The Ethereum network has undergone a historic upgrade, entering a new phase of development. Following The Merge, Ethereum continues to advance toward scalability and decentralization. While The Merge marked the first step into the Proof-of-Stake (PoS) era, Ethereum still faces significant challenges. Issues such as validator centralization, network scalability, and the Lazy Validator Problem continue to constrain application growth and secure expansion. This article begins with an analysis of The Merge, explores the consensus algorithm adopted in PoS, and highlights how Distributed Validator Technology (DVT) addresses single-point risks for validators. It offers insights for practitioners into Ethereum’s current challenges and future opportunities, and is best suited for readers with a foundational understanding of Ethereum.
Understanding The Merge
Background
The Merge represents the most significant technical upgrade in Ethereum’s history. On September 15, 2022, the Execution Layer and Consensus Layer were merged, transitioning Ethereum’s consensus mechanism from Proof-of-Work (PoW) to Proof-of-Stake (PoS).
Beyond the consensus shift, the upgrade reduced Ethereum’s energy consumption by approximately 99.95%. According to a tweet by Vitalik Buterin, The Merge decreased global electricity consumption by 0.2%.
Changes Introduced by The Merge
Token Issuance:
ETH issuance from the PoW era has ceased. New ETH is now generated solely through PoS block production, reducing Ethereum’s inflation rate. When the base fee exceeds 15 gwei, Ethereum can even become deflationary.
Staking Rewards:
Gas fees and MEV (Maximal Extractable Value) income are now allocated to validators. Staking rewards in ETH terms range between 5% and 7%.
Withdrawals:
Staked ETH cannot be withdrawn immediately post-Merge. Withdrawals will be enabled following the Shanghai upgrade. To prevent mass withdrawals, there are limits on the amount and frequency of withdrawals, as detailed in EIP-4895: Beacon Chain Push Withdrawals as Operations.
Data Structure Changes:
Consensus blocks now include the hash of execution blocks. Parameters related to PoW in execution blocks are no longer effective. The mixHash field records Ethereum’s native RANDAO random number, available for smart contract developers to use.
Consensus Replacement:
PoW consensus has been replaced by PoS, with validators taking over the roles previously filled by miners. The network now requires two client nodes: an Execution Layer Client (EL) and a Consensus Layer Client (CL).
With the shift to PoS, Ethereum’s algorithm changed from Ethash to Casper FFG (Gasper). This new algorithm is more energy-efficient, eliminating the need for specialized mining hardware. Instead, blocks are produced through a randomized selection process.
Exploring Gasper: Ethereum’s Consensus Algorithm
As of September 23, 2022, the Beacon Chain held 13,830,378 staked ETH, with 432,203 active validators. Given the large number of validators, the PBFT (Practical Byzantine Fault Tolerance) model’s communication overhead became impractical. Ethereum adapted PBFT principles into the Gasper algorithm to suit its needs.
Gasper serves as the finality gadget in the Beacon Chain protocol, determining which blocks participants should consider finalized and immutable. It also resolves fork choices, identifying the canonical chain during disputes.
Key Concepts
Slot:
A Slot represents a single block post-Merge. A committee is responsible for producing the block within a 12-second window.
Epoch:
An Epoch consists of 32 slots, lasting 384 seconds, or 6.4 minutes.
Committee:
Each validator committee is assigned at least 128 validators. Validators perform attestation duties for their designated slots. One validator is randomly selected as the proposer to produce the block.
Attestation:
Validators in a slot’s committee vote on the previous epoch’s checkpoint, confirming their acknowledgement of the transactions.
Validator:
Validators replace miners in the PoS system. By staking 32 ETH, they participate in block production and attestation.
Proposer:
Selected via RANDAO randomness, the proposer is responsible for packing the slot’s block.
Beacon Chain:
This PoS blockchain replaces the PoW consensus. It also supports data blobs for rollups, providing additional storage space.
Process Flow
At the start of an epoch, RANDAO assigns a committee to each slot for attesting the previous epoch.
Aggregators collect and aggregate these attestations, recording them into slot blocks.
RANDAO randomly selects a proposer for block production.
During the current epoch, each slot’s committee attests to the previous epoch’s checkpoint. Finality is achieved after two consecutive checkpoint attestations. The entire epoch finalizes after all 32 slots complete attestation. Finality consensus is reached after two epochs (12.8 minutes), ensuring transaction irreversibility.
Features
RANDAO provides an on-chain random number source. This random value is included in execution layer blocks, allowing smart contracts to utilize it trustlessly. This capability may enable new DeFi applications, such as decentralized gaming and lottery systems.
Latest Message Driven GHOST (LMD-GHOST)
LMD-GHOST serves as the fork-choice rule in Ethereum’s PoS consensus. During forks, it selects the subtree with the most recent message support. This approach reduces computational load by considering only the latest votes from each validator.
Challenges
Increased Communication and Verification Costs:
While more validators enhance data availability sampling (DAS) and decentralization, they also increase communication burdens. Aggregators must collect more signatures, raising verification costs and node operational load.
Long-Range Attacks:
A validator who withdraws staked ETH could use old private keys to maliciously fork from a previously signed block. Since they no longer have staked assets, they might produce empty blocks up to the current height, attacking the network. Ethereum’s checkpoint voting design mitigates this by progressively advancing initial states.
Ethereum Staking and Validation
Staking Basics
Staking Threshold:
Validators must stake 32 ETH as security to participate in consensus and block production.
Validator Duties:
Validators are responsible for producing blocks and attestations at protocol-defined times.
Staking Methods
Solo Staking:
Individuals stake 32 ETH and run their own validator nodes. Nodes can be hosted on cloud servers or local hardware. Cloud servers offer stability, reducing downtime penalties, while local setups may lower costs.
Staking Pools:
For those with less than 32 ETH, staking pools like Lido, Rocket Pool, and Swell allow pooled staking. These protocols issue liquid staking tokens (e.g., stETH, rETH), providing liquidity and passive income. Lido uses professional node operators, while Rocket Pool allows anyone to run a node with 16 ETH and RPL collateral.
Centralized Exchanges (CEXs):
Platforms like Coinbase and Binance offer staking services, attracting users with convenience and lower entry barriers.
Each method varies in decentralization and security, appealing to different user trust models.
Risks and Concerns
Post-Merge, staking concentration poses decentralization risks. Currently, Lido and Coinbase hold significant staked ETH shares. If withdrawals lead to further consolidation, these entities could exert disproportionate influence over network consensus, challenging Ethereum’s decentralization ethos.
Reward Types
Attestation Rewards:
Validators earn rewards for successful attestations (frequent, lower value).
Block Proposal Rewards:
Proposers receive rewards for packing blocks (less frequent, higher value).
MEV Income:
Validators earn from gas fees and MEV strategies like sandwich attacks. Recent data shows MEV volumes reaching hundreds of millions, forming a substantial income source.
Penalty Types
Inactivity Leak:
Penalties for missing attestations or block proposals.
Slashing:
Severe penalties for malicious actions, such as double-proposing or attestation violations.
Key Types
Signing Key:
Used for attesting and proposing blocks, accessed every epoch (6.4 minutes).
Withdrawal Key:
Required for withdrawing staked ETH and rewards, must be stored offline.
Staking Risks
Key Theft:
Compromise of signing or withdrawal keys.
Single-Point Failure:
Validators run on single machines. Redundancy is prohibited to avoid slashing. Cloud-based nodes (e.g., AWS) risk downtime from outages.
Validator Effectiveness:
Hardware or software failures may cause inactivity penalties.
Distributed Validator Technology (DVT)
While decentralized staking solutions improve accessibility, validators remain vulnerable to single-point failures. DVT addresses this by distributing signing keys across multiple nodes, reducing downtime risks and enhancing upgrade flexibility.
Concepts
Operator:
An entity running one or more nodes.
Operator Node:
Hardware and software performing validator tasks, alone or via DVT.
Distributed Validator Technology:
DVT distributes a single validator’s workload across multiple nodes, improving security and decentralization.
Node Requirements
To participate, distributed validator nodes must run:
- Execution layer client
- Consensus layer client
- Distributed validator client
- Validator client
Risk Mitigation via DVT
Key Theft Protection:
Threshold signatures (m-of-n) split keys into shares. Signatures are aggregated without exposing full keys.
Node Downtime Prevention:
- Crash Faults: Redundant nodes handle outages from power or network failures.
- Byzantine Faults: Consensus among nodes prevents malicious actions.
Architecture
Distributed validators use key shares for remote signing. Signatures are aggregated within distributed validator clients, achieving threshold requirements for block validation.
Implementation Paths
Secret Sharing Scheme (SSS):
A single entity creates keys and distributes shares via SSS.
Distributed Key Generation (DKG):
Multiple nodes collaboratively generate keys and shares using DKG protocols, avoiding single-point trust.
Threshold Signature Schemes (TSS)
BLS threshold signatures enable collaborative signing. Validators can generate signatures when t+1 nodes agree (0<t<n), ensuring security without full key exposure.
DVT Projects in Practice
SSV Network
SSV implements DVT using a DKG approach, creating a decentralized validator network. Operators manage nodes, while stakers pay fees in SSV tokens. The DAO governs network fees, operator scoring, and treasury management.
Participants
- Stakers: Use DVT for optimal validator performance.
- Operators: Provide infrastructure and maintain network health.
- DAO: Governs protocol parameters and funds via SSV token votes.
Obol Network
Obol enables trust-minimized staking via multi-operator validation. Its ecosystem includes:
- Distributed Validator Launchpad
- Charon (distributed validator client)
- Obol Managers (smart contracts)
- Testnets for deployment practice
Key Concepts
- Distributed Validator: Runs across multiple nodes, avoiding single-point failure.
- Node Stack: Includes execution/consensus clients, Charon, and validator clients.
- Key Generation: DKG ceremonies create shared keys without full key assembly.
Conclusion and Future Outlook
Summary
This article traced Ethereum’s journey from The Merge to its current PoS consensus. We examined Gasper’s mechanics, staking methods, and validator challenges. DVT emerged as a key solution for enhancing decentralization and reliability. These insights provide a roadmap for understanding Ethereum’s evolution and its commitment to scalable, decentralized infrastructure.
Future Directions
Post-Merge, Ethereum will pursue Danksharding to enhance scalability. EIP-4488 reduces calldata costs, supporting rollup efficiency. Proto-danksharding introduces blobs for expanded rollup storage, lowering data availability costs. Full Danksharding requires data availability sampling (DAS) and proposer-builder separation (PBS), reliant on a decentralized node network. Thus, decentralized staking and DVT are critical for Ethereum’s long-term growth.
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Frequently Asked Questions
What is The Merge in Ethereum?
The Merge refers to Ethereum’s transition from Proof-of-Work to Proof-of-Stake consensus. It combined the Execution Layer and Consensus Layer, reducing energy consumption by 99.95% and altering ETH issuance mechanics.
How does PoS consensus improve Ethereum?
PoS eliminates the need for energy-intensive mining, allowing validators to secure the network through staking. It enhances scalability, reduces environmental impact, and enables greater participation through staking pools.
What are the risks of Ethereum staking?
Rights include key theft, slashing for malicious actions, and inactivity penalties. Single-point failures in node operation can also lead to downtime, highlighting the need for solutions like DVT.
How does Distributed Validator Technology (DVT) work?
DVT splits validator keys into shares distributed across multiple nodes. Threshold signatures ensure security, while redundancy reduces downtime risks from hardware or network issues.
What is the role of liquid staking tokens like stETH?
These tokens represent staked ETH and accruing rewards, providing liquidity during the staking period. They enable users to participate in DeFi while earning staking yields.
When will staked ETH withdrawals be enabled?
Withdrawals are expected after the Shanghai upgrade, with mechanisms in place to prevent mass exits and ensure network stability.