereum 2.0
Ethereum	Ethereum 2.0
Proof-of-work algorithm	Proof-of-stake algorithm
Required mining to generate ETH	Users stake tokens to earn ETH rewards
Slower and more resource-intensive	More secure and energy-efficient

What Will Happen to My ETH?

There is no immediate impact to ETH holders as a result of the rollout of the Ethereum 2.0 project. While the network is getting upgrades, there’s no change to ETH itself, and investors shouldn’t need to do anything. Be suspicious of anyone who says otherwise, as crypto scammers may try to take advantage of the transition.

As for how the rollout has impacted prices for Ethereum? It’s hard to say for sure, as there are numerous factors affecting crypto prices at any given time. You can, however, check the ETH price now to get a sense of the value of your Ethereum holdings.

The Takeaway

Ethereum 2.0 is a series of upgrades to the Ethereum network, which introduces a new proof-of-stake system that makes the network, as a whole, more efficient and secure. While the multi-year rollout of the upgrade has begun, hopes are that Ethereum will become bigger and safer over time, while reducing its environmental impact, setting it apart from other types of cryptocurrency.

FAQ

Has Ethereum 2.0 come out yet?

Ethereum 2.0 is a series of upgrades that are being rolled out in phases, some of which have come out, or have gone live. The process is not complete, though, and likely will finish within the next couple of years.

Did Ethereum 2.0 replace Ethereum?

Yes and no. Ethereum and Ethereum 2.0 are still more or less the same as they were, but the network has changed or been replaced, in a sense. Ethereum 2.0 isn’t so much a replacement for Ethereum, as it is an upgrade to its system.

How are Ethereum and Ethereum 2.0 different?

The most impactful difference between Ethereum and Ethereum 2.0 is the introduction of a proof-of-stake consensus system, which makes the network faster, more secure, and more scalable, while reducing the amount of resources needed to generate new ETH.

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Photo credit: iStock/Pekic

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