ConsenSys CodeFi explains incentives, rewards, and penalties on ETH 2.0

In contrast to Ethereum based on Proof-of-Work (ETH 1.0), ETH 2.0 will be governed by a Proof-of-Stake consensus, which works heavily on the integrity of the validator (staker). ConsenSys CodeFi of ConsenSys explained how ETH 2.0 would monitor this integrity in Phase 0 (BeaCon Chain).

The goal is to provide readers with an overview of Ethereum 2.0 implementation,
as well as its reward and punishment system.

Rewards and penalties in ETH 2.0

To become a validator (who verifies transactions before putting it on the blockchain), participants in the Ethereum network will be required to contribute (lock especially) at least 32 ETH. All rewards and penalties will be a function of the user’s real balance, limited to 32 ETH.

When a user’s staking balance drops to or below 16 ETH due to penalties, that person will be excluded from the network.

The cause of the penalty may vary depending on whether the stakeholders act as the proponent (the person who requested the block authentication) or the authenticator (block validator).

There are three ways a validator can gain the slashed condition:

  • To be a proposer and sign two different beacon blocks for the same slot.

  • To be an attester and sign an attestation that “surrounds” another one.

  • To be an attester and sign two different attestations having the same target.

The offender will be arrested by a valid whistleblower. The accuser will receive a significant stake from the offender’s stake as a reward for prudence.

ConsenSys CodeFi also calculated the approximate reward for staking a certain amount of ETH. While online about 95% of the time, stakeholders can earn 1.25 ETH per epoch (6.4 minutes) for 500k ETH in their stake.

Estimated reward per epoch. Source: ConsenSys CodeFi

According to this estimate, it is much more beneficial to stake a moderate amount of ETH in a stake. Therefore, decentralizing ETH 2.0 will be encouraged economically.

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