The future of cryptocurrency is at stake in Ethereum’s switch
economist.com
economist.com
Seems like an epic pain in the ass for a 4.1% yield (not to mention the capital required to stake).
I am not claiming you should do this! What I'm attempting to illustrate is that this momentum towards freer and more open systems is what drives the technical optimism in cryptocurrencies and blockchains. There seems to be a Moore's law effect dropping the price of what is currently gatekept by governments and megacorporations. Hard work is once again creating exciting innovations that at least have the potential to improve the world.
I, too, consider 50000$ as just a few thousands of my millions in savings. /s
You only get slashed if you run malicious custom code, or if you run the same key on two machines at the same time.
The latter is a mistake that's very easy to make if you try to build auto-failover.
So don't build it. My validators operate with 'screen' and shell scripts. If I need to do anything (3-4 times a year), I do it manually.
- machine dies at 4am, what happens? do you manually restart process when you wake up? does this down time cause slashing?
- what mechanism prevents you from running 2 identical validators by accident?
If you have monitoring that alerts you for updates and when your node is unresponsive and can respond to downtime requiting intervention within a day or two you should still end up ETH-positive.
There is also a penalty that kicks in if many validators fail at the same time resulting in over 1/3 of the network not being available. In that case penalties are also increased significantly. So if over 1/3 of the network were to be run in AWS those validators would risk heavy penalties if the region were to suffer some downtime.
I'm curious how the big crypto companies are managing these large fleets of servers without doing some form of Devops? Looking at the docs there's a stack that needs to be deployed and maintained:
https://ethereum.org/en/developers/docs/nodes-and-clients/ru...
[0] https://ethereum.org/en/staking/#how-to-stake-your-eth [1] https://finance.yahoo.com/quote/ETH-USD/history/
epic pain in the ass for a 4.1% yield
By which process does the market affect the yield on staking ETH?
- Staking base reward, depends on the total amount of ETH staked by all individuals - Priority fees and MEV fees from users
Currently, as blocks are still produced by PoW, user fees go to miners instead of stakers.
- Issuance
- Tips
The issuance is defined programmatically by the protocol and is dependent on the number of validators (stakers). There is a formula for it that basically scales with the square root of total amount of ETH staked. This is the part that gives ~4% nowadays. Given a number of stakers this part is guaranteed yield as it comes from new issuance. It's still subject to market dynamics in that if there are very few stakers, the yield is more interesting. If there are a lot of stakers the yield is lower.
The tips are completely market dependent and are a function of network activity and the price of ETH. When you pay a transaction you can include a tip for your transaction to be included faster. Low levels of activity lead to lower tips, high levels of activity result in higher tips. Tips are basically denominated in USD but paid in ETH, so high price of ETH leads to lower yield from tips, low price of ETH leads to higher price of ETH from tips. This part of the yield is obviously completely dynamic and subject to market forces.
With current (last 3 months) levels of activity the yield a validator can expect to experience is around ~5.5%. If network activity were to go back to Q4 2021 the yield would raise to ~25% at current prices.
*Technical note: There is a third part which is an effective yield resulting from burnt ETH and even a forth part that is outside of the protocol called MEV.
If you want to receive slightly less rewards but do less work, you can delegate your stake to a staking pool or service and they will take a fee, see Lido and Rocket Pool.
Aside from protocol rewards, there is also rewards that may come in the form of priority fees or 'tips', and rewards that can come in the form of MEV. See MEV-Boost which validators will be incentivized to run, which can almost double their annual yield.[1]
Honest question, not being facetious, I'd like to understand the use case.
The protocol rewards are there to create a stronger incentive, so that it isn't just hobbyists and geeks paying out of pocket each month to secure a multi-billion dollar network.
Seems like an epic pain in the ass for a 4.1% yield
https://news.bitcoin.com/publicly-listed-miner-hive-plans-to...
PoS cuts the opex, and makes the capex fungible.
The question was why "opex is the part that tethers on-chain security to reality", and opex specifically.
Please don't throw around buzzwords.
I'm not throwing around buzzwords. Please don't accuse people of that without sufficient understanding to be reasonably confident you're correct.
> locking down 32ETH is different from requirement to run ASIC
This is precisely the opex-vs-capex distinction we are discussing in this thread.
32eth is strict capex. ASIC capex <<< power opex.
It is other way around. Slashing is the solution for nothing-at-stake. By requiring multiple validators to sign each block height you prime them for being slashed if they ever double sign those heights (or sell key to someone who does). Where is centralization here? Are you speaking slashing condition detection? Or maybe about slashing tx inclusion into the chain?
Correct - the decision about when to slash
Whole spiel about "only EF will run those, whole thing is centralized" is just noise. You as an attacker can't distinguish between situation when I'm running a slasher from one when I'm not. Now go and risk the attack.
With POW you need to make a sizeable investment, and hope you'll get a good return eventually.
With POS you can keep your money and do it almost for free (as long as you run a node, not that big of a deal).
So exchanges will completely dominate staking, but they likely not even touch POW mining.
So much for the decentralization idealogy.
People should've got a clue when Ethereum forked the chain because it turned out the "immutable" smart contract had bugs and it lost the money of important people
I still can't believe anyone uttered the phrase 'code is law' unironically again after the ETH/ETC fork. After all, Vitalik effectively said he didn't care if your grandma's life savings got stolen, that's decentralization - but when it happens to the important people, well, it's time to have a come to Jesus and fork the chain.
One entity decided they were sad about code being law and decided to roll back the outcome of a faithfully executed smart contract using their influence. When one person can influence enough miners to make it the principle chain simply to undo what is in their opinion an outcome they disliked, that's centralization. Or at least a plutocracy.
Today that power rests principally with Jeremy Allaire since of course only one chain can represent the real world dollars in his bank account (USDC).
The rules of a blockchain protocol are not immutable, they can and often do change. Users decide to follow the new rules, or they decide not to. The 2016 fork showed that the majority of users and the market chose to follow ETH instead of ETC. In a few days we will probably see another fork, and most likely the majority of users will follow the PoS chain instead of the PoW chain.
It is free to run a node, and the market can freely decide to not support a chain. This is how you end up with ETC being relatively worthless even though there was a group of "rich plutocratic elites" that tried to make it succeed.
There are "influencers" like Vitalik, EF, several client teams, and thousands of hobbyists who work on research and development for the protocol, and these people do lead the direction of the technology moreso than the average user. But this is how all open source works: a small number of people make decisions, and a much larger group of people opt-in to those choices, becoming users. This is also how you end up with multiple blockchains: not everybody was happy using Bitcoin, so some people started to develop Ethereum instead.
Where have you been the last few months?
Again, what recourse do you have with crypto?
I don’t see how people can call our federal system a democracy anymore just become we run elections. You need to judge a system by many other attributes.
In a representative democracy the voters are supposed to choose the representatives, but there is a lot of gerrymandering in the U.S. where instead representatives get to chose the voters in their districts. Also those with the most money tend to win elections, like +95% percent of the time, making it look like lobbyist and the rich elect representatives, not voters. Most other western countries countries call that bribery, and make it illegal.
It should be recognized that the current laws around gerrymandering and campaign finance mean that we may not really have democracy or representative democracy in any true sense of the word. Some would go so far as to say we have a two party oligarchy.
I believe the best solution going forward is to rip power from the federal government and return it to states and local governments, as was intended by the constitution. Resolving gerrymandering and campaign finance laws will not fix the political dysfunction. It's structural. Most federal institutions are not designed to be democratic.
I'm a big fan of Leopold Khor and his book Breakdown of Nations. He talks about how national governments that get too powerful become corrupt authoritarian bullies [0].
The rest of community has decided to disassociate themselves from hacker and forked away.
This is, by the way, unlike Bitcoin which did revert the blockchain and break its immutable nature in 2010. https://decrypt.co/39750/184-billion-bitcoin-anonymous-creat...
Not sure that this matters much but as it's a frequent point brought we might as well get the details rights.
Basically instead of using money to buy all of the above you just directly invest the money itself. Which is the Stake?
In a PoW environment you can take some of your coins, 'stake' them by buying a share in a mining pool, and then 'un-stake' them by selling your share in the mining pool.
The only difference is how much coal is burned and e-waste is generated along the way.
In both cases control and reward go to those with the most resources to deploy within said system.
> In a PoW environment you can take some of your coins, 'stake' them by buying a share in a mining pool [...]
Playing devil's advocate: there's a small but important difference in that, for PoW, you can "stake" coins from outside the system (for instance, by buying an ASIC miner with real money), while for PoS, the coins you "stake" must come from within the system itself. That is, PoS is a closed system.
The PoS system keeps value in the system. PoS also has more ability to reduce influence of malicious miners/validators by slashing what is needed for a bad validator to continue to participate.
* There is the power for some central entity to control the levers on the money supply: determine how much money gets printed, what the interest rate is, what sort of inflation rate is acceptable etc.
* There is the oligoplic power of banks which determine who gets to have a bank account, how much and at what rate credit is available to which people, what sort of money transfers are acceptable.
* There is the political power that people with lots of money command. They determine who gets elected, which laws are passed, whether they can be prosecuted or not, whose life they can destroy on whim etc.
I think Satoshi's original conception might have been to democratize the first two kinds of power. Early cryptocurrency idealist probably dreamed of getting rid of all three types of power.
I think right now, only the first one is indeed getting democratized in the sense that people can choose to "support" the cryptocurrency which they like. This is true for both PoS and PoW.
With the rise of regulated cryptoexchanges owned by rich people, the second type of power continues to be centralized in both PoS and PoW. And of course, there was very little threat of the third type of power ever being challenged by cryptocurrency - that's a property of our political systems, not of the type of money we use.
To me, it would seem that the ETH PoS centralisation of power (to the already wealthy) makes it less free than, for example, BTC. But I don't know, and I'd like to hear what they think. You too, if you'd like to offer your thoughts.
BTC also suffers from centralization of power to the already wealthy so the claim that that there is equivalency between PoS and PoW centralization sound about right.
BTC is free and you don't need any money to run a node. For ETH, you need 50k USD to do the same thing, no?
Genuinely curious here.
Cost of an ASIC is around the same ballpark if not more.
That actually is a property of the money we use because the wealthy can always refuse to spend or invest which forces the government to borrow more money.
I’ve previously said difference between crypto and traditional rails isn't decentralization. It's eager evaluation. The blockchain is always current everywhere. Bank records are not. The latter is computationally cheaper, but at the cost of more error. Centralized banking would involve everyone having an account at the Fed.
In the Roman Republic, voting power was directly linked to wealth. Keeping tabs on who was how wealthy were the censors [1]. PoW is sort of like that, but eagerly evaluated.
Blockchains provide cheaply-verified consistency.
Bitcoin has never been about proof and verification; it's always been about the decentralized claim, but mostly as an excuse to give it a reason to exist.
"You" here is essential. For a participant in the blockchain, it's expensive. That's the cost of eager evaluation. For a non-participant just verifying, it's cheap. Cheaper than auditing bank records.
Ninety-nine percent of blockchain and web3 is easy-money folly. But there are technical advantages to the system. Had Hadoop had better marketers...
The monetary expense is _much_ higher due to the need for redundancy.
Well we know that the Bible is true...because the Bible tells us so"
The circular logic of PoS:
1. The list of valid transactions determines who has coin.
2. People with coin decide which transactions are valid.
3. GOTO 1
https://github.com/stickfigure/blog/wiki/Proof-Of-Stake-Wear...
> Because it's not a circular argument, it's a spiral argument. People with coins at time T secure the transactions at time T+1.
> Spiral arguments and circular arguments sometimes look similar to untrained observers, but they are fundamentally different.
https://arxiv.org/abs/1809.07468
https://www.sciencedirect.com/science/article/abs/pii/S00200...
Seriously, online drug marketplaces have become massive and highly lucrative. Estimates vary anywhere between $700 million to over $1 billion each year.
Cryptocurrencies have also become useful asset stores for the wealthy living in authoritarian countries. So much so, that an estimated floor of $3-4 bil of cryptocurrency assets during the peak was just that.
I used to joke: if someone says they’re into crypto currencies, they’re either a tool or have good ketamine. Years later, that rule still shakes out.
That's my theory, please no bully!
Crypto is just software. There's no need to deploy infrastructure. Bitcoin is old enough to be in high school. Soon it'll be old enough to be in college. At some point we have to accept that it's not fit for purpose, do we not? It can't just be BBS-ing forever.
Compare other things that came out in 2007/8. The iPhone and Android, for instance. In spite of actually needing to build and deploy both hardware and software, everyone on earth has one. Billions and billions deployed.
I challenge you to find a way to falsify your thesis.
This argument relies on the assumption that Bitcoin's age is a proper marker for the entire industry, whereas most of its development only finally kicked off during the ICO mania.
It also relies on the assumption that Bitcoin's decisions reflect the entire industry's decisions, which by proof of contradiction (via anti-BCH-BTCers), does not exist: Many parts of the system are off doing their own part of the whole.
> Compare other things that came out in 2007/8. The iPhone and Android, for instance. In spite of actually needing to build and deploy both hardware and software, everyone on earth has one. Billions and billions deployed.
Apple is a centralized company that can dictate what its products will look like & can standardize their product evolutions to take future developments into account via executive/managerial leadership. Even if all of the decisions were made by the designers/devs, no one from outside the company can have a say about the hardware parts of the product, with only a relatively small part of the software side being accessible to 3rd party developers: Said developers can't access the core internals of iOS without working for Apple.
In contrast, BTC started out with relatively little leadership: While Satoshi was part of Bitcoin's early development, his control over the network was still contingent on other participants within the same network agreeing to the changes -- Disagreements are where the Bitcoin block size wars & subsequent forks emerged. At any time, a developer can modify the core parts of the codebase without restrictions, with the main limiting factor being getting other people to use that modified code instead.
IMO, are more apt comparison would be to compare it with other protocols like Bittorrent and IPFS, whose development nature is not fully controlled by a select group of people, and where everyone can modify the internals of the software to their desires. Similar to Bitcoin, however, adoption of the modified software is dependent on the modifier convincing others to use their code instead.
A better comparison would be on the protocol level like Bittorrent, IPFS, etc.
Ethereum would not take the same time as arpanet because we already have a mature arpanet.
Compare it to companies like PayPal that have really shown viability after only a few years and by 7 years were very mature.
Lots of things take a long time and never become useful. One thing (the internet) took a longish time to become really useful.
One major difference here is that the grand vision for the internet stood to help governments in many ways, whereas cryptocurrency stands to weaken governments in many ways. Currency controls enables nation to try to tune their own local economies, control international trade rates, go infinitely far into debt, and can also work as a great weapon against enemy nations. Widescale cryptocurrency adoption would stand to shatter all of this, and that's something no major government is going to just idly allow to happen.
I would also add that in the zeitgeist of the world today, the internet would likely have taken far longer to materialize than it did in the past, for reasons analogous to those with crypto. Can you imagine the US's response to digitally interlinking with China or Russia? For that matter China or Russia's view on the same. We live in a brave new world where each nation wants to strictly control their messaging while limiting, or eliminating, outside views. The internet works to undermine all of that.
You need third parties to cash in and cash out, so no.
> Can you imagine the US's response to digitally interlinking with China or Russia?
Before the internet we had the phone network, and before that the mail. Both of those are more interlinked and more open than the internet is today.
Email was what got people to sign up for dial-up internet in the first place. Prior to that, you'd have to schlep over to a copy shop to fax things over. Only businesses could afford the cost of a fax line.
The fallacy is in thinking that Web3 needs to achieve a critical mass of users that the WWW did. That's incorrect. Consumers adopted email, not WWW. That was just something that took off after the core adoption already happened. Same way Instagram took off after enough people bought camera-enabled smartphones.
> Cryptocurrencies have also become useful asset stores for the wealthy living in authoritarian countries.
Again certainly not BTC. Any one of those stories over the last few months of people using Bitcoin as a currency of last resort are so sad because they all got rekt. Had they bought USDC or a hypothetical future CBDC or e-cash, they would be so much better off.
There's that story about the Ukrainian refugee who put his last $2000 worth into BTC when he fled the Russians. That's worth like $900 now.
That’s a rounding error to the half a trillion dollar global drug trade [1].
It’s still a billion dollars and it has been steadily growing every year.
And now a third option: a late adopter who is looking at large losses.
Cryptocurrencies have also become useful asset stores for the wealthy living in authoritarian countries. So much so, that an estimated floor of $3-4 bil of cryptocurrency assets during the peak was just that.
Based on what? And this is still tiny relative to $2.5 trillion market size. Billionaires have no use for Bitcoin to hide wealth. Bitcoin does not bypass the financial system since you still have to convert fiat to btc or btc back to fiat.
Could've fooled me. I'm a "power user" of the international financial system and bitcoin has saved my ass multiple times, from debit cards not working internationally to needing to move moderate quantities of money (tens of k$) faster than legacy banks could. Please keep in mind the distinction between "not useful" and "not useful to you personally".
In that sense it worked splendidly as designed.
Another way to look at crypto is a banking system with no lender of last resort or controls like FDIC to prevent a systemic bank panic. The only real hope that the crypto system has is that billionaires who are still True Believers will step in to serve as lenders of last resort and buy it all up on a firesale, but if they instead don't choose to catch a falling knife it'll just fall.
The crypto system as a whole has never yet had to survive a high interest rate sustained collapse of the external economic environment yet. The 2020 pandemic wasn't really a test because everything got immediately bailed out. Concretely, if Tesla is pretty screwed because nobody has money to buy cars any more and everyone is out of work, will someone like Musk toss cash at crypto to save it or not?
Do you have any thoughts about the subject of the article? If not please add another hot take like "crypto uses too much energy!"
No! I want to talk about this with people who are actually making things for it, in a detailed way. Including...hold your breath...inviting people to criticize it!
Some hashpower has already migrated to ETC, doubling in the past two months:
1) Will this decrease gas fees, which make using Ether and its ecosystem completely unusable?
2) Does proof-of-stake mean that the richer people in the ecosystem have more power?
2) yes
It does seem that if the miners just have to prove they have stake and not do any work, it means the rich will get richer.
2) It means that if you want to participate in consensus directly, you need exactly 32 ETH to stake. People with smaller amounts of ETH can stake through staking pools though. Block-producing nodes do get to choose which of the transactions in the mempool get included, so in a sense, they have power (in the same way miners with higher hash-rate do currently). Not all the "richer people" will be running nodes though, as it does lock the ETH for a currently-indetermined amount of time. Unstaking isn't an option (yet), and if your node goes off-line, you'll be penalized by losing some of your stake
- you need good hardware and access to good networks to meet the up-time guarantee s (can be solved with pooling the money I guess)
- you need to have enough eth to spare locking up portion of it for years (this can only be solved if you find another person to join the pool and take your place by giving eth to you but there is no incentive for pools to offer this)
I believe the majority of staked ETH right now is actually pooled
So if you have 1 ETH, and you stake it with Lido (I think this is the largest staking pool), you get 1 stETH. Though if you want 1 stETH, you often would be better off buying it on a (decentralized) exchange (you could get a discount of 1% to 10%, though theoretically the discount could go higher in the future).
when you hold your stETH on-chain, your balance rebases at the rate of the staking reward payout (minus, I think, some amount Lido takes out of this). For example, after a year, if the ETH staking reward was 10%, Lido might take 0.5% (which might go to their DAO, not sure). So you might end up with 1.095 stETH after one year. If you want to sell it, you can do it directly (again, likely at a discount to the price of ETH, though this might change depending on how easy it is to move in and out of staking once the details there are finalized)
It's called liquid staking, because the tokenized share of the staking pool are tradable like any other token on Ethereum, meaning you just need a decentralized exchange, or a centralized exchange that supports it (of which I think stETH has a few)
----
edit: to clarify about not having to find a buyer, in case it's not obvious: there are various pools of funds referred to as "liquidity", which users wishing to transact on various markets can make trades from.
These pools exist on both decentralized exchanges (through various types of automated market makers) as well as centralized exchanges (classically through an order book, same as the stock market).
The only time you have to "find a buyer" (in crypto as well as in the stock market) is when you're looking to do what's called an OTC trade, which is typically just for institutional traders, as trading a large amount via an OTC arrangement will prevent a price movement which can otherwise occur (known as "slippage")
(there is however a special situation where less than 66% of the network is online therefore it halts and will much more quickly slash those offline)
2) Rich people had more power under POW—miners aren’t cheap. What matters is the enforcement mechanism. Slashing remains a risk to every validator regardless of stake weight.
When I first discovered Bitcoin it was trading in the double digits. Every time I see a number like $19k it absolutely blows my hair back.
There are a million legitimate criticisms to level against crypto but "the price keeps falling" is way, way too zoomed in. This isn't even the biggest relative drop in the last five years, let alone the entire history of crypto.