After two months of hard work, time and effort, we’re pleased to say the CoinDesk Ethereum 2.0 validator node is set up and our 32 ETH officially staked.
Here’s our public validator key:
Now that CoinDesk is in the queue for validators pending entry into the network, we expect our operations to begin earning rewards in roughly two weeks. For real-time updates on the status of the CoinDesk Eth 2.0 validator, you can find that information on BeaconScan or beaconcha.in by searching for our public validator key.
This Thursday you’ll also be able to download and listen to our first podcast episode of the series “Mapping Out Eth 2.0.” We will be discussing in more detail how plans for the launch of CoinDesk’s Eth 2.0 validator node came together with CoinDesk Director of Engineering Spencer Beggs.
New frontiers: Developers regroup on Eth 2.0
Ethereum 2.0 developers haven’t rested on their laurels since the deployment of the Beacon Chain Dec. 1.
On Tuesday, Eth 2.0 researchers gathered online to regroup and discuss long-term thinking on sharding and a potential merge of the Eth 1.x blockchain and the Beacon Chain in 2021.
Presentations followed along three specific topics: the math needed to support sharding, sharding itself and a newer line of logic for moving along the eventual merge of Eth 1.x into Eth 2.0 called the Executable Beacon Chain.
Ethereum Foundation researcher Dankrad Feist provided Tuesday’s math lesson; it was a doozy.
Specifically, Feist gave an analysis of a polynomial expression known as Kate commitments (pronounced kah-tay) for Eth 2.0 client teams who may have to encode the math into their projects in the near future.
Also known as KZG commitments, these polynomial commitment schemes provide a computationally cheap yet robust framework for securing data across the 64 independent blockchains known as shards yet to be ingrained in Eth 2.0. It’s thought that Kate commitments provide a superior alternative to fraud proofs or Merkle roots typically used for verifying the authenticity of data included in a block or shard, as Vitalik noted in a recent blog post.
Although still referred to as “magic math,” basically similar ideas are already being used for zero-knowledge proof schemes such as PLONK, Vitalik Buterin said on the call.
The conversation then turned to a recent blog post written by Buterin on Data Availability Sampling (DAS), a schematic for verifying the “availability of high volumes of data without requiring any single node to personally download all of the data.”
In other words, how do validators know which block is valid if they don’t have all the information about the chain’s history? Nodes with only partial histories, such as light clients, need a method to protect themselves from malicious actors.
Buterin proposes using a technology called “erasure coding.” This tech – similar in a general sense to a fraud proof – allows validators to probabilistically guarantee that votes cast on data processed by the chain are not malicious. Moreover, erasure coding and DAS allow validators to accept or reject data even when a full data set is not available.
Executable Beacon Chain
Lastly, the group turned to a new proposal for moving Eth 1.x onto Eth 2.0.
Called the Executable Beacon Chain, the proposal is a technical method of taking the best parts of Eth 2.0 – its functional proof-of-stake (PoS) consensus mechanism – and the most functional part of Eth 1.x – its data execution also known as its ability to execute transactions – and mashing them together for an accelerated transition to a more-functioning Eth 2.0 network.
The current Eth 2.0 roadmap calls for transactions and account data (AKA executable data) to be implemented after the deployment of Eth 2.0’s 64 shards. This proposal would bake those functions right into the Beacon Chain itself, which would be quicker.
It’s comparable to a jet with Eth 1.x being the “engine” that processes transactions, while the Beacon Chain acts as the wings and rudder turning the network to and fro.
On the call, Ethereum Foundation researcher Guillaume Ballet and ConsenSys researcher Mikhail Kalinin described an early prototype called “Catalyst.” The model is basically a stripped down version of popular Eth 1.x client Geth paired with a code bridge to the Beacon Chain.
Yet for now, Catalyst remains in testing. Indeed, Ballet noted a few significant hurdles before the Executable Beacon Chain is a viable merging solution, such as incompatibilities between Geth and the Beacon Chain or even inadvertent block re-organizations.
Checking the pulse of Ethereum 2.0
There are over 77,800 active validators on Ethereum 2.0 who are earning 0.0075 ETH per day, or roughly $11.47, on average. The combined income of all validators on Eth 2.0 over the last seven days amounted to over 4,600 ETH, worth over $6.8 million at time of writing.
It’s worth analyzing how these figures might fluctuate, given the continued inflow of new validators and the consistency of network participation rate upwards of 95%.
Validator rewards are positively correlated to the number of blocks being produced on the Ethereum 2.0 Beacon Chain. However, this number since Day 2 of the network going live has consistently been more or less the same at around 7,100 blocks.
Assuming the number of blocks produced per day doesn’t change, total validator rewards are also positively correlated to the number of validators participating on the network. The more validators there are actively progressing the Beacon Chain and producing new blocks, the more rewards in total are generated by the Eth 2.0 network.
However, the average amount of rewards in ETH an individual validator may receive on Eth 2.0 is negatively correlated to the total amount of stake securing the network. The higher the amount of ETH locked into Ethereum 2.0, the lower the amount of rewards an individual validator can stand to earn, even though collectively the total amount of rewards generated by the network to all validators has gone up.
To illustrate in more detail the competing forces acting upon validator rewards, I’ll be using the Staking Calculator on beaconcha.in to generate a few estimations of my annual percentage return as an Eth 2.0 validator.
Estimating Eth 2.0 validator returns
Assuming I am running my own independent validator operations without giving any percentage of my rewards to a staking-as-a-service provider, and a consistency of network participation rate at 97% and the total amount of ETH staked on the network as 2.5 million, I stand to earn 9.73% APR.
(Note: The total ETH staked on Ethereum 2.0 is not the same amount as the total ETH staked in the Ethereum 2.0 deposit contract. The latter illustrated in the Pulse Check graphic is a higher figure that represents the stake of all Eth 2.0 validators whether pending or active, while the former only accounts for the stake of active Eth 2.0 validators who have passed the queue for entry into the network.)
It’s a highly unlikely assumption that the total amount of ETH staked on the network will stay at 2.5 million. New validators, each staking 32 ETH, are being added by the hundreds every single day to Eth 2.0. As such, a more realistic assumption is to expect the current total ETH staked on the Beacon Chain to double by the summer or fall.
At roughly 5 million ETH staked by 155,000 active validators, APR drops down to 6.88%, all other factors being equal.
One final note on this topic of validator income projections: I haven’t made any assumptions about ETH price. For all these calculations, I’ve used the spot price of ETH at time of writing.
While I’m confident in my estimations based on the last two months’ data in most respects (the network participation rate, the number of blocks produced, the number of active validators and what total ETH staked on the beacon chain will be in the near future), I’m not at all confident about my assumptions when it comes to ETH price, which lo and behold hit yet another all-time high on Tuesday above $1,500.
How do you predict that?
- A comparison of all available Ethereum 2.0 mainnet clients based on their latest performance metrics (dev.to post, Afri Schoedon)
- The frequency of slashings continue to fall on Eth 2.0 (HackMD post, Ben Edgington)
- Aave’s founder Stani Kulechov has made angel investments into nearly 40 DeFi projects (Article, CoinDesk)
- Decentralized exchange volumes hit record above $50 billion in January (Article, CoinDesk)
- Ether cryptocurrency reaches record high, briefly tops $1,500 amid WSB trading buzz (Article, CoinDesk)
- Ethereum miners earned record $830 million in January (Article, CoinDesk)
- Galaxy and Coinbase bet $25 million on decentralized finance using Terra stablecoins (Article, CoinDesk)
- Grayscale reopens its Ethereum trust to investors (Article, CoinDesk)
- Reddit joins with the Ethereum Foundations to build scaling tools (Article, CoinDesk)
- How stablecoins are driving decentralized finance on Ethereum (Blog post, ConsenSys)
- How wrapped tokens like WBTC bring more liquidity to DeFi (Blog post, Consensys)
- Interview with long-time crypto advocate and CEO of ShapeShift Erik Voorhees (Podcast, The Defiant)
Factoid of the week
Valid Points incorporates information and data directly from CoinDesk’s own Eth 2.0 validator node in weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.