slashing

Only 0.04% of Ethereum validators have been slashed since 2020, says core dev

Only 226 validators have been slashed since Ethereum staking began, with 75 of those coming from a single event in February 2021.

The Ethereum ecosystem has seen only 226 validators slashed since the launch of the Beacon Chain on Dec. 1, 2020 — amounting to just 0.04% of 524,060 validators, according to an Ethereum core developer.

Slashing is a process where a validator breaches the proof-of-stake consensus rules, which often results in the removal of that validator from the network and slashing a portion of the staked Ether (ETH) that the validator provided as collateral.

Such slim odds of being slashed were highlighted by Ethereum core developer “Superphiz” in a Feb. 23 Twitter post, which suggests that people shouldn’t be concerned about staking ETH for that particular reason.

226 out of 523,000 validators on the beacon chain have been slashed. This is nothing to lose sleep over. Many slashings have occurred during failed system migration. Here are four emerging best practice tips to avoid this:https://t.co/wleR4YQmDD

— superphiz.eth (@superphiz) February 22, 2023

The developer also explained “four emerging best practices” to reduce those odds even further.

One of these practices was to wipe any existing chain data on old staking machines and to reinstall and reformat the validator where necessary, said Superphiz, noting that many slashings occur due to “failed systems migrations.”

Superphiz then suggested using “doppelganger detection,” which checks whether the validator’s keys are active before starting the validation process.

While this can impact validator uptime, he explained that “perfect uptime” isn’t worth getting slashed in the grand scheme of things:

“It’s wise to throw away $0.06 to save $1700. (A slashing costs about 1 Ether).”

The developer said it is also worth watching buffers and logs on the Beacon Chain to become aware of any potential problems that may arise.

*Log of the slashed validators on the Beacon Chain.* *Source: Beaconcha.in*

If something feels wrong, Superphiz suggested “unplugging everything” and to “come back” when the problem has been identified and a proposed solution is set in place.

The developer also noted that over 150 of the 226 slashings have been caused by services rather than “home stakers.”

*Staked ETH and number of active validators on the Beacon Chain. Source: Beaconcha.in*

Slashing can occur due to an “attestation” or a “proposal” violation, according to the Ethereum Foundation.

An attestation violation is one where a malicious validator attempts to change the history of a block or “double votes” by attesting two candidates for the same block.

A proposal violation occurs when a validator proposes and signs two different blocks for the same slot.

The majority of slashing events have come from attestation violations, according to data from beaconcha.in.

One of the largest slashing events occurred on Feb. 4, 2021, when staking infrastructure provider “Staked” had 75 of its validators slashed for producing competing blocks. Staked said the attestation violation came about due to a “technical issue.”

Since the Beacon Chain merged with the Ethereum proof-of-work chain on Sept. 15, only 35 of the total 226 slashings have taken place, according to beaconcha.in, which suggests that the Merge has not had a profound impact on slashing rates.

With about 16.7 million ETH staked (according to beaconcha.in) out of 120.4 million ETH currently in circulation (according to CoinGecko), the percentage of ETH staked is about 13.9%.

ETH can be staked via a centralized exchange, by delegation to a third-party validator network, or by running on an independent node, which requires 32 ETH.

Coinbase staking ‘fundamentally different’ to Kraken’s — chief lawyer

After the SEC’s crack-down on Kraken, Coinbase’s legal head outlined the differences between Kraken’s staking product and its own.

The staking services offered by cryptocurrency exchange Coinbase are “fundamentally different” to what was offered by its peer exchange Kraken — which recently came under fire from the United States securities regulator — according to Coinbase’s head lawyer.

Paul Grewal, Coinbase’s chief legal officer, made the comments in his response to a shareholder question regarding its staking services during a Q&A session on the exchange’s fourth-quarter results, noting:

“The staking products that we offer on Coinbase are fundamentally different from the yield products that were described in the reinforcement action against Kraken. The differences matter.”

The first point of difference Grewal highlighted was that Coinbase users retain ownership of their cryptocurrencies at all times.

In its user agreement last updated Dec. 15, 2022, Coinbase states that it merely “facilitate[s] the staking of those assets on your behalf,” but may not replace any Ether (ETH) lost to slashing — which refers to the blockchain’s mechanism for punishing bad behavior by reducing a validator’s tokens.

Grewal also suggested that another difference was its customers have a “right to the return,” with the firm unable to “simply just decide not to pay any returns at all.”

He pointed to the exchange’s registration as a publicly-traded company as another critical point of difference, which enables customers to have “deep transparent insight into our financials.”

In comparison, the Securities and Exchange Commission’s (SEC’s) complaint against Kraken alleged its users lost control of their tokens by offering them to Kraken’s staking program and investors were offered “outsized returns untethered to any economic realities” with Kraken also able to pay “no returns at all.”

Grewal however reiterated calls for regulatory clarity on staking services in the U.S. suggesting the SEC was outlining their expectations in court complaints rather than through clear regulations, noting:

“Rules making clear these distinctions would provide very real clarity and we think the public shouldn’t have to parse complaints in federal court in order to understand what a regulator expects.”

In a Feb. 13 tweet, Grewal had opined that staking in itself was not a security transaction, using an analogy of harvesting oranges to elaborate on his position.

If I grow oranges myself and harvest them myself, the oranges are not securities. If I grow oranges myself and harvest them using a contractor that charges me a fee, the oranges are still not securities.

— paulgrewal.eth (@iampaulgrewal) February 13, 2023

On the back of SEC Chair Gary Gensler calling on firms to register products with the regulator, Grewal indicated that Coinbase has no issues registering products with the SEC where “appropriate,” but added:

“I think it’s fair to say that at this point in time, the path to registration for products and services that may qualify as securities has not been open, or at least readily or easily open.”

Coinbase is currently facing an SEC investigation into its products similar to the one that resulted in Kraken settling with the regulator for $30 million and being prohibited from offering staking services to its U.S. clients.

Coinbase intends to put up a fight, however, with CEO and co-founder, Brian Armstrong, suggesting the company would be willing to challenge the regulator and take the matter to court.

Coinbase's staking services are not securities. We will happily defend this in court if needed.https://t.co/GtTOz77YV3

— Brian Armstrong (@brian_armstrong) February 12, 2023

Coinbase staking ‘fundamentally different’ to Kraken’s — chief lawyer

After the Securities and Exchange Commission’s crackdown on Kraken, Coinbase chief legal officer Paul Grewal outlined the differences between that exchange’s staking product and its own.

Paul Grewal, Coinbase’s chief legal officer, made the comments Feb. 21 in his response to a shareholder question regarding its staking services during a Q&A session on the exchange’s fourth-quarter results, noting:

“The staking products that we offer on Coinbase are fundamentally different from the yield products that were described in the reinforcement action against Kraken. The differences matter.”

The first point of difference Grewal highlighted was that Coinbase users retain ownership of their cryptocurrencies at all times.

In its user agreement, last updated Dec. 15, Coinbase states that it merely “facilitate[s] the staking of those assets on your behalf” but may not replace any Ether (ETH) lost to slashing, referring to the blockchain’s mechanism for punishing bad behavior by reducing a validator’s tokens.

Grewal also suggested that another difference was its customers have a “right to the return,” with the firm unable to “simply just decide not to pay any returns at all.”

He pointed to the exchange’s registration as a publicly-traded company as another critical point of difference, which enables customers to have “deep transparent insight into our financials.”

In comparison, the Securities and Exchange Commission’s complaint against Kraken alleged its users lost control of their tokens by offering them to Kraken’s staking program, and investors were offered “outsized returns untethered to any economic realities” with Kraken also able to pay “no returns at all.”

“Rules making clear these distinctions would provide very real clarity and we think the public shouldn’t have to parse complaints in federal court in order to understand what a regulator expects.”

In a Feb. 13 tweet, Grewal had opined that staking in itself was not a security transaction, using an analogy of harvesting oranges to elaborate on his position.

If I grow oranges myself and harvest them myself, the oranges are not securities. If I grow oranges myself and harvest them using a contractor that charges me a fee, the oranges are still not securities.

— paulgrewal.eth (@iampaulgrewal) February 13, 2023

“I think it’s fair to say that at this point in time, the path to registration for products and services that may qualify as securities has not been open, or at least readily or easily open.”

Coinbase intends to put up a fight, however, with CEO and co-founder Brian Armstrong suggesting the company would be willing to challenge the regulator and take the matter to court.

Coinbase’s staking services are not securities. We will happily defend this in court if needed.https://t.co/GtTOz77YV3

— Brian Armstrong (@brian_armstrong) February 12, 2023

Ethereum Merge makes network more vulnerable to attack — Security expert

The security expert said that while PoS isn’t “theoretically” as secure as PoW, he admits it still has “sufficient practical security.”

Despite the Ethereum Merge being touted as a major upgrade to the blockchain network, its transition to proof-of-stake theoretically makes it more vulnerable to exploit.

Speaking to Cointelegraph, the security researcher explained that unlike proof-of-work (PoW) systems, a proof-of-stake (PoS) system informs node validators in advance what blocks they will validate, thus enabling them to plan attacks.

The security expert, who asked not to be named, is a blockchain developer and security researcher working on a proof-of-stake layer-2 blockchain.

The researcher explained that an exploit could theoretically occur on the post-Merge Ethereum blockchain if validators manage to line up two consecutive blocks to validate.

“If you control two consecutive blocks, you can start an exploit on block N and finish it on block N+1 without having any arbitrage bot coming in and fixing the price that you have manipulated in between.”

“From an economic security standpoint, [this vulnerability] makes these attacks relatively easier to pull off.”

The expert said that while it’s also possible for miners to validate consecutive blocks in PoW networks — that comes down to “pure luck” and gives the miner no time to plan an attack.

As a result, the security researcher argues that Ethereum will be forgoing some strength in security when the Merge takes effect:

“As we stand right now [with] the Ethereum proof-of-work versus Ethereum proof-of-stake, Ethereum proof-of-work does have stronger security […] and economic guarantees.”

“But that being said […] proof-of-stake [still] has sufficient practical security [and] it doesn’t really matter that it’s theoretically not as secure as proof-of-work. It’s still a very secure system,” he added.

The security expert added that “Ethereum is working on fixing [the consecutive block issue].

It is a hard problem to solve, but if that gets done, then proof-of-stake security will [further] increase [as] they’ll have protection against those attack vectors.”

Ethereum validators are subject to slashing in PoS, as the consensus rules were designed to economically incentivize validators to correctly validate incoming transactions and any conduct to the contrary would see their ETH stake slashed.

The Ethereum Merge is finally set to take place on Sept. 15 at about 2:30am UTC, according to Blocknative’s Ethereum Merge Countdown. The transition to PoS is set to make the Ethereum network more scalable and energy-efficient.

Ethereum gone wrong? Here are 3 signs to keep an eye on during the Merge

The Ethereum merge is fast approaching and those with assets at stake should keep a close eye on the following data sources.

The assumption that Ethereum will just transition to a fully functional proof-of-stake (PoS) network after the Merge somewhat ignores the risk and effort necessary to move an asset that has a $193 billion market capitalization and 400 decentralized applications (DApps).

That is precisely why monitoring vital network conditions is essential for anyone willing to trade the event, which is scheduled for Sept. 14, according to ethernodes.org. More importantly, traders should be prepared to detect any alarming developments in case things go wrong.

Apart from the $34.2 billion in total value locked in smart contracts, another $5.3 billion in Ether (ETH) is staked on the Beacon Chain. The network is currently used by many tokens, oracle providers, stablecoins, layer-2 scalability solutions, synthetic assets, nonfungible items (NFT), DApps and cross-chain bridges.

This partially explains why the Merge has been postponed multiple times through the years and why it is deemed to be the most significant upgrade in the history of the network.

For this reason, three different testnets have undergone the Merge, with Goerli being the latest on Aug. 11. Curiously, minor issues were presented on all testnet implementations, including Ropsten and Sepolia. For instance, Ethereum developer Marius van der Wijden noted that “two different terminal blocks and lots of non-updated nodes” slightly slowed the process down.

The core of any blockchain network are its blocks

It doesn’t matter what the consensus mechanism is: All blockchains rely on new blocks being proposed and validated. There are established block parameters that must be followed even to be considered by the network participants.

In the case of the Ethereum Merge, an epoch is a bundle of up to 32 blocks that should be attested within six and a half minutes. Actively monitoring the Eth2 Beacon Chain mainnet from reputable sources like BeaconScan by Etherscan and Ethscan ETH2 Explorer by Redot is important.

*Ethereum Beacon Chain epochs and blocks. Source: EtherScan*

Red flags on this monitor would be low voting participation on the epochs, the lack of finality after thirteen minutes (2 epochs) or a grinding halt on proposed blocks.

Monitoring Infura’s Ethereum 2.0 API

Infura provides infrastructure for building decentralized applications, allowing developers to deploy their solutions without hosting their own full Ethereum node. The company is fully owned by the Ethereum venture capital group ConsenSys, which is controlled by Joseph Lubin.

According to Infura’s website, projects relying on its infrastructure include Uniswap, Compound, Maker, Gnosis, Brave, Decentraland and Web3 wallet provider MetaMask.

*Infura API status page. Source: Infura*

Thus, monitoring Infura’s API is a good starting point to evaluate DApps’ performance. In addition, their status page should reliably display real-time updates, considering how closely tied Infura works with the Ethereum ecosystem.

Slashings, are validators being penalized?

The Ethereum Merge consensus mechanism has embedded penalty rules designed to prevent attacks. Any validator deliberately misbehaving is slashed, meaning part of its respective 32 ETH stake is removed. Repetitive slashes will eventually cause the validator to be ejected from the network. Staking providers and the validator software have built-in protection to prevent someone from accidentally being slashed, for example, if their connection went down.

*Slashed validators info. Source: BeaconScan*

Traders need to understand that slashing is a standard action of the network, a protective measure, so it should not immediately be deemed unfavorable. A worrisome environment would be hundreds of validators being slashed simultaneously, potentially indicating that their software is not functioning as it should.

There are over 410,000 active validators, so even if 20% or 30% of them eventually went offline, the network would continue as designed. Monitoring slashing is a preemptive measure because it likely indicates that some service, such as a hosting provider, has gone offline or some incompatibility arose during the Merge.

Ethereum advocates should consider monitoring external data instead of just their own node and server. There could be delays or even erroneous warning signs, so using multiple sources of information could help one avoid being misled by data from a single website or a post on social networks.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.