What are the potential failures of Ethereum 2.0 staking? How to respond?

Beacon Chain has various incentive mechanisms for validator behavior, all determined by the current state of the network. Therefore, when making decisions on how to safeguard nodes, it is also important to consider the potential issues that other validators may encounter.

The balance of active validators either increases or decreases, and does not remain constant. Therefore, minimizing risks is a way to maximize returns. The situations in which a validator's balance is deducted by the Beacon Chain mainly include the following three:

• General Penalty: This penalty is imposed when a validator is negligent (e.g., going offline).
• Inactivity Penalty: When the network is in a state of uncertainty, a validator's negligence will incur this penalty, which is highly correlated with other validators that are offline.
• Slashing: A validator will be slashed when they propose contradictory blocks or proofs (potentially due to malicious behavior).

Note: On average, a single validator's balance may remain unchanged, but as long as they participate in work, they will either earn rewards or face penalties.

If the entire network is functioning healthily, the impact of a single validator going offline or triggering a slashing event is minimal, meaning the penalties will not be severe. Conversely, if a large number of validators go offline, the reduction in the balance of offline validators will occur much more rapidly.

Similarly, if a large number of validators trigger slashing simultaneously, it would be akin to an attack on the Beacon Chain, and thus 100% of those validators' staked funds would be destroyed.

Due to these "anti-correlated" incentive measures, validators should consider issues that may simultaneously affect others, rather than approaching from an isolated, individual perspective.

Causes and Possibilities of Failures

Let’s carefully review some failure cases and see how many other validators would be affected simultaneously, and how severe the penalties for your validator would be.

I disagree with @econoar on this point. The severity of these issues is moderate. Home UPS and dual WAN address failures are unrelated to other users, so they can be excluded from consideration.

? Network / Power Failure

If you are running a validator from home, you are likely to encounter these issues in the future. Home network and power connections cannot guarantee uptime. When the network disconnects or power is interrupted, it usually affects the entire area and can last for several hours.

Unless your network or power is very stable, it is not worth being penalized for this reason. During those few hours, you will be penalized, but since the entire network is functioning normally, your penalty will be roughly equivalent to the rewards you would have earned during that time. In other words, if the downtime is k hours, your validator's balance may revert to the value it had k hours before the failure, and then after k hours, your validator's balance will return to the value it had before the failure.

The balance recovery speed of Validator #12661 is roughly the same as the speed of decrease while offline - Beaconcha.in

? Hardware Failure

Similar to network issues, hardware failures can occur randomly, and when they do, your node may be offline for several days. It is essential to consider the expected returns over the entire lifecycle of the validator against the cost of backup hardware. Is the expected value of failures (offline penalties multiplied by the probability of occurrence) greater than the cost of backup hardware?

Personally, if the chance of failure is low and the cost of backup hardware is high, it may not be worth it. However, I am not a whale ? . You need to assess all failure scenarios based on your actual situation.

☁️ Cloud Service Failure

Perhaps many people choose to use cloud services to avoid hardware and network failures. If you use cloud services, you introduce the correlation risks mentioned above. How many other validators are using the same cloud service provider as you?

A week before the genesis, Amazon's AWS experienced a long outage, which significantly impacted the network. If a similar event occurs now, causing a large number of validators to go offline simultaneously, it would trigger inactivity penalties.

The worse scenario is if the cloud service provider runs your node on a new virtual machine but accidentally does not stop the old node, which could lead to slashing (if this also affects other validators, the penalties would be particularly severe).

If you insist on using cloud services, consider switching to a smaller provider, which may reduce losses.

? Staking Services

Currently, there are various staking services available on the mainnet, with varying degrees of decentralization, but entrusting your ETH to a service provider increases correlation risks. These services are undoubtedly an indispensable part of the eth2 ecosystem, especially for users holding less than 32 ETH or lacking the technical knowledge required for staking. However, these services are human-designed and thus may have flaws.

If the scale of the staking pool eventually grows to be as large as eth1 mining pools, a vulnerability could lead to large-scale slashing or inactivity penalties for its users.

? Infura Failure

Last month, Infura was down for six hours, causing a halt in the Ethereum ecosystem. Similarly, this is a correlation risk that Eth2 validators may face.

Additionally, third-party eth1 API providers must rate-limit service calls: in the past, this has led to validators being unable to produce valid blocks (Medalla testnet).

The best solution is to run your own eth1 node: you won't encounter rate limits, thereby reducing your correlation risk, and it helps improve the overall decentralization of the network.

Eth2 clients have begun to incorporate the possibility of specifying multiple eth1 nodes. The benefit is that if the primary endpoint fails, you can easily switch to a backup endpoint (Lighthouse: --eth1-endpoints, Prysm: PR#8062, Nimbus and Teku may add support later).

I highly recommend adding low-cost or free backup APIs (EthereumNodes.com has free and paid API endpoints and their current status). This measure is essential whether or not you run your own eth1 node.

? Failure of a Specific Eth2 Client

Despite code reviews, audits, and testing, bugs in eth2 clients are hidden somewhere. Most of them are minor issues and will be discovered before product release, but the client you choose may have the potential to go offline or cause you to be slashed. If this happens, you would not want to run the client that the majority (more than 1/3) are using.

You must weigh the most suitable client against its popularity. Consider reading the documentation of another client so that if your node encounters an issue, you know how to install and configure a different client.

If you are staking a large amount of ETH, it is essential to run different clients to avoid putting all your eggs in one basket. Vouch is an infrastructure that can provide multi-node staking, and Secret Shared Validators have also made rapid progress.

? Black Swan Events

Of course, there are many low-probability, unpredictable events that can pose risks. These are unrelated to your staking setup and decisions. For example, hardware-level issues like Spectre and Meltdown, or kernel vulnerabilities (BleedingTooth indicates certain dangers exist throughout the hardware stack). This means we cannot fully predict and avoid these problems, but we can take appropriate measures after they occur.

What Should I Worry About?

Ultimately, it depends on calculating the expected value of a given failure E(X): the probability of the event occurring and the cost of that event. Since correlation factors can significantly impact the severity of penalties, it is crucial to consider these failure events in the context of other members of the eth2 network. By comparing the expected costs of failures with the costs of diluting those failures, you will arrive at a reasonable answer to determine whether it is worth the risk.

No one knows all the scenarios in which a node might fail, nor the probability of each type of failure occurring, but by independently estimating the probabilities of each type of failure and diluting the maximum risk, "collective intelligence" will come into play. Additionally, since the risks faced by each validator are different and the assessments of these risks vary, risks you have not considered may be encountered by others, thus reducing correlation. The power of decentralization!

? Don't Panic

Finally, if something unexpected happens to your node, don’t panic! Even if you incur inactivity penalties, the amounts are not significant in the short term. Take a moment to calmly think about what happened, why it happened, and then devise a plan to address the issue. Take a deep breath before jumping in! It is better to give yourself an extra five minutes to think than to rush into making a wrong decision that leads to slashing.

The most important point: ? Do not run two nodes with the same validator key! ?

Slashing caused by running more than one validator with the same key - Beaconcha.in