Ethereum staking, though still in its infancy, has already proven to be among the most important parts of the evolving blockchain industry. It refers to the transaction validation on its blockchain network, or the act of depositing ETH to activate validator software. There are currently over 537,000 total validators and over 17,200 total Ethereum staked at the moment of writing. Anyone with any amount of ETH can contribute to this ecosystem’s security and earn rewards in the process.
You’ve likely come across this way of earning rewards if you’ve been HODLing your Ethereum for a while. Some cryptocurrency exchanges offer several options to buy crypto and allow you to stake your Ethereum on their specially-designed platform. Taking advantage of this service is easy – you have to create an account, buy Ethereum with a debit card or another method that suits you, and get accustomed to their website to start staking. There are more types of staking and places to practice it, and you don’t need an energy-intensive computer; a smartphone or home computer is enough.
The next big thing on Ethereum’s roadmap is Distributed Validator Technology (DVT). New apps and developments of avant-garde technologies like DVT unlock new use cases, build new market niches, and expand the potential of sectors like DeFi.
To understand how DVT can improve the ecosystem, let’s see the main issues with staking ETH and why DVT is a crucial tool for its health.
The Main Issues for Staking ETH
Suppose you want to become a staking operator on Ethereum, earn rewards, and contribute to the network’s decentralisation. In that case, you must first be aware of two significant risks: node failure and key theft. Node failure can happen if your validator node goes offline for reasons like a weak internet connection, a validator client software bug, etc, leading to slashing penalties, or having a part of your ETH taken away. Also, you’ll have a signing key and a withdrawal key that must be secured correctly.
These issues can put off the regular Ethereum owner from running a validator note. Plus, you’ll need to stake a certain amount of 32 ETH, which can be expensive. These entry barriers can explain the success of custodial staking solutions provided by some centralised exchanges that ease the staking process for the average Ethereum owner.
What is Distributed Validator Technology (DVT)?
To put it simply, you can imagine Distributed Validator Technology as a multi-signature wallet for running a validator node. It’s basically an open-source protocol that allows more network nodes run by an individual, group, or community of operators to act as one single validator together. The risk of having a single point of failure in the architecture that could bring slashing penalties is avoided, thanks to four key components:
Shamir’s Secret Sharing
Distributed Key Generation
Istanbul Byzantine Fault-Tolerant algorithms.
Staking is becoming more robust and available to all validators. For smaller validators, like at-home validators or community staking pools, this technology enables a level of protection that large validators have. For large validators, it’s also beneficial – it ensures high availability and reduced infrastructure costs. Ultimately, validator participation is improved, resulting in greater stake decentralisation.
Single-node validators allow single points of failure in the consensus layer, resulting in risks and issues, like machine failures.
Regardless of the type of validator you want to become or what your perception of distributions of validators is, DVT acts as a decentralising force on the whole Ethereum network. However, there are also tradeoffs with it:
Latency. DVT brings some extra network hops through the consensus mechanism and message exchange among nodes.
Operational Costs. As multiple nodes run instead of just one, the operational and hardware costs grow. This can be mitigated by being able to run more validators on the same set of computers since validators running DVT are more resilient.
How Does DVT Improve Staking on Ethereum?
DVT, put shortly, enables validations to be performed together as a cluster of nodes instead of a single, standalone validator node. By eliminating single points of failure, validators can work with active redundancy without increasing slashing risk. This benefits every validator;
Large Validators. Lower slashing risk and improved redundancy enables allows more nodes to be performed on fewer machines, minimising hardware expenses and the amount of preventive slashing insurance necessary.
Liquid Staking Protocols. Besides improving efficiency and lowering risk, DVT permits greater operator participation.
Community And At-Home Validators. With DVT a small validator can run nodes with more confidence, delivering equivalent efficiency metrics to larger validators.
You can stake Ethereum in many ways. Custodial staking systems handle the whole process on your behalf, running and managing the node for you. You just deposit your Ethereum and they’ll set up the node.
The main difference between solo and other staking platforms is that you’re not in control of the validator node’s private key, but the staking provider is. You’re taken away a small part of your reward in exchange for the service provided. The number of validators on the network and the amount of ETH you invest determine the amount awarded for staking. As the pool of staked ETH shrinks, the annual interest rate grows.
Distributed Validator Technology allows individuals and entities to participate in the Ethereum PoS Validator process on multiple machines or nodes, improving node resilience by decentralising the validator’s function and minimising the risk for honest validators.
DVT can make Ethereum staking more accessible and less risky, improving the network’s decentralisation. The increased accessibility is achieved by allowing users with less than 32 ETH to take part in the validating process by teaming with other individuals. However, using multiple hardware devices to build a cluster of validator notes has its disadvantages.
DVT aims to promote network decentralisation, improve ROI for stakers, and reduce staking risks by providing better security, robustness, and validator uptime.