Risks you need to know before participating in the Ethereum 2.0 deposit contract

The deposit contract of Ethereum 2.0 has finally been deployed and enabled, which means that Ethereum is only one step away from Phase 0 of 2.0. As long as it can attract more than 16,000 validators to participate in staking, the Phase 0 network will be officially launched on December 1.

The Ethereum Foundation published several important updates of Ethereum 2.0 on its blog. In addition to releasing the official 1.0 version of the Ethereum 2.0 technical specification, it also confirmed the deposit contract address of the main network (0x00000000219ab540356cBB839Cbe05303d7705Fa) and the creation time of Ethereum 2.0: the block height is greater than 1,606,824,000, which is around 12 noon on December 1st UTC time.

Tips: If you can’t remember the deposit contract address that looks like a garbled code, it doesn’t matter. The official Ethereum domain name depositcontract.eth has been registered, which will directly locate the contract. The domain name has been renewed until 2150, and the ownership of the address has been destroyed, which means that no one can change the specific address located by the domain name before then.

But before that, it is necessary to attract enough validators to participate, otherwise the network will not be launched at the minimum block height. According to the design of Ethereum 2.0, the 2.0 beacon chain will only be officially launched when 16,384 (2 to the 14th power) validators participate. Otherwise, the mainnet will not be launched until 7 days after this lower limit is reached.

Each validator needs to lock 32 ETH (2 to the power of 5) to the staking contract, which means a total of 524,288 ETH needs to be staked, which is more than $200 million (at $400).

In addition, validators also need to run Ethereum 1.0 and 2.0 clients at the same time. They can choose one of the four 1.0 clients and one of the four 2.0 clients to improve the decentralization of the network. Interestingly, the order in which Ethereum recommends these clients on the website is also random.

In just a few hours after going online, more than 14,000 ETH have been deposited, and it is still growing rapidly, but there is still a long way to go to reach the target.

What is Ethereum Phase 0?

Ethereum 2.0 will be divided into at least 3 phases. In Phase 0, the "beacon chain" will be launched first, which will serve as the random number generator for the entire 2.0 network. In the subsequent Phases 1 and 2, functions such as sharding and smart contracts will be gradually enabled. Validators will provide transaction verification services to the corresponding shards based on the random allocation of the beacon chain.

How to become a validator?

The Ethereum Foundation has produced a complete set of tutorials to help more people understand how to become a validator, the risks, and the specific steps more easily.

The whole process is divided into multiple steps:

• Overview: Mainly to let users understand the background of Ethereum 2.0 and the corresponding risks;

• Client: Users need to select the corresponding Ethereum 1.0 and Ethereum 2.0 clients;

• Generate private key: Users need to use a specific tool (eth2.0-deposit-cli) to generate private key. It is recommended to do it offline and make a backup.

• Upload the authenticator certificate: upload the file just generated by the tool;

And then you need to connect the wallet, confirm and send the final transaction.

Ordinary users are not recommended to participate?

The official said that it has been mentioned many times in the tutorial that since users may encounter software bugs or be punished (Slashing) due to bugs, they also need to bear the risk of being able to transfer funds at a later stage and have the technical ability to run nodes.

For ordinary users, becoming a validator requires taking on many risks, so it is recommended to read the official documentation carefully before considering becoming a validator.

One-way ticket?

Currently, the process of ETH from Ethereum 1.0 entering the 2.0 deposit contract is one-way and cannot be reversed at this stage. According to official documentation, after the first phase of Ethereum 2.0, validators may be able to transfer funds, and after the second phase, validators can withdraw this part of the assets to a specific shard. The entire development process may take 2 years.

The reward for taking the risk?

Because of the risk of not being able to withdraw funds for at least 2 years, coupled with the inflation mechanism of Proof of Stake (PoS) itself, all validators can receive additional rewards from the entire network during and after this period, while ETH in Ethereum 1.0 is currently unable to receive corresponding rewards.

If the staked amount reaches the beacon chain's minimum listing standard of 524,288 ETH, these validators can obtain an annualized rate of return of approximately 21.6%. As the number of validators increases, the APR will gradually decrease to a minimum of 4.9%.