This is Part 3 of a six part series called A Beginner’s Guide to Staking
Why you care: because if you’re investing in ETH, you want Ethereum to remain sustainable. The better your choice of staking provider, the more you contribute to the effort to make your investment robust long-term.
Becoming a validator on Ethereum is permissionless. Permissionlessness refers to anyone’s ability to be a part of the system without being gated by anyone. There will always be some kind of barrier to joining (for example, electricity in proof of work, a capital bond in proof of stake) because this creates sybil resistance.
A sybil attack is when a people attack or exploit a network by pretending to have a lot of different identities. An example of this is setting up a network of bots to spam a service. Sybil resistance is the a quality of being able to lessen these attacks to some degree. If you have to invest a dollar, have account history, or do a small amount of work in order to use a service, you’re less likely to spam it using a lot of new accounts.
Ideally, however, barriers that increase sybil resistance don’t disproportionately affect any one group. An ideal permissionless protocol creates a disincentive to spam, but equal access to all real humans.
Permissionlessness is important to Ethereum’s values of being universally accessible and resistant to capture by interest groups. If all the Ethereum validators were owned by Google, Google could write anything it wanted to the blockchain. Similarly, if the creators of a blockchain controlled who was allowed to validate, they could choose the validators based on who would comply with their requests to edit the chain to their advantage. This would mean that the creators of the chain had captured the chain to potentially advantage themselves.
For example, some blockchains are run by a very low number of validators and, for that reason, are known as centralized chains. If the number of validators is very low, it could be easy to influence them to write false information to the chain.
The likelihood of false information being published to the chain goes down as the number of validators go up, especially if these validators are very dissimilar: different geographic locations, run by people of different cultures, speaking different languages. Decentralization is something that disrupts the potential for collusion. A decentralized blockchain is a capture-resistant blockchain.
Decentralization also makes a blockchain resilient. A chain that runs on validators running different hardware, different software, on different networks, under different jurisdictions is less likely to have downtime. A decentralized blockchain is a resilient blockchain.
Geographic locations
Who owns the validators?
What software are they using?
What hardware are they using?
This would be difficult-to-impossible to tell :)
Geography
Most Ethereum validators are concentrated in North America and Europe. These are places with the highest median income and have the most ease in getting the hardware that’s needed. This isn’t ideal and is being addressed in a number of ways, including a lower financial barrier (e.g. minipools, which we’ll discuss later), better guides, tools for more platforms (Windows & Mac since Ethereum largely runs on Linux machines at the moment), and more focus on good user experience.
Entities (who owns the validators)
You’ll notice that the top two entities operate >40% of the network. However, these two entities represent more than 2 operators - Lido is a semi-decentralized protocol with 29 operators and Coinbase is a centralized company that utilizes a number of different operators (but primarily Coinbase Cloud). EthStaker aims to educate new individuals or organizations coming into staking today on who to stake with in order to alleviate these concentrations.
Software
The software that runs on Ethereum validators is called a client. Ethereum is unique in its emphasis on using multiple client software implementations - there are five consensus layer clients and four execution layer clients (don’t worry about what those specifically mean right now).
Why would we want them using different software? Because there’s no one point of failure for Ethereum validators. If one pushes a bad update, the others will keep on going. They’re all written in different coding languages, so if one dependency in a language pushes a bad update, the others will keep going.
For these reasons, Ethereum doesn’t have downtime. Even when it pushes major upgrades (EIP 1559, the Merge, Shanghai), there’s no ‘maintenance’ time or time when you can’t count on your transactions being processed.
When you’re deciding how to stake, it’s important to understand the foundations of staking and what permissionlessness and decentralization are. If you want your stake to be a good long-term investment, you’ll want to choose the most decentralized way to stake and want to support the protocols that keep staking permissionless. When we go over ways to stake, the metrics above should help inform your decision on how you choose to stake.
The next post’s topic is “Broad issues in Ethereum staking today”. It will cover issues that stakers and the Ethereum protocol are facing today, including UX deficiencies, financial barriers, centralization risks, & Miner Extractable Value (MEV).
Gemini: “What does permissionlessness mean?” (article)
Ben DiFrancesco via Bankless: "The power of permissionless platforms” (article)
Part 4 can be found here: https://paragraph.xyz/@ethstaker/staking-beginners-p4