Who are the people behind these computers running Ethereum?

Nodes & validators

People with computers download copies of the Ethereum blockchain to make their computer a node. If a person running a node also wants their computer to be one that the other computers check in with to make sure their copy is okay, and get paid to do this, they have to take an extra step to become a validator.

A validator is created by making a deposit to a specific smart contract that says “I will tell other computers what I see on the chain. If I lie about what I see, you can take $100 from my deposit. If I tell the truth, you pay me $1. If I don’t tell you anything at all, you can take $1.”* This is called staking because your assets are at stake.

*Absolute numbers are random for clarity. The actual numbers are denominated in ETH and the value depends on a variety of factors.

These validators are simply computer running code. There’s an operator (a person) behind the computer, but they install the software and keep the computer plugged in. They’re not doing any manual calculations and shouldn’t be doing anything involved at all. For the solo staker, this is 2-4 hours of work to set up, and subsequently 15 minutes of maintenance every 2-5 months. Most operators have their validator running quietly on a bookshelf without touching it for months at a time.

The draw of this is that, after set-up, it largely becomes passive income. The electricity costs are equal to keeping your laptop plugged in 24/7. The occasional maintenance, every few months, is logging in and telling the computer to look for updates and installing those updates. Sometimes the hard drive or RAM dies (just like in any normal personal computer) and that has to be replaced, but that should be a once-every-two-or-three-years issue.

What happened to miners?

The Ethereum network is in a very early stage of its development. Proof of stake launched in a beta mode in December of 2020 and has been the official and only consensus mechanism of Ethereum since September of 2022. A consensus mechanism is the method by which the blockchain validates the authenticity of transactions. Validators replaced miners in September of 2022, who served a similar function, but for a very energy-intensive consensus mechanism. Mining on Ethereum isn’t a thing anymore - you can still mine for Bitcoin and some smaller blockchains, but Ethereum has completely moved to using validators instead of miners.

Anyone with a computer, stable internet, and 32 ETH can become a validator. A validator is a staker. A staker isn’t necessarily a validator.

Staking ETH on someone else’s validator

Not everyone has a computer, stable internet, and 32 ETH, so there are lots of staking products who have built ways for you to use someone else’s computer and internet to stake any amount of ETH. They do this by pooling your ETH with other people’s ETH until you get to the full 32 ETH to run a validator. But then who operates the node?

There are many staking products to pool ETH - who operates the actual node, the computer with the validator on it, will differ for each of these services. And products will be somewhere on a spectrum of trustlessness, with one end of the spectrum being trusted providers and the other end being trustless providers.

TRUSTED: I tell you that I’m starting a staking operation and I’m really good at this stuff. I have a track record of doing a good job staking people’s ETH for them. You send me your ETH and I stake it for you on my validator and give you the passive income it generates (minus a fee). I promise to return your staked ETH to you if you request it.

TRUSTLESS: I deploy a smart contract that says “If Julia deposits 1 ETH into my contract, send that to my validator. Take 90% of the passive income that it generates and send it back to her. If she wants the staked ETH back, let her send a message that says so and automatically send it back to her.”

Despite the intuition that the word ‘trusted’ sounds like a good thing, this is actually the least ideal option. Trusted means that you have to trust the person you’re sending it to. Trustless means that there’s no degree of trust needed because you can verify that the contract automatically does all the things that you want and that the person who’s validating for you has no possible way to steal your deposit. A trusted operator could theoretically steal your deposit (though it’s unlikely if they have a good reputation). Staking products are on a spectrum from trusted to trustless and you should know where there are on this spectrum before you stake with them.

In my opinion, if you use one of these staking products to pool your ETH and stake it on someone else’s validator, you’re not a validator, but you are a staker. I asked the crypto twitter community if they agreed with this and the opinion was split:

nixo.eth 🦇🔊

@nixorokish

Is a person who has exchanged their ETH for a liquid staking token (rETH, stETH, etc) a 'staker'?

7

9:13 PM • Apr 3, 2023

(We haven’t talked about them yet, but an “LST” is the token that someone gets as a kind of receipt for the ETH that they’ve deposited to a pooled staking service)

Verifying the contents of a smart contract

If you can’t read or interpret a contract, you have to rely on things like security audits, community trust, and time that the protocol has been live. A project should have security audits from reputable auditing companies that have gone through their contracts with a fine-toothed comb and they should post these findings publicly.

re: community trust - look at the discussion that a community has. Are there there people there discussing the technical aspects of the protocol? Are they talking about potential attack vectors? Theorizing on how the product can be made better? Or is it a bunch of hype people saying ‘gm’ and creating memes? A good product will have highly engaged, highly intelligent, highly technical people involved. A product that’s relying on hype to attract investors is going to have a lot of people asking about price and strings of people leaving valueless messages like “gm”.

The next post

The next post’s topic is “How staking stays healthy long-term (and how your choices help)”. It will cover permissionlessness, decentralization, and current analytics of Ethereum’s decentralization metrics.

Resources

• ethereum.org: “What is staking?”

• Ethereum’s Launchpad: “Validator FAQ”

As always, if you find any inaccuracies in these blog posts, please contact nixo and let her know so she can hastily correct them.