In collaboration with the Wharton Blockchain and Digital Asset Project
Foreword
Decentralized finance (DeFi) is an emerging and rapidly evolving area in the blockchain environment. Although examples of DeFi have existed for several years, there was a sudden upsurge of activity in 2020. In one year, the value of digital assets1 locked in DeFi smart contracts grew by a factor of 18, from $670 million to $13 billion; the number of associated user wallets grew by a factor of 11, from 100,000 to 1.2 million; and the number of DeFirelated applications grew from 8 to more than 200.2 This growth in turn has stimulated interest from both the private and public sectors.
DeFi aims to reconstruct and reimagine financial services on the foundations of distributed ledger technology, digital assets and smart contracts. As such, DeFi is a noteworthy sector of financial technology (fintech) activity.
However, serious questions remain:
– What, if any, are the distinctive aspects of DeFi? What distinguishes a DeFi service from a similar service based on traditional finance?
– What are the opportunities and potential benefits of DeFi? To whom will these benefits accrue – and who might be excluded or left behind?
– What are the risks – individual, organizational and systemic – of using DeFi? How do these risks apply to clients, markets, counterparties and beyond?
– Can DeFi become a significant alternative to traditional financial services? If so, will there be points of integration? If not, what if anything will DeFi represent in the market?
– What novel legal and policy questions does DeFi raise? How should policy-makers approach DeFi? What options exist for addressing these questions?
Notably, the DeFi space is relatively nascent and rapidly evolving, so the full scope of risks and potential for innovation remain to be seen – and there are unique challenges in regulating and creating policies for such a new and changing area.
This report does not recommend any one single approach; instead, it is designed as a set of tools that can be applied in light of the legal contexts and policy positions of each jurisdiction, which may vary.
In the appendices we offer a series of worksheets and other tools to assist with the evaluation of DeFi activities. A companion piece, DeFi Beyond the Hype, provides additional detail about the major DeFi service categories.
Our hope is that this resource will enable regulators and policy-makers to develop thoughtful approaches to DeFi, while helping industry participants understand and appreciate public-sector concerns.
It is the result of an international collaboration among academics, legal practitioners, DeFi entrepreneurs, technologists and regulatory experts. It provides a solid foundation for understanding the major factors that should drive policy-making decisions.
Produced by the Wharton Blockchain and Digital Asset Project, in collaboration with the World Economic Forum
Introduction
Decentralized Finance (DeFi) is a developing area at the intersection of blockchain, digital assets, and financial services. DeFi protocols seek to disintermediate finance through both familiar and new service arrangements. The market experienced explosive growth beginning in 2020. According to tracking service DeFi Pulse, the value of digital assets1 locked into DeFi services grew from less than $1 billion in 2019 to over $15 billion at the end of 2020, and over $80 billion in May 2021.2 Yet DeFi is still early in its maturation.
The goal of this report is to demystify DeFi. It describes the basic attributes of DeFi services, the structure of the DeFi ecosystem, and emerging developments. A forthcoming Decentralized Finance Policy-Maker Toolkit will offer guidance on risks and policy approaches for governments navigating this new space.
DeFi is a general term covering a variety of activities and business relationships. We identify six major DeFi service categories—stablecoins, exchanges, credit, derivatives, insurance, and asset management—as well as auxiliary services such as wallets and oracles. While traditional finance relies on intermediaries to manage and process financial services, DeFi operates in a decentralized environment—public, permissionless blockchains.
Services are generally encoded in open-source software protocols and smart contracts. Like blockchain technology more generally, DeFi has an enthusiastic base of evangelists, who promote its potential for efficiency, transparency, innovation, and financial inclusion. It also has its critics, risks, and unknowns. There have already been significant examples of fraud, attacks, governance controversies, and other failures in the DeFi world. At this early stage, it is essential for industry and governments alike to develop a well-informed and nuanced understanding of the opportunities, risks, and challenges.
What is DeFi?
THE FUNDAMENTALS
DeFi is a general term for decentralized applications (Dapps) providing financial services on a blockchain settlement layer, including payments, lending, trading, investments, insurance, and asset management. DeFi services typically operate without centralized intermediaries or institutions, and use open protocols that allow services to be programmatically combined in flexible ways.
Historically, intermediaries have played essential roles within financial markets, serving as agents and brokers of trust, liquidity, settlement, and security. The range and value of intermediaries has grown over time to meet the needs of an increasingly complex financial system. Since the 2008 Global Financial Crisis, there has been increased attention on inefficiencies, structural inequalities, and hidden risks of the intermediated financial system. More recently, controversies such as the GameStop short squeeze, in which retail investors were blocked from trading during a period of volatility, cast a spotlight on other shortcomings of legacy financial infrastructure:
slow settlement cycles, inefficient price discovery, liquidity challenges, and the lack of assurance around underlying assets.
DeFi aims to address some of these challenges—though many still apply to the DeFi ecosystem in its current state.
DeFi leverages blockchain technology to facilitate alternatives to traditional service providers and market structures. It offers the potential for innovation and creation of new services for improving efficiency of financial markets—building upon work being done in financial technology (fintech) and blockchain technology more broadly. Whether it achieves this promise remains to be seen…
Speculation and risk-taking are essential features of all monetary economies and both are closely tied to the financial sector. History has shown that without appropriate rules, safeguards, and behavioral norms, financial markets become more prone to fraud, pro-cyclical excess, and crises. Occasionally, these crises take systemic proportions, threatening the stability of the economic system as a whole. In a worst case scenario, a financial meltdown can lead to an economic depression, extreme social divisions, or even violent political conflict.
Wenn Sie begonnen haben, Ihren Zeh in die Welt des Ethereum einzutauchen, haben Sie wahrscheinlich Etherscan gesehen oder wurden dorthin umgeleitet. Etherscan ist ein Block-Explorer, der es Benutzern ermöglicht, Informationen über Transaktionen anzuzeigen, die an die Blockchain übermittelt wurden, den Vertragscode zu überprüfen und Netzwerkdaten zu visualisieren. Dieser Leitfaden konzentriert sich auf die Erläuterung der Informationen, die für verschiedene Arten von Transaktionen auf Etherscan angezeigt werden.
Komponenten einer Ethereum-Transaktion auf Etherscan
Transaktions-Hash: Ein eindeutiger Identifier, der verwendet werden kann, um eine bestimmte Transaktion zu lokalisieren.
Status: Der aktuelle Status einer Transaktion (erfolgreich, fehlgeschlagen oder schwebend).
Block: Die Blocknummer, in den die Transaktion aufgenommen wurde.
Zeitstempel: Die Zeit, zu der der Block gemined wurde, in UTC.
Von: Das Konto, von dem die Transaktion ursprünglich gesendet wurde.
An: Das Konto, an das die Transaktion adressiert ist.
Wert: Der Betrag von Ether, der in der Transaktion enthalten ist.
Transaktionsgebühr: Der an den Miner für die Abwicklung der Transaktion gezahlte Ether-Betrag, der durch Multiplikation der verbrauchten Gasmenge mit dem Gaspreis berechnet wird.
Gaslimit: Die Obergrenze, wie viel Rechenarbeit und Speicherplatz der Sender bereit ist, für die Transaktion aufzuwenden.
Von der Transaktion verbrauchtes Gas: Die Menge an Rechen- und Speicherarbeit, die für die Transaktion verwendet wird.
Gaspreis: Die Menge an Ether pro Gaseinheit, die der Nutzer bereit ist, für die Transaktion zu zahlen, üblicherweise in einer Untereinheit von Ether, die als Gwei bezeichnet wird. 1 Gwei = 1×10^-9 Ether.
Nonce: Die Anzahl der Transaktionen, die vom Konto weggeschickt werden. Die Zahl wird mit 0 initialisiert und für jede gesendete Transaktion um 1 erhöht.
Eingabedaten: Informationen, die an einen intelligenten Vertrag übergeben werden, wenn eine Transaktion an seine Adresse gesendet wird. Wenn die Transaktion jedoch einen Vertrag erstellt, wird der Bytecode des Vertrags in das Eingabedatenfeld gesetzt.
Ich empfehle Ihnen, diesen Artikel zu lesen, wenn Sie mit der Verwendung von Gas in Ethereum nicht sehr vertraut sind.Weiterlesen
https://kinematec.de/wp-content/uploads/2020/10/etherscan.jpg10881242christianhttps://kinematec.de/wp-content/uploads/2019/10/kinematec_logo.pngchristian2020-10-20 08:59:592020-10-20 09:13:39Deciphering a Transaction on Etherscan
Lending is the natural next step for any new nascent financial market. The house of Rothschild got its start by collecting and exchanging coins (moneychanging). Once they had enough value under their custody, the natural step was to put it to work (moneylending). Then they expanded by doing the same for rulers locally and then, doing the same across Europe.
https://kinematec.de/wp-content/uploads/2020/10/0_Dq5cEioJ-ez8hWms.jpg939700christianhttps://kinematec.de/wp-content/uploads/2019/10/kinematec_logo.pngchristian2020-10-10 10:06:232020-10-20 09:22:46Moneychanging, Moneylending: Part I
This is a simple working example of a flash arbitrage smart contract, whereby within a single transaction it:
Instantly flash borrows a certain asset (ETH in this example) from Aave lending pools with zero collateral
Calls UniswapV2 Router02 to wrap the flash liquidity of ETH into WETH and exchange it for DAI tokens
Checks the exchange rate of DAI back into ETH on Sushiswap V1
Calls SushiswapV1 Router02 to swap the DAI back into WETH and then ETH
There’s also an independent function to withdraw all ETH and ERC20 tokens at the contract owner’s discretion
Before you start playing with this I highly recommend to have a read of the Aave Flash Loan mechanism and get an indepth conceptual understanding, as it’s equally important as understanding the code.
Since Sushiswap is a fork of UniswapV2, I also suggest familiarising yourself with the Uniswap V2 guide on trading via smart contracts, particularly if you plan on adding more swaps to your arbitrage strategy.
Deployment
The contract can be plonked directly onto Remix, using solidity compiler 0.6.12, and Metamask using Injected Web3.
On deployment, set the following parameters:
_AaveLendingPool: the LendingPoolAddressesProvider address corresponding to the deployment environment. see Deployed Contract Instances.
_UniswapV2Router: the Router02 address for UniswapV2 see here.
_SushiswapV1Router: the Router02 address for SushiswapV1. There isn’t an official testnet router02 so for demo purposes you can just use the uniswapV2 address when playing on the testnet since their codebase is identical (for now – which may not be the case in the future). Alternatively see Sushiswap repo for the mainnet router02 address to test in prod or deploy your own version of Router02 onto testnet.
Click ‚transact‘ and approve the Metamask pop up.
Once the flash arb contract is deployed, send some ETH or ERC20 token to this contract depending on what asset you’re planning to flash borrow from Aave in case you need extra funds to cover the flash fee.
Execution
On execution, set the following parameters:
_flashAsset: address of the asset you want to flash loan. e.g. ETH is 0xEeeeeEeeeEeEeeEeEeEeeEEEeeeeEeeeeeeeEEeE. If you want to flash anything else see Reserved Assets but you will need to adjust the executeArbitrage() function accordingly.
_flashAmount: how much of _flashAsset you want to borrow, demoniated in wei (e.g. 1000000000000000000 for 1 ether).
_daiTokenAddress: for this demo we’re swapping with the DAI token, so lookup the reserved address of the DAI token. See Reserved Assets.
_amountToTrade: how much of the newly acquired _flashAsset you’d like to use as part of this arbitrage.
_tokensOut: how much of the ERC20 tokens from the first swap would you like to swap back to complete the arb. Denominated in actual tokens, i.e. 1 = 1 DAI token.
Click ‚transact‘ and approve in Metamask.
Result
If all goes well, a successful execution of this contract looks like this (Ropsten testnet).
Tips for further customization
This contract would typically be executed by a NodeJS bot (not part of this demo) via a web3.eth.Contract() call, referencing the deployed address of this contract and its corresponding ABI. You would usually get the bot to interact with price aggregators such as 1inch to assess arb opportunities and execute this contract if the right opportunity is found.
To have any chance of getting in front of other arb bots on significant arb opportunities the NodeJS bot needs to be hosted on your own fast Ethereum node. You will most likely come off second best going through the Infura API to interact with the Ethereum blockchain.
Some people like to get an unfair advantage by building Transaction-Ordering Dependence (front running) capabilities into the NodeJS component, typically using web3.eth.subscribe(‚pendingTransactions‘..) to monitor for newly submitted arb TXs. However this smart contract would then need to be significantly more complex and flexible enough to cater for a wide range of arbitrage permutations across multiple protocols.
User specified parameters (as opposed to hardcoded variables) should be passed via the flashloan() function in the first instance. You can subsequently set these parameters to contract variables with higher visibility across the contract.
There are no direct ETH pairs in UniswapV2 therefore the need for a WETH wrapper. Since Sushiswap is forked from UniswapV2 you’ll need to wrap in WETH as well.
If you found this useful and would like to send me some gas money:
The European Commission has today officially proposed a regulatory framework for crypto-assets and stablecoins after a leaked draft proposal went viral last week.
The official proposal recommends a “bespoke” regime for crypto-assets and stablecoins.
The European Commission has today officially proposed a regulatory framework for crypto-assets and stablecoins after a leaked draft proposal went viral last week.
The 168-page official draft proposal (provisional), published Thursday, highlights the need for a „sound“ legal framework, clearly defining the regulatory treatment of all crypto-assets that are not covered by existing EU financial services legislation.
Crypto assets, especially stablecoins, have the potential to become widely accepted, said the commission. Hence, they would be subject to „more stringent requirements“ regarding capital, investor rights, and supervision. The proposal is in line with the leaked version from last week.
The commission has today proposed a „bespoke“ regime for crypto-assets and stablecoins. „The bespoke regime for crypto-assets will ensure a high level of consumer and investor protection and market integrity, by regulating the main activities related to crypto-assets,“ said the commission. The main activities include such as crypto exchange and wallet services.
„By imposing requirements (such as governance, operational requirements) on the main crypto-asset service providers and issuers operating in the EU, the proposal is likely to reduce the amounts of fraud and theft of crypto-assets,“ said the commission, adding:
„The bespoke regime will introduce specific requirements on e-money tokens, significant e-money tokens, asset-referenced tokens and significant asset-referenced tokens in order to address the potential risks to financial stability and monetary policy transmission these can present. Finally, it will address market fragmentation issues arising from the different national approaches across the EU.“
The commission has today also proposed a regulatory sandbox to allow companies to test blockchain technology in trade and settlement processes.
The proposals are part of the commission’s newly adopted Digital Finance Package. The package will „boost Europe’s competitiveness and innovation in the financial sector, paving the way for Europe to become a global standard-setter,“ said the commission. „It will give consumers more choice and opportunities in financial services and modern payments, while at the same time ensuring consumer protection and financial stability.“
Hundreds of them have sprouted, with fanciful names like Primecoin, Dash, and Verge. They have developed cult-like followings among the tech-savvy. Their values fluctuate wildly. Some people say these mysterious bits of computer code will someday replace money as we know it. What exactly are these cryptocurrencies, and what makes people think they are worth anything at all? To answer these questions, let’s first look at how money evolved.
Uses of money
Money serves as a store of value, a means of exchange for goods and services, and a unit of account that measures value. Before money, human societies exchanged goods and services directly—a bushel of grain for a pig, say. This was not very efficient. As societies grew more complex, commodity monies were developed—from seashells to copper, silver, and gold. Some states introduced fiat money—which has no intrinsic value other than the promise to pay—such as paper money in eighth century China under the Tang dynasty.
Most early forms of fiat money were neither very stable nor widely accepted, as people did not believe the issuer would honor its commitment to redeem the money. Governments were tempted to print more money to buy goods or raise wages, which fueled inflation (think of people moving cash around in wheelbarrows in post–World War I Germany). Modern central banks seek to maintain price stability by regulating the supply of money on behalf of governments.
Bookkeeping and ledgers
An increasingly extensive and complex financial system gave rise to the need for trusted intermediaries and credible accounting systems. The development of double-entry bookkeeping in Renaissance Italy was a major innovation that strengthened the role of large private banks. In modern times, central banks emerged at the apex of payment systems. With computerized bank ledgers, the coordinating role of central banks increased.
How do such ledgers work? Financial institutions adjust the positions of their account holders in their internal ledgers, while the central bank validates transactions among financial institutions in a central ledger. For example, Mehrnaz uses money from her account in bank A to buy goods from Mary, who has an account in bank B. Bank A debits the money from Mehrnaz’s account. The central bank moves money from bank A to bank B and records the transaction in its central ledger. Bank B then adds the money to Mary’s account. As you can see, the system is based on trust in the central bank and in its ability to safeguard the integrity of the central ledger and ensure that the same money is not spent twice.
With many cryptocurrencies, on the other hand, there is no need for a trusted central agent. Instead, they rely on distributed ledger technology, such as blockchain, to construct a ledger (effectively a database) that is maintained across a network. To ensure that the same cryptocurrency is not spent twice, each member of the network verifies and validates transactions using technologies derived from computing and cryptography. Once a decentralized consensus is achieved among members of the network, the transaction is added to the ledger, which is validated. The ledger provides a complete history of the transactions associated with a particular cryptocurrency that is permanent and cannot be manipulated by a single entity. This ability to achieve consensus on the validity of transactions between accounts in a distributed network is a foundational technological shift.
Network members who verify and validate transactions are usually rewarded with newly minted cryptocurrency. Many cryptocurrencies are also pseudo-anonymous: holders of the currency have two keys. One is public, such as an account number; another, private key is required to complete a transaction. So, to continue the previous example, Mehrnaz wants to buy goods from Mary using a cryptocurrency. To do so, she initiates a transaction with her private key. Mehrnaz is identified in the network by her public key, ABC, and Mary is identified by hers, XYZ. Network members verify that ABC has the money she wants to transfer to XYZ by solving a cryptography puzzle. Once the puzzle is solved, the transaction is validated, a new block representing the transaction is added to the blockchain, and the money is transferred from ABC’s wallet to XYZ’s.
Benefits, risks
Now that we understand the technology, let’s return to the genesis of cryptocurrencies. The first one, Bitcoin, was introduced in 2009 by a programmer (or group of programmers) using the pseudonym Satoshi Nakamoto. As of April 2018, there were more than 1,500 cryptocurrencies, according to coinmarketcap.com; along with Bitcoin, Ether and Ripple are the most widely used.
Despite the hype, cryptocurrencies still don’t fulfill the basic functions of money as a store of value, means of exchange, and unit of account. Because their value is highly volatile, they have little use so far as a unit of account or a store of value. Limited acceptance for payment restricts their use as a medium of exchange. Unlike with fiat money, the cost of producing many cryptocurrencies is high, reflecting the large amount of energy needed to power the computers that solve the cryptographic puzzles. Finally, decentralized issuance implies that there is no entity backing the asset, so acceptance is based entirely on users’ trust.
Cryptocurrencies and their underlying technologies offer benefits but also carry risks. Distributed ledger technology could reduce the cost of international transfers, including remittances, and foster financial inclusion. Some payment services now make overseas transfers in a matter of hours, not days. The technology can provide benefits beyond the financial system. For example, it can be used to securely store important records, such as medical histories and land deeds. On the other hand, the pseudo-
anonymity of many cryptocurrencies makes them vulnerable to use in money laundering and terrorism financing, if no intermediary checks the integrity of transactions or the identity of the people making them. Cryptocurrencies could also eventually present challenges for central banks were they to affect control over the money supply and therefore the conduct of monetary policy.
https://kinematec.de/wp-content/uploads/2020/08/1200px-International_Monetary_Fund_logo.svg.png12231200christianhttps://kinematec.de/wp-content/uploads/2019/10/kinematec_logo.pngchristian2020-08-23 09:53:372020-10-20 09:23:23The International Monetary Fund (IMF) Tries to Explain Cryptocurrencies
This post is a continuation of my Getting Deep Into Series started in an effort to provide a deeper understanding of the internal workings and other cool stuff about Ethereum and blockchain in general which you will not find easily on the web. Here are the previous parts of the Series in case you missed them:
Getting Deep Into Geth: Why Syncing Ethereum Node Is Slow
Downloading the blocks is just a small part. There is a lot of stuff going on…
In this part, we are going to explore explain and describe in detail the core behavior of the EVM. We will see how contracts are created, how message calls work, and take a look at everything related to data management, such as storage, memory, calldata, and the stack.
To better understand this article, you should be familiar with the basics of the Ethereum. If you are not, I highly recommend reading these posts first.
8 Resources to Get Started With Ethereum
The ultimate guide for understanding & Starting with Ethereum.
Throughout this post, we will illustrate some examples and demonstrations using sample contracts you can find in this repository. Please clone it, run npm install, and check it out before beginning.
Enjoy, and please do not hesitate to reach out with questions, suggestions or feedback.
EVM: 10,000 ft Perspective
Before diving into understanding how EVM works and seeing it working via code examples, let’s see where EVM fits in the Ethereum and what are its components. Don’t get scared by these diagrams because as soon as you are done reading this article you will be able to make a lot of sense out of these diagrams.
The below diagram shows where EVM fits into Ethereum.
The below diagram shows the basic Architecture of EVM.
This below diagram shows how different parts of EVM interact with each other to make Ethereum do its magic.
We have seen what EVM looks like. Now it’s time to start understanding how these parts play a significant role in the way Ethereum works.
Ethereum Contracts
Basics
Smart contracts are just computer programs, and we can say that Ethereum contracts are smart contracts that run on the Ethereum Virtual Machine. The EVM is the sandboxed runtime and a completely isolated environment for smart contracts in Ethereum. This means that every smart contract running inside the EVM has no access to the network, file system, or other processes running on the computer hosting the VM.
As we already know, there are two kinds of accounts: contracts and external accounts. Every account is identified by an address, and all accounts share the same address space. The EVM handles addresses of 160-bit length.
Every account consists of a balance, a nonce, bytecode, and stored data (storage). However, there are some differences between these two kinds of accounts. For instance, the code and storage of external accounts are empty, while contract accounts store their bytecode and the Merkle root hash of the entire state tree. Moreover, while external addresses have a corresponding private key, contract accounts don’t. The actions of contract accounts are controlled by the code they host in addition to the regular cryptographic signing of every Ethereum transaction.
Creation
The creation of a contract is simply a transaction in which the receiver address is empty and its data field contains the compiled bytecode of the contract to be created (this makes sense — contracts can create contracts too). Let’s look at a quick example. Please open the directory of exercise 1; in it, you will find a contract called MyContract with the following code:
https://kinematec.de/wp-content/uploads/2019/12/rggregerg-scaled.jpeg14402560christianhttps://kinematec.de/wp-content/uploads/2019/10/kinematec_logo.pngchristian2019-12-04 07:38:302020-10-20 09:21:43Getting Deep Into EVM: How Ethereum Works Backstage
This article explains how someone will be able to become a validator in Ethereum 2.0. New Ethereum will replace mining process as seen current Ethereum and use Proof of Stake consensus where validators will be the one maintaining the network. Those validators attestations are written on the Beacon chain. However, we won’t get into those technical details and you don’t even have to know all of that to take part in validating blocks.
What’s the current status of Ethereum 2.0 development?
Specification is there and seven different node clients are actively working on their implementation. The reason for this is that they are written in different languages and will have a different specializations i.e. being focused on the browser or resource constrained devices. Also, not all of them will survive (but that’s ok). In current Ethereum (Eth1) survivors are Geth and Parity. Current active Eth2 clients are: Lodestar, Nimbus, Lighthouse, Prysm, Trinity and Harmony + Artemis that should merge together.
They all have their own testnets but they all gathered in September on an interoperability event and created a multi-client testnet. Here is the historic tweet and we are glad that we could be there! Thanks Consensys.
First launch of the Ethereum 2.0 clients, tweet by Joseph Delong
Good news is that in the latest Eth2 spec release (v0.9.0) an official deposit contract has been declared as finished!
All inital deposits, that will happen on Eth1 chain, will be used by Eth2 chain to secure the network upon launch by leveraging the security pool and value of existing Ether.
How much can you earn by being a validator?
What a great question! Yes, you get a reward if your attestations get included in a block but the reward depends on the whole state of the network i.e. how many validators are online. The economics of this are still being examined and are to be tested. Latest estimates are that validators can expect 4.6% – 10.3% in annualized rewards. However, the spec is still being updated which results in a lot of estimates so we can only recommend you the following links to understand better: – Examining the Proposed Validator Economics of Ethereum 2.0 – Eth 2.0 Economics
Basically, the math for validator return of investment (ROI) is:
ROI = Validator rewards + Network fees - Cost to run a validator node
The goal is to encourage people to become validators and have many as possible to secure the network. Therefore, the whole PoS system is a collective rewards scheme where the more people online, the more everyone earns. Vice versa, the less people online, the less that people are earning. It is why there is a slight penalty if your validator client goes offline at any point. For example, if the current interest rate is 5%, you would lose 0.0137% of your deposit every day, but gain that for every day you’re online. In case of a bigger issue where 33% of validators are offline and you’re offline, you can lose 60% in 18 days. If at any point your deposit drops below 16 ETH you will be removed from the validator set entirely.
Unfortunately, the numbers above in the links are most probably going to be changed as the Eth2 spec is constantly being updated.
What do you need to become a validator?
Basically, here are the minimum requirements for being a validator: – have 32 ETH, – run validator node 24⁄7 (this can be your PC, remote server, Raspberry Pi or similar) with Internet connection, – have access to beacon node.
Hardware requirements for running the node will be better determined during testnet activities. For the validator client only something like Raspberry Pi will be enough but in case you are running your Beacon node, you’ll need a more powerful CPU and storage space.
Keep in mind that your uptime and therefore an Internet connection are the most important things as your stake gets slashed if you are offline, meaning that you are losing your money.
How to become a validator?
The validator setup requires some technical knowledge and understanding. However, we want to enable everyone to easily become a validator and know how well they perform. This will be possible with the desktop app that we are working on – ChainGuardian. Soon more info about that, you can track for progress our NodeFactory Twitter and ChainGuardian Github or join our Discord! This app is being built thanks to MolochDAO.
ChainGuardian is a Windows/Linux/Mac app that will be a one stop shop for validators. As a user, you will be able to fully onboard as a validator which includes: making an ETH deposit, generating or importing your required key pairs (which only you own!), running a validator client and a Beacon node. Most importantly, you will be able to observe the performance of your node, return of investment and get notified if your node is down so you don’t lose your earnings!
Here are a couple of sneak peaks below. We plan to expand these features to much more but currently we are focused to make a release where you can make an ETH deposit and effortlessly become a validator.
ChainGuardian desktop application previews
Basically, to become a validator, here are the steps that one needs to take:
Install one of the previously listed Eth2 clients.
Get Ether. In testnet case that’s Görli ETH. We understand this is not so easy to get so we will provide a faucet for you that will get you this ETH and submit your deposit transaction altogether.
Generate a validator public and private key pair (used for signing your claims as a validator).
Start your validator client along with Beacon chain. You can use your Beacon chain node or some existing public server.
Make the ETH deposit (stake) to Eth1.
Wait to get assigned as validator. Once your validator client is up and running you just have to wait for it’s activation. This takes a few minutes (or probably hours in case of mainnet) because of a voting period in which new deposits are added to the running chain from other validators.
Watch your validator create, vote and attest for blocks as well as earn rewards!
Once again, those steps will be a part of the ChainGuardian app onboarding.
Note about your key pairs
What’s important to understand when handling your validator node are validator keys. You should have a signing key which is a hot wallet – unlocked account that app client uses for voting and proposing blocks. Also, you need a withdrawal key that is a separated cold wallet which will be used for funds withdrawal in case you want to stop being a validator or your signing key gets comprimised.
Conclusion
This is Ethereum 2.0 (Serenity) Phase 0 which includes launch of Beacon chain that manages the Casper Proof of Stake protocol for itself and all of the shard chains. Being a Phase 0 only, we won’t have all the new features of Ethereum 2.0 just yet. For example, there is currently no way to withdraw deposited Ether from Eth2 as it is effectively burned in Eth1. However, although the transfers weren’t planned in Phase 0, this is still open to discussion and changes.
Once Phase 0 is complete, there will be two active Ethereum chains – Eth1 chain (current) and the Eth2 chain (Beacon chain). They will operate in parallel during the Phase 1 and Phase 2 as well. However, the Eth1 to Eth2 transition is planned.
For the Beacon chain to start, there will be a minimum amount of ETH stake needed. It is defined in the deposit contract and currently this is set to 16384 validators (524,288 ETH).
It may seem that this Phase is not that significant as we won’t be available to use everything from Ethereum that we got used to but this is the foundation of the entire system. If we compare this phase to the beginning of the mining period, then we can certainly draw conclusions about advantages and profits in being the first in the line. However, there are all kinds of risks but seeing the community around this and efforts of the core developers, it’s only possible to be positive about how things will roll out.
https://kinematec.de/wp-content/uploads/2019/10/chainguardian.png756948christianhttps://kinematec.de/wp-content/uploads/2019/10/kinematec_logo.pngchristian2019-10-30 10:32:152019-10-30 10:33:30How to become a validator in the new Ethereum 2.0 proof of stake system
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