Ethereum (eth1) is a proof of work blockchain that enables developers to build and deploy decentralized applications. With eth2, the protocol is transitioning to proof of stake and improving its scalability and decentralization without sacrificing security. The new protocol design enables regular users to run validators and secure the network. It is optimized for hundreds of thousands of validators with low startup costs plus forgiving slashing and downtime penalties.
eth2 will be launched in phases to allow all current users to shift to the new consensus mechanism without interruption. During the early phases of the transition, eth1 and eth2 chains will run in parallel, with their own state and inflation. Eventually, eth1 will be merged into eth2.
Unlike other proof of stake protocols that are trying to start from nothing to build and scale a new protocol, Ethereum is already a protocol that has tokens in the hands of millions of people with tens of thousands of dApps. It’s starting from a very different place. This is important for the ecosystem as a whole as well.
Joe Lallouz, CEO
A Guide to eth2 by Bison Trails • Navigate to a Section:
eth2 will have a Beacon Chain in Phase 0 and 64 shard chains in Phase 1. The Beacon Chain holds the shards together and enables consensus and cross-shard communication. It has a registry of validator addresses, the state and balance of each validator, attestations, and links to shards; it is the central controller of the eth2 system.
eth2 allows participation on the network for a broader set of token holders than most PoS chains. 32 ETH represents a relatively low staking requirement and low entry point for running a validator that earns rewards. Please note: there is no delegation or stake pooling at the protocol level.
Generate keys: To run an eth2 validator, two keys must be generated—the validator key and the withdrawal key. The withdrawal key is the custodial key where the ETH on the Beacon Chain will be withdrawn from in Phase 2. Please note: the withdrawal key should be secured and backed up as a cold key or stored in a hardware wallet or offline device.
Deposit ETH: After keys are generated, a token holder can deposit ETH into a smart contract on the Ethereum 1.X mainnet. This contract is unidirectional: the deposited tokens are inaccessible on the Ethereum 1.X chain and they are unlocked on the eth2 chain as Beacon ETH. Processing this deposit takes a minimum of 7 hours, 1,024 blocks Ethereum 1.X blocks (~4 hours) + Epochs per eth2 Voting Period (~3.4 hours). This delay protects against chain reorganization and double spends on Ethereum 1.X.
Index Assignment: An index is assigned once a validator is added to the list of validators on eth2. The index is permanently tied to the validator entered into the deposit contract and cannot change from the time of the initial deposit until the validator exits and fully withdraws. The validator immediately joins the validator registry but is inactive.
Validator Activation: The validator becomes active after a minimum of 4 epochs (25.6 minutes) to ensure the RANDAO is not able to be manipulated. The period may exceed 4 epochs if many validators join at the same time. The validator entrance queue and the corresponding exit queue ensure stability of the validator set and that there are no issues with finality due to a lot of validators going offline simultaneously.
Only 900 validators can be activated a day (4 per epoch) until 327,680 active validators are in the network. Once that goal is achieved, 1125 validators a day (5 per epoch) can be activated in an epoch.
The number of validators that can be activated every day increases by 225 (an additional 1 per epoch) with every additional 64k validators. The same pattern applies to validator exits. This could result in congestion—a wait of a few hours or days—if validators attempt to join or leave the network simultaneously.
Validators earn three types of rewards for participating in consensus.
Proposer rewards are earned by validators when they are randomly selected as a proposer and perform the duty of producing a block on chain. The proposer’s efforts are rewarded if they include a proof from a whistleblower that results in a validator being slashed and they include attestations from other validators.
Attester rewards are earned by the validators selected to vote and agree with a decision on eth2. Attestations (votes) are the basis of consensus and are rewarded in five ways: (1) getting an attestation on-chain, (2) agreeing with other validators on the history of the chain, (3) agreeing with others about the head of the chain, (4) getting their attestation on-chain quickly, and (5) pointing to the correct block in the assigned shard.
Whistleblower rewards are earned by a validator that provides proof on-chain that another validator has committed a slashable offense.
The inflation rate on eth2 decreases as the staking rate increases. Because so much depends on how many people lock up ETH to support the transition to eth2, it is difficult to clearly identify a rate of inflation and reward rate. Given the risks and opportunities apparent with eth2, we assume that:
In the short-term, there will be about 1 million ETH staked resulting in an inflation rate of .17% and a reward rate of 18.10%
In the medium-term, there will be about 10 million ETH staked resulting in an inflation rate of .54% and a reward rate of 5.72%
Rewards are designed to incentivize early validators starting at a 23% rate of reward at network launch. Anyone considering participating on eth2 benefits from running their validator as early as possible.
Rewards do not compound on eth2. They are earned based on the effective balance on the validator, which is capped at 32 BETH. As long as the validator is earning rewards and not being penalized, the true balance will start at 32 BETH and increase while the effective balance will remain consistent at 32 BETH. After Phase 2 is live, validators will be able to withdraw all their rewards, combine them, and run additional validators.
On eth2, validators can experience penalties and slashing. Penalties are significantly less severe than slashing.
Penalties act like negative rewards. If a well-performing validator can make a 10% reward rate in a year, a poorly-performing validator could lose 10% in the most extreme circumstances, such as being offline regularly or voting on blocks that do not get finalized. In most circumstances, the penalty for being offline is simply not earning rewards. If a validator is online greater than 53.6% of the time, assuming no inactivity leak, it will break even.
Slashing carries a heavy punishment for validators that commit a significant offense, burning a minimum 1 BETH and a maximum of the entire stake. The validator is automatically ejected from the Beacon Chain active set.
The two slashing conditions for validators are:
Double voting (double signing): when a validator votes for two different blocks during the same epoch, signalling support for two different versions of reality
Surround voting (double attesting): when a validator attests one version of reality—i.e. chain state—and later attests to another version without reconciliation
Emitting a slashable vote is uncommon for validators that correctly follow the protocol: forming a slashable message without malicious intent only occurs as a result of some bug or accident. Because these errors are bound to happen, eth2 minimizes the slashing amount by destroying stake in proportion to the number of validators slashed around the same time. However, if a large number of validators commit an offence at a similar time, a large amount of their stake is burnt (up to their full balance) because an attack is assumed. This is called correlated slashing. All slashed validators, whether due to a mistake or a malicious act, are forcibly exited from participating in the protocol and can not return until Phase 2.
eth2 products are built on the Bison Trails platform: a fully-managed solution for powering mission-critical applications. Our enterprise-grade infrastructure is used by pioneering companies across the blockchain ecosystem, from exchanges and custodians to VCs and financial institutions. We’re committed to the long-term success of the ecosystem.
As long-term infrastructure providers, we know how important a smooth transition will be for the community, token holders, and the blockchain ecosystem as a whole. Bison Trails provides fully managed infrastructure and consolidated APIs to technical partners to enable reliable and secure management of their non-custodial eth2 offerings.
Aaron Henshaw, Co-founder and CTO
You can join us now by becoming an eth2 Pioneer. Participants in the Bison Trails eth2 Pioneer Program have early access to our suite of eth2 products:
API Management Dashboard - a simple dashboard that allows you create and revoke API token access to the eth2 validator management API.
eth2 Validator Management API - a simple and comprehensive API that allows for secure and programmatic creation, management, and status review of eth2 validators and their underlying infrastructure. From easily generating Ethereum deposit contract transactions to scaling validators, Bison Trails provides a robust API that also scales with your eth2 staking needs.
eth2 Validator Monitoring Dashboard - a complement to the Validator Management API, Bison Trails provides a dashboard to view all the activity of your eth2 beacon and validator client nodes. Each cluster rolls up metrics like rewards and eth2 activity (proposals, attestations, etc.) as well as information about the current state of the network. A granular look at each of your validator clients and the validators scheduled to them, is also available through this dashboard.
Some of the leading enterprises in the space have already joined our eth2 Pioneer Program and are beginning to integrate with our validator management API.
Bison Trails + eth2 roadmap
As an eth2 Pioneer you’ll be in the front of the line to integrate our upcoming eth2 product offerings when they become live, including:
Indexer API - standard blockchain clients are able to look up certain types of data, but they do not provide easy access to information in a way that may be important for your business, such as querying all the transactions from a specific account. In the near future, we will be offering a Blockchain Reporting API for eth2 focused on providing clean and actionable data over a queryable API for types of queries that will not be supported by standard eth2 clients.
eth2 QT (Query and Transaction Clusters) - like standard Ethereum (Geth) or Bitcoin (bitcoind) nodes, Bison Trails’ secure, private and redundant QT clusters will serve as entry points into the eth2 network in order to look up transactions, staking history, account balances, and more. eth2 QT is expected to be available by Phase 1.5 of the eth2 launch.
Become an eth2 Pioneer
It’s not too late to be an eth2 Pioneer. Contact us to learn more about the eth2 Pioneer Program. We want you to have early access to build on the Beacon Chain!
eth2 update 009
Exploring the largest slashing on eth2 to date, a Phase 1 proposal, and the networks’s continued performance
Jan 7 2021
What is eth2?
A guide to eth2 including how consensus, staking, rewards, exiting, and slashing work.
eth2 terminology: a non-exhaustive list of key terms to understand the eth2 protocol
eth2 Research & Insights
eth2 insights: network performance
The fourth post in our eth2 Insights Series discusses Medalla’s arc of development, the metrics to gauge overall network health, and shares perspective on eth2 Mainnet
Nov 23 2020
eth2 insights: validator effectiveness
The third post in our eth2 Insights Series discusses the parameters governing validator effectiveness in eth2 and how validators were distributed along those in Medalla
Nov 16 2020
eth2 insights: slashings
The second post in our eth2 Insights Series zooms into slashings in Medalla, examining their correlates and probable causes
Nov 9 2020
eth2 insights: aggregation performance
The first post in our eth2 Insights Series reveals important insights into the performance, and importance, of validator attestation aggregation in the eth2 network
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