Ethereum Proof of Stake Service

Rewards, Penalties & Slashing

Validators are incentivized by a reward and penalty system imposed on the ETH that they have at stake. A validator is rewarded with ETH for correctly performing their assigned duties. This is a financial instrument that ensures annualized earnings for validators – assuming they are optimally performing their duties.

Validators are penalized by deductions of staked ETH for participating in behaviors that are not in the interests of the network. Such behaviors include time spent disconnected from the network and malicious or incorrect proposals and attestations. In the most severe cases, malicious behaviors are penalized by ‘slashing’ – a significant reduction in staked ETH and complete removal from the network.

Securing Your Validator

A major concern for Ethereum staking is ensuring optimal security of private keys while maintaining 100% connectivity to the network. As validators are expected to be active at all times, validator keys are effectively ‘hot keys’ that must always be available to perform validator duties.

A common method for storing Ethereum hot keys is encrypted directly on the validator. Storing private keys directly on a validator ties key management with validator signing processes; this connected logic could potentially harm the security of validator private keys.

The most secure way to store validator keys is by remote signing, whereby validator keys are stored on a server kept separate from a validator yet are made available at all times to sign incoming requests from the network.

Ethereum Staking Barriers to Entry

Though becoming a validator is theoretically advantageous, barriers to entry are still present. Firstly, it is technically challenging to join the network and start staking. One must become familiar with the basic principles of using and sending ETH and it is recommended to have some coding knowledge as validator set up is complete using the command line.

Following set up, a validator must manage a stable, uninterrupted connection to the Eth1 legacy chain and the Beacon Chain, and ensure the security of their private keys while doing so. Consistent validator monitoring and remote signing management is required in order to maintain this connection. Time spent offline due to technical and maintenance errors translates to missed performance or ‘skipping blocks,’ leading to a reduction in ETH rewards.

In order to maximize performance and avoid potential risks, a validator must also verify that its duties are executed correctly. If a validator falsely proposes or attests, they will suffer slashing penalties and risk losing all of the ETH they have at stake.

Finally, managing a growing number of validators requires additional security and infrastructure considerations in order to orchestrate all of the above responsibilities effectively. Realistically, all of these technical considerations make ETH staking extremely difficult for non-technical individuals. In response, a growing number of staking platforms have been developed to simplify the process.

ETH Staking Services

For those looking for streamlined Ethereum staking, staking services are available. When considering an ETH staking service, it is important to understand how these services manage user private keys. Generally, the more centralized the service, the higher the security risks and penalties its users may face.

Custodial vs. Non-Custodial Staking Services

A major differentiator between staking services is level of custodianship; meaning, how a service stores user private keys. Most staking services are custodial or ‘centralized.’ Custodial staking services manage the entire ETH staking process on behalf of the user and have ‘custody’ over user private keys. Some centralized services only retain access to user validator keys (semi-custodial).

Custodial and semi-custodial staking raises security breach concerns should a hacker gain access to the service and access its user’s assets. Additionally, should the service inadvertently partake in a slashable event, its users face steep penalties given that slashing penalties grow exponentially the more validator keys are involved in an event. The larger the centralized service, the larger the potential penalties.

Alternatively, Non-Custodial staking solutions are available which are intended to provide streamlined validator set-up and management but allow the user to keep control of their private keys.

Blox’s Non-Custodial Staking Solution

From our perspective, in order to be truly non-custodial we had to develop a solution that not only segregates user private keys from Blox, but also ensures that user keys cannot be compromised in any way. The result is an open-source Desktop app, Blox Live, which grants a user management access to an individualized remote signer in which validator keys are securely stored and signing requests are managed. A user can easily set up and monitor one or many validators using Blox Live.

Blox’s proprietary remote signer is called KeyVault. KeyVault is stored on a user’s cloud service account of choice and is based on Hashicorp Vault. Blox Infra nodes ensure optimal connectivity to the Beacon Chain and Eth1, and transmit duties from the blockchain to a user’s personal KeyVault instance. KeyVault features built in slashing protection to ensure that incoming requests are in fact valid, and will only sign if it is safe to do so.