Two PoS concepts you need to be familiar with in the countdown to the Ethereum merger

Posted by Matías Andrade and Kyle Waters, authors of Coin Metrics

Ethereum is about to merge and complete the protocol upgrade from Proof-of-Work to Proof-of-Stake. The merger is expected to take place Wednesday evening/early Thursday morning.

Needless to say, the merger introduced many new terms and perspectives that we should all be familiar with. In this week’s article, we’re going one step further into the post-merger era and shedding light on two concepts that are about to emerge in industry conversations.

Slashing vs Penalties

How much time it took for most people to get used to the logic of PoW, we don’t seem to remember. Naturally, it will also take us some time to understand proof-of-stake PoS. The premise of proof-of-stake is that with carefully designed incentives (a combination of rewards and punishments) you can provide the same functionality as proof-of-work without relying on energy-intensive computation. As we all know, with the advent of Proof of Stake, the Ethereum system will become more complex. The key to PoS is the reward and punishment mechanism, which precisely balances the interests of validators in line with a fair, trustless, and censorship-resistant cryptoeconomic system.

So how exactly are these rewards and punishments distributed? The delegated responsibilities of validators must be performed in a timely and appropriate manner. These duties include proposing a block for the beacon chain, which is the largest source of rewards; although a single staker can only receive about 6 of these rewards per year, it accounts for about 12.5% ​​of staker rewards. Also included is the duty of proving blocks, which lead to smaller but more frequent rewards and a larger percentage of stakers’ earnings, about 84.4% in total. The chance to propose a block is probabilistic and can make a significant difference to validator returns, while proving blocks is more regular and all active validators on each epoch (32 slots) have only one chance to prove . Finally, about 3% of the proceeds come from participating in the Synchronization Committee. These rewards are paid in newly minted ETH.


Average annual projected number of block proposals (424,043 validators)

If Ethereum’s proposal and proof rewards are the carrot, then the punishment and slashing are the stick. “Forfeiture” and “punishment” are often used interchangeably. However, their intent and impact are quite different.

Punishment measures are designed to motivate verifiers to perform their duties in a timely manner, not to punish malicious behavior, but to punish verifiers who have been inactive without proof. The key point is that there is no penalty for missing a proposal, only the opportunity cost. This, however, widens the variance in the expected returns of validators, especially since most validators will surely fail from time to time due to downtime, network issues, client bugs, or other issues.

Sanctions only apply to actions that threaten the functionality and integrity of Ethereum. If a user proposes two conflicting blocks for a slot, their staking funds on Ethereum could be slashed, an error that occurs when users misconfigure redundant staking servers. Finally, if stakers fail to prove checkpoints in a correct and timely manner, they may be slashed, especially if their proof history is poor. Additionally, if a staker is slashed within 18 days of other slashing events, they may be subject to associated penalties and lose a larger percentage of their funds. For example, if 3% of validators are subject to a slashing attack, after the Bellatrix hard fork, each validator may be penalized 3 × 3% = 9% of staked ETH (2.88 ETH for a minimum stake of 32 ETH), where 3 is a constant. While every staker should be concerned about slashing, if they report witnessing a slashing, they will be rewarded, known as the whistleblower reward. However, there is no inflation as the slashes they witness will always consume more of their ETH.


One of the most critical changes that PoS is designed to achieve is to bring finality to the Ethereum blockchain. Finality is a property that a transaction is considered final once it is included in a block. Finality makes users more certain about the economic certainty of their transactions. Under PoW, longer chains provide users with greater confidence as it becomes increasingly difficult to restore historical transactions. However, the recipient can determine its own “finality”. For example, the exchange Kraken currently requires 20 blocks to confirm an Ethereum deposit (about 5 minutes at a block time of 14 seconds). Users under the PoW mechanism must use this probability function to reduce the risk of transaction rollback, and Ethereum will provide a stronger definition for the final block after a given period of time.

We can easily compare this to Ethereum’s current PoW outlook using the data on the uncle block, which contains a valid PoW solution but lost the race to network propagation. Nonetheless, the effort and energy they put into solving the PoW problem using the uncle block mechanism launched by Ethereum paid off. Ethereum’s uncle rate allows us to (slightly imprecisely) measure the uncertainty that users can have when making transactions. Essentially, a user may exchange a high-value commodity in a transaction they think is the final transaction, only to find out that their transaction is only one of the uncle transactions and has not yet made it to the main chain.


Ethereum uncle block rate

Uncle blocks are part of Ethereum’s design to achieve fast block times. Furthermore, the uncle block contributes to the security of the main chain through the work done by its miners, even though the transactions contained in the uncle block may not be included in the block. This usually poses no problem, as the transaction goes directly back to the pool of transactions available in the next block. However, this is not ideal for merchants who want to finalize that their transaction is indeed final.

While no PoW chain can provide finality in exactly the same way, once Ethereum transitions to proof-of-stake, it will be able to provide very strong guarantees that a block (and all transactions contained within it) will be final of. The Ethereum beacon chain (consensus layer) reaches finality when at least two-thirds of active validators have confirmed 2 epochs. The Epoch is 6.4 minutes long and contains 32 slots, each with a 12-second interval, so the final result is reached after about 12.8 minutes. These precise design features were chosen to provide an optimal trade-off between decentralization of the network and reasonable latency for finality.

To restore a finalized block in merged Ethereum, one-third of the validators would have to be slashed and lose their entire staked funds, providing users with a strong finality ). However, this enhanced finality comes with a price: 12.8 minutes is much longer than the ~5 minutes that most exchanges and other users determine finality in Ethereum PoW practice. But in the end, Finality is one of the design considerations driving Proof of Stake and Ethereum forward. Reducing the finality time under “single-slot finality” is an active area of ​​research on the Ethereum development roadmap.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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