Practical Tips | Common Questions and Answers about Beacon Chain Staking

Source: Ethereum Fans (https://ethfans.org/posts/beacon-chain-staking-faq-by-ethfans)

Editor’s Note: The main purpose of this article is to remind everyone of the risks of participating in the Proof of Stake (PoS) project known as “Ethereum 2.0” or “Eth2.0”, and also to help everyone understand it in this explanation. Given that the project currently has only one of its design components, the “beacon chain”, the “beacon chain” will be used to refer to the so-called “Eth2.0” below. I believe that after reading the answers to these frequently asked questions (and the accompanying materials), everyone will understand this choice.

1. What basic concepts do I need to master?

What is Eth2.0?

Eth2.0 is a blockchain architecture proposed by the research team of the Ethereum Foundation (EF), which aims to realize a blockchain with proof of stake as the consensus mechanism and sharded execution. This part of the research is derived from the vision that EF has made public since its inception (a blockchain that realizes proof of stake consensus) and has been led by the EF research team. It is expected that after such an architecture is available, its startup state will inherit the account state of the current Ethereum Blockchain Mainnet at a certain moment, so it is called "Ethereum 2.0".

In terms of implementation steps, EF is planned to be launched in three phases, with each phase adding a component and a part of the functionality. So far, the design of the third phase ("Phase 2") has not been completed; the technical goals of Phase 1 may also be adjusted.

Currently, ETH holders on the Ethereum blockchain can participate in the "beacon chain" (Phase 0) which runs on the Proof of Stake (PoS) mechanism. In design, the beacon chain is the core of the entire sharded execution system, but this core has no execution function (we will see the impact of this later).

For more information, please visit: https://ethereum.org/en/eth2/vision/

What is a validator?

When talking about the beacon chain, a validator is a participant in the PoS consensus process (just like a miner who submits proof of work in the PoW consensus). The beacon chain validator forms the blockchain by voting on blocks and receives block rewards after reaching consensus.

What is the Proof of Stake consensus mechanism?

Proof of Stake is a consensus mechanism that determines the probability of a participant becoming a block producer and the voting weight when voting on a block based on the amount of resources (such as tokens) they possess in the system. Blocks that receive support from the majority of participants become part of the main chain. Supporters of the main chain blocks will also receive additional tokens as rewards.

The PoS mechanism used by the beacon chain is the "Casper FFG algorithm" + "LMD-Ghost fork selection rule". The two sets of rules jointly define what validators should and should not do at different times. Following the guidance of the rules will earn you rewards, while violating the rules will result in penalties.

How often does the beacon chain produce blocks?

The basic time unit of the beacon chain is not a "block", but a slot and an epoch. A slot is 12 seconds; an epoch is 32 slots, or 6.4 minutes. Whenever an epoch ends, the validators will assign each validator to a slot in the next epoch to participate in the voting (called an "attestator") according to predetermined rules (and the state of the beacon chain at that time); at the same time, each slot will also have a dedicated validator responsible for proposing blocks (called a "proposer"). If the proposer of a slot is offline at the time, the slot will not be able to produce a block, forming a "missed" slot. Therefore, how long it takes to produce a block on the beacon chain is uncertain. Ideally, a block can be formed every 12 seconds.

So are the rewards for validators distributed once for each block produced?

No. The rewards and penalties of validators are settled once every epoch. Every time an epoch ends and a new epoch begins, validators settle the validator rewards and penalties of that epoch according to predetermined rules, thereby determining the voting weights of different validators in the new epoch.

How to become a validator?

First, you need to send ETH to the deposit contract 0x00000000219ab540356cbb839cbe05303d7705fa on the current Ethereum blockchain and provide the withdrawal public key and verification public key you arranged for the validator, then wait for about 7.5 hours to register as a validator. After successful registration, your validator will need to queue in the candidate queue for a period of time before actually participating in the PoS consensus and receiving rewards. The length of this time depends on the length of the queue (because the number of validators that can enter the "active validator" set from the candidate team is limited for each epoch).

The operation is very complicated. Please do not do it manually. Be sure to use https://launchpad.ethereum.org/ (validator quick launcher) to complete the deposit operation . Please look for this website and check the address of the contract your transaction is sent to. Do not deposit tokens other than ETH.

An introduction to the website can be found at: https://ethfans.org/posts/eth2-validator-launchpad

Secondly, you need to have a computer that you can control, with stable power and network supply, and hardware of a certain level, running a client software that controls your validator private key and participates in the consensus of the beacon chain in real time. For specific requirements, see the "Operational Recommendations" section below.

What is a validator key?

There are two key pairs associated with a beacon chain validator. One is called the "verification key pair", and the private key of this key pair is used by the validator to sign and send attestation messages when participating in the consensus; the other is called the "withdrawal key pair", and the private key of this key pair is used to retrieve the funds under the name of the validator after the validator completely withdraws from the validator team.

You need to keep both private keys by yourself. If the verification private key is leaked, others can use your private key to send witness messages, causing your verifier to be severely punished; if the withdrawal private key is leaked, others can take away all your funds before you after your verifier exits.

Both public keys need to be submitted to the deposit contract when depositing the deposit (again, unless you are very familiar with the relevant cryptography and smart contracts, please use the boot process and the tools provided by https://launchpad.ethereum.org/ to complete the operation).

For an introduction, see: https://ethfans.org/posts/validated-staking-on-eth2-4-keys

What client software did you just mention?

Yes, you need to run some software that hosts your verification private key and constantly sends and receives messages in the network to participate in the PoS consensus of the beacon chain. After all, from the perspective of the beacon chain (other validators), a validator is a key pair with some money in his name and needs to keep sending witness messages. If you don’t participate in the consensus, your money will be lost.

Specifically, your computer needs to run two types of software: (1) an "Eth1 client" such as Geth, OpenEthereum, Nethermind, or TurboGeth; (2) an "Eth2 client" such as Lighthouse, Prysm, Teku, or Nimbus. You only need to choose one of each.

Different software has different performance, hardware requirements, and compilation difficulty. As for its security, I'm sorry, there is no way to endorse the security of any software. Here are some deployment tutorials:

• Ubuntu OS + Geth + Prysm: https://ethfans.org/posts/guide-to-staking-on-ethereum-2-0-ubuntu-medalla-prysm

• Linux + Nethermind + Lighthouse: https://ethfans.org/posts/using-nethermind-to-run-a-validator-in-eth2

• Video tutorial: https://www.bilibili.com/video/BV1x541157FC

II. Rewards, penalties, and risks

I want to participate in the beacon chain. I heard that the rate of return for early participants is very high. Is this true?

The quick starter website also provides a rough tool for calculating the (purely quantitative) annualized rate of return. In a nutshell: the issuance rate of assets on the beacon chain is inversely proportional to the sum of the validator's effective balances; the lower the effective balance (the smaller the deposit at the beginning), the higher the issuance rate, and the higher the annualized rate of return of the validator, and vice versa.

The effective balance can be regarded as the voting weight of the validator, which is different from the validator's current balance (how much money can be withdrawn if it exits immediately). For an introduction, see: https://ethfans.org/posts/understanding-validator-effective-balance

In addition, on the beacon chain, rewards are not evenly distributed. Casper FFG and LMD-Ghost have formed a rather complex set of rules to arrange rewards and punishments for validators based on their different performances in each epoch. Therefore, you can say that the rate of return for each validator is different, and some validators can obtain a higher rate of return than the average of the entire network.

However, there are other factors that prevent you from simply regarding it as “annualized rate of return based on ETH”, because as mentioned above, by design, the beacon chain only has the ability to form consensus, not execution, so the income earned by users on the beacon chain cannot be transferred on the beacon chain; secondly, at the current stage, these income (and principal) cannot be returned to the Ethereum blockchain; finally, in order to support the circulation of these income and principal at the protocol level, we must wait until the system with the beacon chain as the core has execution function, and there is no clear timetable for this. (From the current point of view, it is unlikely to launch the execution function within a year. Even if everyone aims to achieve availability as soon as possible, there will be some conflicts between short-term needs and long-term needs.)

What are those rewards and penalties? I heard that as long as you don't go offline, you'll be fine?

The design philosophy of the beacon chain (Casper FFG + LMD Ghost) is: after the validator’s deposit is withheld, the validator can be curbed from destructive behavior through punishment; at the same time, they can be encouraged to cooperate with each other through differences in rewards.

Penalties can basically be divided into three categories:

(1) For behaviors that undermine consensus, such as a proposer proposing two different blocks in the same slot (double proposal); double voting and surround voting when executing Casper FFG voting; such behaviors are the most serious and will trigger the so-called "slashing";

(2) The penalty for offline validators is called "slacking penalty". In the period when the network has finality, the intensity of this penalty will be relatively small, roughly equivalent to the reward you would get if you participated in the consensus normally (if you participate in the consensus, you will get 3 yuan, then you will lose 3 yuan if you do not participate). In the period when the network does not have finality, this penalty will continue to increase as the lack of finality lasts longer.

(3) During the period when the entire network lacks finality, online validators will also be punished, but the intensity of this punishment is fixed and will not continue to increase. So it is not that you will be fine if you are always online. If the validators make large-scale mistakes, your normal validators will also be punished, but the punishment will be less. (The reason for this design is to prevent validators from intentionally not spreading or packaging witness messages of other validators in the period of lack of finality to profit.)

How do we define “offline”? The answer is that at the end of an epoch, if all blocks in that epoch do not contain a witness message from a validator, then they are considered offline. Therefore, the “online” requirement is not particularly strict.

The rewards are a little simpler:

(1) As an online block proposer, you can get "block proposal rewards" and "reporter rewards" (if the packaged block contains a report of the confiscated behavior, the block proposer can get this part of the confiscated deposit; this design may change in subsequent development)

(2) As an online witness, you can receive normal “FFG voting rewards”.

Among them, the more witness messages the block proposer packs in his own block (the messages are required to be packed for the first time), the higher the "block proposal reward"; and the faster the witness message is packed after the witness sends it, the higher the reward the witness receives - this is to encourage validators to cooperate with each other.

For the most detailed introduction to rewards and penalties for beacon chain validators, see: https://ethfans.org/posts/rewards-and-penalties-on-ethereum-20-phase-0

For an introduction to Capser FFG (Finality, Double Voting, Wrap-around Voting), see: https://ethfans.org/posts/casper-ffg-explainer-by-adiasg and https://ethfans.org/posts/casper-ffg-in-eth2-0

How severe are the fines?

The behaviors that will be fined include: double proposal blocks, FFG double voting, and FFG surround voting.

After being slashed, the slashed validator will face three types of penalties:

(1) A one-time basic slashing penalty is applied immediately upon being slashed; it is 1/32 of the validator’s effective balance (on the current beacon chain, slashing and penalties have been weakened, and may be increased in the future; however, this has not been discussed publicly)

(2) Continuous “offline punishment”; this is because the status of the slashed validator will be forced to change to “slahing”, in which he will be punished every epoch (the intensity is fixed at 3 times the basic reward); this punishment will be terminated after the slashed validator is “completely exicted”; (this duration is positively correlated with the number of validators waiting to exit)

(3) After the slashed validator enters the fully exited state, it will need to wait for 8192 epochs to get back its remaining funds. During this period, the system will impose further penalties based on the amount of deposit that was slashed within 18 days before and after the time when the validator was caught. If the amount of deposit slashed exceeds 33%, the penalty can be as high as 100% of the effective balance (i.e. up to 32 BETH).

If I neglect to allow my validator to remain offline, will my deposit be penalized and reduced to 0?

Generally speaking, no. When the validator's effective balance is less than 16 BETH, the validator will move from the "active" state to the "about to exit" state, waiting to queue for exit.

However, it is worth noting that the validator who is about to exit still needs to submit the witness message normally. If not, he will still be punished for slacking off and will continue to lose funds during this period until he exits completely.

For the state transition of the validator, see: https://ethfans.org/posts/understanding-the-eth2-validator-lifecycle

Can my validator voluntarily exit?

Yes, after 9 days of becoming an active validator, you can initiate an active exit request to change the validator status to about to exit and enter the queue waiting for exit.

Once the validator has completely exited, can I get my remaining funds back immediately?

No, if you have not been fined, you can withdraw your funds after 256 epochs after complete withdrawal; if you have been fined, you have to wait for 8192 epochs. However, it should be noted that at this stage, the funds cannot be transferred.

After completely withdrawing, can I still join as an active validator?

Unfortunately, on the current beacon chain, no matter if you are fined, actively withdrawn, or passively withdrawn, the relevant key pair can no longer become a validator again. However, you can replenish the deposit for your validator through the deposit contract on the Ethereum blockchain while your validator is still active (but this replenishment is not immediate).

In addition to the risk of being punished and the risk of development routes, what other risks are there?

The most obvious one is that there is also the risk of client software implementation, that is, the client software may be faulty. If you use a faulty client, of course you will be directly affected; but even if you don’t use a faulty client, you may still be indirectly affected because too many validators are offline and the network lacks finality.

When will the beacon chain be able to open the transfer function? What technical difficulties are there?

Once any of these functions are completed, the beacon chain can open up the transfer function: (1) enabling the beacon chain to have a simple transfer function (or even only enable the transfer function between validators); (2) realizing the merger of the Ethereum blockchain and the "beacon chain-sharding" system.

The former may be simpler, but it is inconsistent with the long-term goals of the project and violates the project's commitment to participants (increasing hardware requirements); as for the latter, it obviously requires longer development time and time to seek social consensus.

Moreover, no matter what technical goal is chosen, it will take a long time to make it safe enough. So I personally do not expect the transfer function to be available within a year. But this is just my personal opinion. And there are many variables.

3. Operational Suggestions

What kind of hardware do I need if I want to run my own validator?

You need a decent CPU, 16 GB of memory, a solid-state drive (consider 1 TB or more for safety), and a stable power supply and network supply. If there is no large-scale disconnection, you can guarantee positive returns if you are online for more than 50% of the time (but don't be offline for a long time).

Can I store my private keys in a hardware wallet?

Your withdrawal private key can be placed in the hardware wallet, but the verification private key must be placed in the client software to ensure the normal issuance of witness messages.

Is it possible to improve security by working on the hardware architecture or the generation of private keys?

Yes, but the relevant methods are very professional, so please be sure to seek help from professionals.

For example, the verifier client itself can be said to be a signer, so you can isolate the signer from other functions to ensure that the signer is not exposed to the external network. And so on.

Is there any decentralized third-party operation plan?

No, all third-party custody solutions require you to trust the third party. For example, if a third party holds your verification private key (you keep your own withdrawal private key), you still have to trust that the third party will properly operate the validator and will not cause you to be fined (so you and the third party must have a clear division of responsibilities). If you give your money directly to a third party and do not even keep your withdrawal private key, the level of trust is even higher (equivalent to depositing money into a centralized exchange). At present, no one can cash out BETH.

What about adding some smart contracts and tokens?

No, smart contracts and tokens can only allow you to obtain tokens on the Ethereum blockchain that correspond to the number of beacon chain assets, but the information on the issuance of additional tokens is still input through the information input mechanism, and this information input mechanism also requires trust (because there are too many variables in the benefits, service providers also need a certain degree of centralization to protect their own interests, which is inevitable).

IV. Others

Is there any tool that can help me check the current status of the beacon chain?

Block explorers: https://beaconscan.com/ and https://beaconcha.in/.

However, the terminology used on such websites may differ from that provided here.

Do validators have to queue up to enter and exit?

Yes, the design of the beacon chain PoS protocol itself makes the network very unstable if validators enter and exit freely at will. Therefore, both entry and exit require coordination by existing active validators.

(If you have other questions, please leave a message)