Superphiz Presents: Responsible & Sustainable Staking on Ethereum

Transcript

01:09 - Presentation Introduction

hey i'm superfiz from the east acre community we're a group of ethereum enthusiasts who work to make more staking more accessible for everyone our overall goal is to promote the health of the beacon chain and i actually call myself the beacon chain health coordinator the eve staker crew regularly hosts events to help educate the community with a goal of lowering the technical barrier to entry for staking and welcoming a diverse population into our community we strive to be extremely inclusive and we want to encourage people who stake in any way from any place to join us today i'm going to talk about responsible and sustainable staking on the ethereum beacon chain for about 20 minutes i hope you'll find

that my talk is aimed at regular people who have an interest and i work very hard to leave out any complex jargon one point i want to make right away is that what is good for the beacon chain is also good for investors and people who hold ether this talk isn't necessarily about conservation it's about maximizing your long-term value in the ethereum ecosystem by making wise choices in regard to staking so before we get started today i want to give you a really brief overview about what you can expect to learn first i'll talk to you about what staking on the ethereum network means i'll briefly hit proof of work versus proof of stake and a few other concepts then we'll get into beacon chain health

02:09 - What's The Purpose Of This Talk?

what is the beacon chain why do we care about it why is it important that we as users make choices that support the health of the beacon chain and as investors how does that choice feed back into our investment is it really important the distinction to make and i know you'll enjoy hearing about it the third thing i want to talk about are the ways that you might stake on the ethereum network and what factors you should consider while making a decision about how to stake we'll get into the various options including solo staking pooled staking and exchange space staging we'll also cover important concepts you should know about while choosing a staking methodology like what it means to be trustless decentralized and open source the ethereum beacon chain went live with

proof of stake on december 21st 2020 and eligible stakers have been accruing rewards since then we're expecting the merge of the beacon chain and the ethereum main net to happen in late 2021 and for withdrawals out of the beacon chain to be enabled in 2022 let's get into a high-level overview of what staking on ethereum means ethereum was created as a proof-of-work network which is similar to how many other cryptocurrencies work in proof-of-work miners use powerful computers to validate transactions by solving complex mathematical algorithms the proof of work algorithm is just an arms race which means that as other miners join you have to increase your mining capacity

07:03 - What Is Staking?

in order to remain competitive the proof of stake algorithm of the beacon chain works somewhat differently proof of stake requires users to put up a bond of 32 ether and use that ether as collateral to prove that they're providing accurate information to the network proof of work was very useful as an initial distribution of coins but since most coins have been mined there's no real need to continue this energy intensive form of chain security for reference proof of stake uses about 1 10 000 of the energy that proof of work does and it can provide a higher network security option assumptions than proof of work because of increased decentralization and the inability to repeat attacks

so you're wondering how efficient can the proof of stake network be on the beacon chain early research by joe clappis shows that a raspberry pi can successfully run a beacon chain node and validator using the nimbus client and geth is the eth1 client his data suggests that the raspberry pi 4 will even be able to run the beacon chain when transactions are enabled in 2022 personally i'd still suggest that you select more power powerful hardware to run a staking node but the fact is this is possible is amazing could you imagine someone replacing a warehouse of asic miners with a raspberry pi so how does staking work when you submit this 32 ether

bond to the beacon chain you're offering to validate transactions and propose blocks for the beacon chain by completing this job you'll receive a micropayment every 6 minutes so in some ways staking on ethereum is like holding a bond it's low risk and it's low reward and that you don't need to sell your ethereum and you don't need to trade it so while you're staking you can expect to earn about seven percent return at the current rate compared to other opportunities in d5 this is relatively low but the risk is also low staking is intended as a long-term investment in ethereum not a get-rich-quick scheme while you're staking ethereum on the network one of your main responsibilities is keeping your validator online and active

if your validator goes offline for some reason you'll leak about as much ether as you would have gained if you had been online during the same period in addition to the micro payments every six minutes occasionally you'll have an opportunity to propose a block and receive an extra reward for a successful block proposal as an honest validator it's absolutely okay for your machine to go offline for a few minutes or even a few days with the knowledge that you'll leak a little bit of ether but you'll be able to recover that loss in an equal amount of time that you are offline many people have heard about slashings on the beacon chain and they have an unrealistic fear that it could happen to them slashing is when the network penalizes a validator for submitting false data for some reason

the only way you can actually get slashed is if you present dishonest this can happen in two ways the first way would require you to edit the code of your validator and force it to submit invalid transactions or invalid information the the other way the likely way you'll you might face a slashing is by running your validator keys in two places this essentially means running two computers with the same validator causing the beacon chain to think you're trying to cheat somehow so far on the ethereum beacon chain all slashings have been related to pools or people who have run staking keys in two places and so far there hasn't been evidence of anyone trying to break consensus rules if they did they'd quickly lose their

deposit and not have the resources to continue the attack this is one benefit of proof of stake attackers don't get to continue attacks like they would in a proof of work network once a potential attacker loses their deposit they would have to create new validators to continue so an attack on the proof of stake network quickly becomes extremely expensive in review staking on the ethereum network means putting up your bond of ether and using that bond to validate the network at each block in exchange for providing that service you'll receive small rewards in ether which add up over time this process is low risk and low reward and could be compared to staking in bonds

11:33 - How Is Ethereum Valuable?

investing with bonds so here's what i want to do we're investors we want to make money you're probably interested in ethereum because you think that you can make some money on it and that's great but i want you to put that aside for a minute and think about why you can make money on ethereum most of the examples you hear today revolve around defy and that's okay for example you can take out a loan with ethereum you can pay it back on the and you never have to deal with a bank that's great but i'd like to think about something bigger than that and i want to give a different example this isn't necessarily a better example it's just a different thing to get your mind going imagine that i'm sitting at dinner and i have a bottle of mustard on the table

my mustard has a code on it and i can scan that qr code when i scan it i can see where the bottle was manufactured when it was manufactured where the plastic came from for the bottle where the mustard seed came from and the history of the farm where the seeds were grown i can see where everything on that bottle of mustard came from back to the actual ground in the farm where the mustard seeds were harvested from and potentially beyond that all conveniently linked in a browser it doesn't make a lot of financial sense to be able to track that bottle of mustard but imagine being able to track anything in that way not by filing requests or searching the internet but just by clicking a few links to follow the thread you're

interested in imagine supply chain management on the blockchain and supply chains fold into other supply chains and as all of that comes together it gives us a view of the world that really shows the potential of what ethereum smart contracts can do on a grand scale now don't stop by imagining supply chains imagine records management imagine that you could skip a clerk's office to register your vehicle purchase directly on the ethereum smart contract platform how does this relate to staking why is taking on the ethereum network a service that has value and why would the network incentivize people to stake their ether staking is the new security mechanism for the ethereum beacon chain

the beacon chain needs a mechanism to verify that transactions that occur in the network are valid in the old proof of work model this was done by a lottery system where a block proposer was chosen based on which computer could solve a problem most quickly that led to an arms race that we've talked about but it's essentially randomly choosing a node to propose a block in proof of stake the lottery system still exists but your odds aren't based on how powerful your computer is the ethereum proof of stake network has a pool of bonded operators who are randomly selected to propose a block after that operator proposes a block all of the other operators who have also put up a bond have an opportunity to validate or reject that

if the other validators reject that block then the validator who proposed inaccurate data is ejected from the and they'll lose a substantial portion of their bond this is called slashing but it's something that honest operators don't need to worry about as long as you only run your staking setup on one machine this proof of stake network is far more energy efficient than the proof of work system and it allows a decentralized participation in the block proposal a common counter argument is that the proof of stake system on ethereum is less fair than the proof of work system and other networks because you have to have 32 ether to participate but let me remind you that anyone who wants to participate in the

proof-of-work network meaningfully will need to spend millions of dollars on hardware to actually compete as a block proposer pools exist in proof-of-stake just like they exist in proof of work but as i'll talk about in a minute i'm not ready to vouch for any of those pools yet in summary proof of stake is far more efficient than proof-of-work stakers put up their bond of ether as collateral while attesting to the state of the network and in exchange for doing a good job they receive a small micro payment this is the consensus mechanism that drives the network and it makes immutable smart contracts possible and as we discussed the possibilities for smart contracts raised from d5 to records management to innovative

ideas we haven't even thought about yet people executing smart contracts on the ethereum network need to pay ether to the consensus mechanism and that ether is part of the the payment that stakers receive for validating the state of the network you've heard me talk a lot about how staking requires a bond of 32 ether but i want to get a little more into that because 32 ether is a lot of money from anyone's perspective and there are a lot of ways to stake that don't require you to put up that full 32 ether as you're getting ready to stake your ether i want to make sure that we're not thinking just about your own personal returns staking means you're actually doing a job to secure the ethereum beacon chain

13:29 - What Is A Bond of 32 Ether?

and if we do this job in an unsustainable way it means we're sacrificing the value of our long-term investment to try to squeeze out a few more cents today in terms of getting involved in staking there are three major ways you might want to do that the first method is solo staking and if you have the hardware and technical expertise to run a validator at home this method is considered the gold standard of staking at this moment it's the only form of staking that i actively encourage we also recognize not everyone can reach that gold standard and that's okay we still want you to participate in staking and the rewards associated with it the next best option is pooled staking although there aren't really pools that i'm

comfortable promoting right now and the third option is exchange base taking exchange base staking means giving your ether to a third party who will centralize your stake with many other deposits and it's generally considered unhealthy for the network but again we want you to feel comfortable participating with a beacon chain in any way that works for you if you aren't able to do solo validating and you're looking to get into pool or exchange-based taking the ideal situation would be to choose a pool or a protocol that is trustless decentralized and open source at this moment none of these polls are available but rocket pool is an open source trustless and decentralized pool going it's undergoing its final audits if it launches successfully on mainnet

i'll look forward to promoting its use about six months after launch how does this affect you if you're a person who wants to get more involved in staking or maybe you're already doing solo staking you want to have a strategy for explaining this options to your friends as we begin to talk about the ways you can stake your ether i want to talk about the need for ethereum for the ethereum network to increase decentralization it's important that i say we increase because if we do things the easiest way possible we'll tend towards centralization and this is when people say to me fizz i'm just here to make money i don't care about all of that network stuff i don't care about centralization i'm an investor i just want to make a

15:10 - The Spectrum of Staking Options

good return on my investment and i understand that and so let me respond by saying that your investment is in ether and for that ether to appreciate in value as an investment it needs to remain healthy and robust the way that you improve the health of your ether is by using your ether to improve the decentralization of the network and so if everyone says i don't care about the platform i'm just an investor and they invest in ways that centralize the network they're actually undermining the value proposition of their own investment responsible investors need to take these concepts into account when determining how to stake ether while solo staking is the gold standard of decentralized staking there are

software solutions that can promote decentralized pooled staking they're coming very soon but the point of this slide is that as a community we need to demand decentralized staking solutions and we should make better choices than exchange face staking because focusing on short-term profit is often a recipe for long-term loss hearing all of this might somehow lead you to think that beacon chain network needs you to do something or it needs you to protect it but that's not really the case what i want to do is encourage a strong and decentralized network and this means there are validators spread thinly all over the world using a variety of clients on a variety of operating system platforms

17:31 - Overall Beacon Chain Health

staking in a variety of hosts other networks ignore decentralization because it's hard to achieve it's easier to take it for granted and hope no one notices ethereum is tackling this opportunity head-on and encouraging all stakers to promote decentralization with every opportunity they have the beacon chain is going to thrive no matter what we do that's the basic design of the chain if there are rogue actors they'll be pruned and removed from the network and the network will continue moving on happily so whether you decide to solo stake or whether you decide to stick with an exchange or a pool you're contributing to the success of the network no matter how you do that i don't want to discourage anyone from staking in a way that works for them any staking is great but everyone with

an investment in ethereum should work to increase the overall health and resilience of the network let me be clear this network is anti-fragile but when we have the opportunity to harden it even further we must do that so i'd like to review the big picture staking is a way that you can submit 32 ether to the ethereum beacon chain and validate transactions propose blocks and earn small rewards you can participate in staking by working as a solo validator or participating with a pool or exchange right now there aren't pools or exchanges that i'm comfortable promoting but i'm looking out for pools that are trustless open source and decentralized it's important to keep in mind that the way you stake reflects the overall health of the network

a staking ether might be a great long-term investment in ethereum you keep your principle but you have the opportunity to take about a seven percent reward in ether every year as someone who is interested in ethereum as a 20-year investment staking seems like a no-brainer i really hope you'll join us by participating in i know that staking can seem a little bit overwhelming at first but i'm so excited about the potential that this brings the ethereum community and i look forward to your participation the last thing i want you to know is that the ethereum eath staker community has worked really hard to set up support for stakers of all sorts the best place to find us is on h is on

18:20 - Join the EthStaker Community

eastdaker.cc you can also connect with us on discord invite dot gg slash eat sticker or our youtube channel at youtube.com eatstaker and my personal favorite place to hang out reddit.comr eastaker we're a very supportive and welcoming community the east staker community works hard every day to be welcoming first and knowledgeable second i want to share my deep appreciation to michael geeson of avetica solutions and sam who you might know as greywizard for doing as much work on this talk as i did in some cases more i hope that when you join us you'll feel like part of our family right away if you've made it through the end of this talk or you probably skipped

18:59 - How To Claim This Event POAP

to the end i'd like to offer you a poep that's the proof of attendance protocol token that's an erc721 token distributed on the xdi to claim the poep open up discord and message the po bot or message the user capital p capital o capital a capital p dash b o t pound zero zero nine four the code word is decentralization michael thanks for recording thanks for your help with the presentation and let's put this on youtube so everyone has the opportunity to watch it