Ethereum 2.0 & Staking: What Is At Stake?
A Guide To Staking On Ethereum 2.0
I feel:
When people’s financial freedom is at stake, technology has to be made accountable and reliable. ETH 2.0 blockchain has a lot at stake with its upcoming 2.0 avatar
Ethereum 2.0 has one key critical vision to make their blockchain network more energy-efficient, fast, secure, and decentralized. To materialize the same they have decided to upgrade their network to support proof-of-stake consensus, which will consume >98 % less energy as compared to what it is consuming now with proof-of-work based mining.
So today we will explore how this beacon chain upgrade to support proof-of-stake will help ETH 2.0 achieve its most ambitious transformation in detail.
What Is Staking With ETH 2.0 & How Does It Work?
Staking:
IN Eth 2.0 staking is an act of depositing 32 ETH(Min ) or more, by any user, so that S/he can become eligible to run the required validator software and perform
- Transaction processing
- Store transaction data
- Approve and add blocks in the main chain
Note!
32 ETH is a must to become full validators, else if you have less ETH you can stake your ETH with some other pool of stakers, who will set the rewards for your contribution to their stake pools. DYOR is strictly recommended if you plan to stake in someone else’s pool, as there are some associated risks that can’t be ignored.
What’s The Main Objective of Staking in ETH 2.0?
The key objective of adopting( proof-of-stake) staking mechanism proposed in Beacon Chain Upgrade
- Encourage more decentralization
- Enhance blockchain security with more active validator node participation
To know more about beacon chain upgrade and its core objective, do read my article given below:
Eth 2.0 Proof-Of-Stake Explanation:
Proof-of-stake is a type of consensus mechanism, but what the heck is consensus? This is what we need to understand first before we dive deeper into PoS.
What Is Consensus?
Consensus in a decentralized & distributed system is a way of coming into an agreement in any given network, where everyone agrees on a single source of truth. When it comes to blockchains like Ethereum, which are in essence distributed databases, all the participating nodes of the network must be able to reach an agreement on the current state of the system(which becomes a source of truth for all the nodes). To reach such a state consensus mechanism is required
So what is a consensus mechanism?
It is a protocol that allows distributed network of nodes(or call it computers) to collaborate and work together in a secured environment. It builds consensus among all the database nodes, app servers, and other enterprise infrastructure.
Ethereum 2.0 is upgrading itself to Proof-of-Stake consensus to ensure all the nodes participating in its blockchain network are abiding by its PoS rule.
To further understands about consensus mechanism and its type
- Proof-of-Work
- Proof-of-Stake
Refer to my article below:
Proof-Of-Stake Consensus In Ethereum 2.0:
Eth 2.0 is all poised to adopt proof-of-stake consensus to achieve distributed consensus within its blockchain network nodes. Every user who decides to act as a network validator is required to put their Ether at stake, this act performed by these validators achieves the same functionality like
- validating each transaction and finalizing the block creation
- Bringing consensus among all the nodes to agree on the network state after each successful block creation
To further understand :
What is proof -of stake? deeply please refer to my article below :
Why Proof-of-Stake? What New It Is Going To Offer?
This move of Ethereum 1.0 to upgrade itself to Eth 2.0 has been largely driven by these key objectives, to make its network
- More secure
- More scalable
- More accessible
- More energy efficient
- More rewarding for stakers(validators)
All the above goals are proposed to be delivered once the Beacon chain merges with the MainNet
Proof-of-stake offers the following key benefits:
- Highly energy efficient, as with PoS, users will not be requiring lots of energy in creating blocks
- Highly accessible with a low entry barrier: As now anyone with a decent laptop and smartphone can act as a validator, which was not the case with current proof-of-work-based mining which required premium and expensive hardware.
- Preserves the decentralization fabric: PoS is designed to enable more network participation, which will lead to more network nodes and more decentralization.
- More scalability: PoS is designed to support layer 2 scaling solutions like sharding which is proposed to be implemented to help Eth 2.0 scale.
What Is At Stake & How To Stake in Ethereum 2.0?
If you want to contribute and help Ethereum 2.0 blockchain, become more secure and accessible, you just need to do one thing. You need to put the lovely ETH you have accumulated so far and let it be locked until Eth 2.0 sees its final migration.
And don’t worry, you will be rewarded for doing so,
“Yes your Eth is the actual asset which is at stake here ”
Having said that, there is one important caveat to becoming an Ethereum 2.0 validator
- If you want to become a full-time validator (like a miner in Ethereum 1.0) you need to have 32 Eth to do so. Yes it can be a big amount for the common retail investor, but don’t worry, you can still contribute your favorite project scale
- If you have less than 32 ETH, you can still be able to add a smaller stake to staking pools, created by some companies or users who are full-time validators.
Staking with 32 ETH :
If you have 32 Eth or more you can start as a full-time validator by staking your ETH. In order to do so, you need to run a validator software on your machine using Eth2 launchpad.
Eth2 Launchpad:
To stake, you need to run an Eth2 client, which is a local copy of the blockchain. This can take a while to download onto your computer.
Follow the below-given link and simulate the steps provided and do refer to the terms & conditions carefully before moving forward with your staking decision as a validator.
https://launchpad.ethereum.org/en/
1. Advisory and T & C:
The very first step is to read the given advisory and give your consent that you have understood them carefully before installing the validator client software and stake your ETH
You will have to accept all the t & c and complete the 10 steps of the same to move forward to software installation.
2. Choose Your Eth1 Client:
As Ethereum 2.0 is not yet on Mainnet, you are required to set up Eth 1 client that will help you process the incoming validator deposit from the mainnet(which Eth1 client). Eth 2 client is supposed to run parallelly with Eth 1 client till , the Merge phase of Eth 2.0 is completed.
The entire process to setup Eth 1 and Eth 2 clients is technical and if this is not your cup of tea, do take help from the expert
3. Chose your Eth 2 Client Software:
And set up a validator node. Every client type you choose comes up with a detailed doc to refer to. so do take advantage of the same.
4. Generate Key Pairs: For network authentication :
https://launchpad.ethereum.org/en/generate-keys
In order to access the Ethereum blockchain network, you will be required a security key pair, that will be used to authenticate you as a validator node. To do so you will have to complete the following key steps :
- Choose no of validator node you want to run
- Choose the OS your machine you want to plugin
- Download Deposit CLI to type and run your terminal commands. You can get the deposit CLI code piece from Github here:
Once you have downloaded and setup the Deposit CLI software, you can use the below-given instructions to get the security key pairs.
Generate Key:
Save Key:
You will get two types of key that need to be saved with utmost care
- signing_json key:
Once the key pair is generated, it is very important that you save the mnemonic, which will be displayed as shown below. Remember that you preserve them safely. Also, the Keystore file associated with each of your desired nodes has to be saved safely, this validator key store file can be located in the validator_keys directory of your system.
- deposit_data JSON key(Public key):
deposit_data JSON key is your public key that is associated with your validator node, this key will be required to upload in the upcoming steps
5. Upload Deposit Data JSON:
Once you have saved the deposit data JSON file in the previous step and accepted the T&C, you will be navigated to this screen, where you will be asked to upload this JSON file, as shown in the image below
You can locate the file in the validator_key directory of your local system and proceed with the uploading process.
6 . Connect Your Ethereum Wallet :
If you are able to successfully upload the deposit JSON data file, you will now be required to connect your wallet supporting the ERC-20 protocol. You can use any Ethereum wallet like Metamask, MEW, etc, from the options which pop up.
7. Final safety checks:
If you’ve already followed the setup instructions on the Eth 2 launchpad as discussed so far, you’ll know you need to send a transaction to the staking deposit contract. It is recommended that you check the address very carefully. You can find the official address on ethereum.org and a number of other trusted sites.
Make the ETH transaction on this address and you will be done.
What If You Don’t Have 32 ETH to Become Validator?
If you don’t have 32 ETH don’t be disappointed, you can still play your part by contributing into the staking pools, Some companies run their stake pools in which you can stake a smaller amount of ETH and earn rewards, in return for helping them function as validators.
Here is the list of some companies one can check :
Remember!
Staking your ETH with a third party can be risky and so it is recommended to do due diligence about the companies before making your decision.
What are your responsibilities as validators?
Being a validator you will participate in the consensus(PoS) of the Ethereum 2.0 protocol. You will act as a voter for every new block which gets created. The more votes a block gets, the more likely it is to be added to the chain.
Note! A validator’s vote is weighted by the amount it has at stake.
Now being a validator you have certain responsibilities which you need to adhere to
1. You need to be honest and active: To Be Rewarded
You are rewarded For:
- Proposing a new block
- Attesting that the new block is correct and can be included in a chain
- For actively participating & helping the network reach its consensus.
You are penalized If:
- If you are not active
- Minor penalties are given for inadvertent actions (or inactions) that hinder the consensus process
- Major penalties(or slashings) are given for malicious actions.
So if you behave appropriately and help the network perform optimally, you will be rewarded better, else you may attract a penalty
How you will be penalized if you go offline?
As the network depends upon the validator nodes to achieve its consensus and create the blocks, it is imperative that the majority of the validators are active and doing their job.
That’s why there are certain penalties based on these two scenarios given below
- If more than 2/3rd (a supermajority) of the validators are online and active, you will incur minor penalities for going offline, as there are still enough validators online for the chain to finalize.
- But if there are fewer validators than a supermajority, penalties are higher and harsher, since blocks do not finalize anymore.
So in case, there is the second scenario and you are offline you stand to progressively lose up to 50% (16 ETH) of your stake over 21 days. After 21 days you are ejected out of the validator pool. This ensures that blocks start finalizing again at some point.
How will you be penalized if you act maliciously?
If you act mail maliciously like, Attesting to invalid or contradicting blocks, you will suffer a slashing of your staked ETH. The minimum amount that can be slashed is 1 ETH, but this number increases if other validators are slashed at the same time.
The slashing is done to ensure there is a fair practice in the network and to minimize the losses from honest mistakes, but strongly disincentivize the planned attacks at the same time.
Benefits Of (PoS)Staking In ETH 2.0:
The ETH 2.0 vision is largely driven by the way it will migrate to proof-of-stake from proof-of-work, so let’s see how this migration will help validators and stakers, and more importantly how it will benefit the Ethereum network as a whole.
1. To Make Ethereum More Sustainable, More Energy Efficient:
As proof-of-stake consensus doesn’t require validators to own high-end energy-intensive machines, this will make Ethereum blockchain more environment-friendly and sustainable.
2. More Accessible & Secure :
As hardware requirements are not so stringent and one can use their laptops or smartphone too with decent configuration to act as a validator, the Eth 2.0 network will become more decentralized and accessible from across the globe.
As the network becomes more distributed and decentralized, it will eventually help in making it more secure and reliable.
Eth 2.0 Upgrades and Phases
The new Ethereum 2.0 avatar is proposed to go through the following upgrades
- The Beacon Chain Upgrade
- The Merge Phase
- The EIP 1559 Upgrade
I have covered these phases quite comprehensively, so please refer to my article below for an understanding of the same. It is highly recommended to do so, to understand proof-of-stake deeply.
Summary & The Way Forward:
I feel:
Ethereum 2.0 has given new hope to crypto enthusiasts and investors, with its proposed updates where it is targeting to overcome the key challenges of transaction scalability, network security, and sustainability. This new avatar looks extremely promising for the future of the crypto universe, as it will instil more trust and faith in this new kind of democratized and decentralized economy.
I wish and hope to see this upgrade rolling out in 2021–22 and bring some good news for the crypto market and to those crazy people out there who have a strong belief in Ethereum becoming a superpower in the coming future.
