Popular Science | The Harsh Reality That ETH Stakers Must Face

This article was published on the Ethereum Enthusiasts WeChat account, author: Adrian Sutton, translation & proofreading: Min Min & A Jian

Editor's note: The content of this article, in a sense, can be considered a cliché. When the author of Ethereum Weekly included this article, he commented, "those truths didn't seem that hard to me," meaning "I don't find anything hard to accept." In fact, the risks associated with validator operations are not hard to accept; what is difficult to accept is the long-term uncertainty.

If you plan to stake ETH on the Beacon Chain, you need to understand the full picture of this matter. Many articles describe how simple, cool, wise, and respectable it is to be a staker, but here I want to emphasize the harsh truths you need to accept before diving in…

1. Short-term Considerations

Since most people are familiar with this part, I will briefly go over it without detailed explanations.

Withdrawals Not Yet Open

You cannot withdraw your staked ETH and rewards yet (so once deposited, you cannot take it out). The timeline for the withdrawal feature to be opened is currently uncertain.

Penalties

Rewards on the Beacon Chain are not automatically earned—you need to run a node and fulfill specific duties. If the node you run fails, you will not only miss out on rewards but also face penalties.

If many validators fail to perform their duties during the same time period, the penalties will be more severe, leading to a situation where the Beacon Chain cannot finalize blocks.

Slashing

If you sign two competing blocks/checkpoints (indicating a contradiction), you will face slashing. The severity of slashing is greater than that of penalties and will result in your validator node being kicked out of the validator pool, preventing you from earning more rewards (and also from withdrawing). The amount of slashing depends on the number of validators slashed during the same time period (ranging from 0.5 ETH to 32 ETH).

(Note: Penalties mainly target validator downtime; slashing mainly targets validators engaging in behaviors harmful to consensus. Since validator actions are automated through client software, these two types of failures can be attributed to poor network conditions / choosing the wrong redundancy scheme / client software errors / network attacks. However, overall, penalties are much lighter than slashing.)

Rewards Automatically Decrease with Increasing Number of Validators

As the number of validators increases, rewards will automatically decrease. Therefore, the 0.00004 ETH you might earn for generating a correct attest message last week could drop to 0.00003 ETH this week, and possibly even less next week.

Thus, you need to accept the following key principles:

2. Key Principles

Protect Ethereum's Security at the Lowest Possible Cost

The purpose of Ethereum is to protect the security of the blockchain at the lowest possible cost. This applies to both Ethereum 1.0's mining mechanism and Ethereum 2.0's validator mechanism. This is why rewards automatically decrease as the number of validators increases. Ethereum does not need to provide excessive incentives because a certain number of validators is sufficient to ensure its security.

If in the future people believe Ethereum's security is still too high, the algorithm can be modified to further reduce rewards. Therefore, there is no guarantee of how much reward validators can earn.

In fact, proposals have already been submitted to reduce rewards. There have been considerations to lower rewards in the first upgrade in the future, but it was ultimately deemed unnecessary. Specifically, the proposal suggested setting a cap on the number of active validators during any time period, with the remaining validators entering a dormant state (thus unable to earn any rewards), and randomly selecting dormant validators in a continuous cycle. People believed this was unnecessary because even if the number of validators continues to increase at maximum speed, it would take at least another year to reach the cap. However, this proposal could still be implemented as it would significantly reduce the load on nodes.

Ethereum Puts Itself First

Whenever there is a trade-off between individual or group interests and the security and reliability of Ethereum, the Ethereum protocol and its developers always prioritize the Ethereum blockchain. After all, if the Ethereum blockchain has issues, no one benefits from it.

For example, in the Beacon Chain, there is a long waiting time before deposits take effect—Ethereum wants to ensure that the validator set does not grow too quickly to avoid security risks. It is indeed unfortunate for stakers to wait more than two weeks to become validators.

Please note that Ethereum is not intentionally making things difficult for users. If the Ethereum blockchain can run well regardless, the Ethereum protocol will try to accommodate all participants as much as possible. This is also related to protecting Ethereum's security at the lowest possible cost; if we improve the staking experience (without compromising security), people might be willing to accept lower rewards.

The Purpose of Ethereum Is Not to Make Stakers Rich

This is essentially an extension of the above two points, but it is worth further elaboration. While staking is interesting, it is actually just a means to ensure the security of the Ethereum blockchain. You might not realize this because the only current function of the Beacon Chain is staking, but this is only temporary. Ultimately, Ethereum 1.0 will merge with Ethereum 2.0, and the purpose of all staked assets is to ensure the security of on-chain contracts and transactions.

Remember, stakers are service providers in the Ethereum network, earning rewards by providing services.

Different people have different views on Ethereum (world computer? digital asset? currency? multi-faceted?). But one thing is certain: Ethereum will not make stakers rich. If stakers are not making much money, don’t expect any sympathy—unless security is threatened, rewards will not increase (don’t forget Ethereum's principle is "to protect Ethereum's security at the lowest possible cost").

Changes Will Not Stop

Ethereum is a blockchain that is always changing and upgrading. With the introduction of Ethereum 2.0 technology, Ethereum will undergo a series of significant transformations, but it will never stop there. After all, new ideas will always emerge, and new problems will always need to be solved.

These changes are significant for the entire Ethereum ecosystem, but they may not be so for specific individuals or groups. That is to say, stakers may need to invest more resources (for example, to achieve the merge, stakers need to run a full Ethereum 1.0 node), and the rewards they can earn and other factors will also be affected. What is true at one moment may not be true at another.

3. Good News

I know this may sound discouraging, but staking is not a mandatory option. If you think staking is not worthwhile, you can invest your money elsewhere.

Most importantly, once Ethereum 2.0 opens withdrawals, you can easily stop staking and retrieve your staked assets (provided you have not been slashed). It’s like buying a mining machine that you can sell at the original price after use, bearing any gains or losses incurred during the usage period.