On November 4th, Danny Ryan, the head of the Ethereum 2.0 project, released the ETH2 deposit contract and announced that the proof of stake (PoS) version of Ethereum will finally be launched on December 1. As of press time, Ethereum enthusiasts have deposited 52,961 Ether, which accounts for 10.1% of the contract’s online requirements. (Click on the link for real-time data) But why do people deposit money in a network that has not yet launched? Why is it a wise decision to become a validator of the second most popular blockchain? What is special about ETH2 validators? Why ETH2.0 is “a safe haven for lazy verifiers” and so on, this article will interpret the benefits, costs and risks of becoming a verifier.
The “entry ticket” for ETH enthusiasts to join the Ethereum 2.0 verification process is not cheap. The minimum pledge deposit is 32 ETH, which is almost $14,350. At the same time, there are many impressive economic and technical catalysts for participating in the Ethereum 2.0 pledge. Based on this, first explain the 5 reasons to become a validator of Ethereum 2.0:
1. Ethereum 2.0 provides a very high annual pledge reward.
2. Before the launch of Ethereum 2.0, FOMO may promote the price of Ethereum.
3. The Ethereum project has a five-year history, has a passionate community and a lasting reputation.
4. Intuitive deposit process through Launchpad.
5. “Tolerant” rules for verifiers (lower than uptime requirements).
Pledge reward
Ethereum co-founder Vitalik Buterin pointed out in a recent article on the Proof of Stake (PoS) consensus that a 15% annual reward is enough to motivate people to pledge investment.
According to data from StakingRewards.com, almost all returns of 15% and above are provided by early or less well-known projects. Only Ethereum’s competitors Zilliqa (ZIL) and Near Protocol (NEAR) can compete with ETH2’s estimated rewards, with APYs of 21% and 15%, respectively.
In contrast, none of the 20 big coins that can be pledged can provide more than double-digit rewards. Therefore, 15% of ETH2 looks like a good opportunity.
FOMO spread
The excitement surrounding Ethereum 2.0 is far from its peak. According to Google Trends, interest in “Ethereum 2.0” in Google searches has dropped by 77% globally compared to the all-time high reached at the beginning of August this year.
For American users, this indicator is down nearly 60% from its high point. However, in mid-October, Ethereum continued to rebound, and interest in buying Ethereum could catalyze a substantial price increase.
Old and strong
Although Ethereum 2.0 and Ethereum 1.0 are not the same network, and some crypto entrepreneurs even refuse to regard it as a relationship between predecessors and successors, the new Ethereum is maintained and developed by the same team and community. Unlike DeFi products that are usually created from scratch, ETH2 will retain the credibility of ETH1.
Therefore, users should not be afraid of delisting scams, “wholesale” or hidden Ponzi schemes.
ETH pledge
The Ethereum 2.0 team reiterated that it is not possible to send funds directly to the deposit contract address, otherwise the transaction will fail. Ethereum enthusiasts should use the ETH2 Launchpad (click to enter the pledge page) to achieve pledge.
On Launchpad, every potential depositor can find a three-step manual on how to join the Ethereum 2.0 deposit. Potential verifiers should read the verification rules, create unique verifier keys, and transfer their rights to the deposit environment.
As of press time, supporters of Ethereum (ETH) have the opportunity to join the validator team without any intermediaries, such as pledge entities or exchanges.
With the launch of the highly anticipated phase 1 of Ethereum 2.0, it is expected that someone will defraud users to deposit ETH into fake addresses. For this reason, we recommend using trusted sources such as the Ethereum Foundation, Etherscan, and ConsenSys to check addresses.
The cost and risk of staking
Participating in Eth2.0 Staking to get rewards is not a free lunch. In addition to the possible penalties for verifiers, users need to consider many things before becoming verifiers (stakers). The following factors are factors that every validator should weigh when considering whether participating in staking is “worthy”:
(1) Calculate the cost
The user needs to run at least the verifier client and most likely need to run 1 beacon node. A rough estimate is that the annual cost of running a beacon node is $120, and the annual cost of running a validator client is $60.
The user must obtain the necessary 32 ETH, which can be obtained through purchase or mining;
When ETH is pledged, the pledger cannot directly sell the pledged ETH;
If the pledger wants to withdraw (withdraw from the system), the system sets a waiting time. But according to the latest Eth2.0 specification version, this waiting time has been greatly shortened.
(2) Code risk
Users also need to consider the code risks associated with staking. This risk will attract more attention in the early stages of staking and may dissipate over time. We need to distinguish between “client code risk” and “consensus code risk”, which is very important. If the network has a consensus code risk, it can be solved by a network hard fork; however, the client code risk is more serious because it is difficult to distinguish it from malicious attacks.
(3) Overall uptime and maintenance cost
Users need to ensure that the validator node does not go down, otherwise the pledge deposit may be reduced. If a user runs multiple validator clients, maintenance costs and concerns about infrastructure will be greater.
(4) Security risks
In addition to the client code risk, the pledger also needs to provide a secure verifier client operating environment (including ensuring the security of the Internet connection, operating system, and hardware facilities). If the verifier’s client is attacked due to a security failure, causing client downtime and/or misbehavior, there is currently no way to recover funds.
This risk is similar to the theft of ETH in the wallet due to an attack on a computer or mobile phone. While decentralization brings autonomy, it also brings self-responsibility.
A safe haven for lazy validators
All pledgers in the Ethereum 2.0 blockchain should keep their devices (high-performance computers) online for most of the verification period. Those who fail to synchronize with the network may be punished and prevented from participating in the next stage of activities.
The minimum running time of validators in Ethereum 2.0 can be reduced to 60%, and Vitalik Buterin claims that it has “tolerant” penalty rules. Therefore, compared to other PoS systems with strict requirements and high uptime, ETH2 Staking may be much more comfortable for novices.
Write at the end
For ordinary users, if they want to directly participate in Eth2.0 Staking, it means that they not only need to hold and pledge at least 32 ETH, but also need to understand how to run beacon nodes and validator clients, and measure participation in Staking. Possible cost requirements and risks, etc. At the same time, some third-party service providers for Eth2.0 staking will also provide participating services for ordinary users, so that users do not need to run beacon nodes and verifier clients themselves. Of course, users need to pay a certain fee, and there are also The corresponding centralization risk. In short, becoming a validator in Ethereum 2.0 in 2020 is a thing worth trying.
