Decentralization Post Merge
Ethereum recently switched to using a Proof-of-stake (PoS) consensus protocol. For more information on this switch, please see The Ethereum Organization.A new schema (`ethereum.beacon_chain`) was just released containing data around the Consensus Layer that can be used to analyze the Beacon Chain. Documentation for these tables can be found here. Using the beacon_chain schema, analyze the decentralization of the PoS network, as well as slashings of proposers and attesters since the Merge. Build a dashboard to summarize your findings / provide ongoing slashing monitoring.
What is Ethereum Merge?
The Merge represents a significant update to Ethereum’s blockchain consensus mechanism that took place on 15th September 2022. In short, the transition have seen Ethereum shift from a mining-based proof-of-work (PoW) blockchain to a more energy-efficient, scalable proof-of-stake (PoS) system. This has been achieved by joining Ethereum’s mainnet with its PoS-based system, referred to as the Beacon Chain.
Ethereum, the industry’s second-largest cryptocurrency project by market cap, provides infrastructure for blockchain developers to build and deploy their own decentralized applications (dApps) and cryptoassets.
Prior to The Merge, transactions sent over the Ethereum network were verified and added to its blockchain via a PoW system. PoW involves cryptocurrency miners — who compete to verify transactions on the network — racing to generate a solution to a difficult (and therefore energy-intensive) mathematical puzzle.
After The Merge, Ethereum’s miners have been replaced by stakers, who lock up ETH for the right to validate transactions. In doing so, The Merge has reduced energy usage on the network by more than 99.5%.
Additionally, The Merge lays the foundation for future upgrades planned for Ethereum. Proposed network scalability improvements, like sharding, can only work under a PoS consensus model. Sharding is a technique of splitting a blockchain into smaller, independent shard chains in order to reduce network congestion and increase transaction throughput. The implementation of sharding is planned during subsequent phases of Ethereum’s ongoing development roadmap.
What is Beacon Chain?
The Beacon Chain is the coordination mechanism of the new network, responsible for creating new blocks, making sure those new blocks are valid, and rewarding validators with ETH for keeping the network secure.
The Beacon Chain was the name of the original proof-of-stake blockchain that was launched in 2020. It was created to ensure the proof-of-stake consensus logic was sound and sustainable before enabling it on Ethereum Mainnet. Therefore, it ran alongside the original proof-of-work Ethereum. Switching off proof-of-work and switching on proof-of-stake on Ethereum required instructing the Beacon Chain to accept transactions from the original Ethereum chain, bundle them into blocks and then organize them into a blockchain using a proof-of-stake based consensus mechanism. At the same moment, the original Ethereum clients turned off their mining, block propagation and consensus logic, handing that all over to the Beacon Chain. This event was known as The Merge. Once The Merge happened, there were no longer two blockchains; there was just one proof-of-stake Ethereum chain.
Think of the Beacon Chain as a big lighthouse, rising above a blue sea of transaction data. It’s constantly scanning, validating, collecting votes, and doling out rewards to the validators that correctly attest to blocks, deducting rewards for those not online, and slashing the ETH from malicious actors.
The Beacon Chain introduced proof-of-stake to the Ethereum ecosystem. It was merged with the original Ethereum proof-of-work chain in September 2022. The Beacon Chain introduced the consensus logic and block gossip protocol which now secures Ethereum.
What Does Decentralization Mean in Crypto?
In blockchain, decentralization refers to the transfer of control and decision-making from a centralized entity (individual, organization, or group thereof) to a distributed network.
However, Some blockchains use Proof of Work mechanism and their mining and mining pool system allows single groups to own large portions of the computing power on the network. Some blockchains use different systems to verify transactions that promote decentralization, such as sharding and proof of stake.
What is Decentralized Staking ?
DeFi staking involves locking one's crypto tokens into a smart contract in an effort to earn more of those tokens in return. Consider it the decentralized equivalent of putting your money in a bank fixed deposit.
Proof of Stake (PoS) involves network participants “staking,” or locking up their crypto assets, in exchange for becoming validators of the blockchain. Validators are randomly selected by the network to verify the blockchain. PoS validators are similar to PoW miners, but instead of work, their “stake” allows them to validate the network.
Validators make themselves available by staking their cryptocurrency and then they are randomly selected to propose a block. The proposed block needs to be attested by a majority of the other validators. Validators profit by both proposing a block as well as attesting to the validity of others’ proposed blocks.
With a proof-of-stake system, the more coins you have, the more voting power you have, and those with the coins are also the ones earning the new coins from staking. Since they don’t need to expend resources to stake, they can simply increase their overall staking amount as they earn ongoing coins from staking rewards, and exponentially grow their influence on the network over time, forever. Network dominance tends to lead to more network dominance, in other words.
Attestation and Attestant
Every epoch (6.4 minutes) a validator proposes an attestation to the network. The attestation is for a specific slot in the epoch. The purpose of the attestation is to vote in favor of the validator's view of the chain, in particular the most recent justified block and the first block in the current epoch (known as source and target checkpoints). This information is combined for all participating validators, enabling the network to reach consensus about the state of the blockchain.
Attestant is a non-custodial Ethereum 2 staking service that provides the highest levels of security for customer funds whilst also utilizing advanced validating strategies to reap higher rewards than would be possible with more traditional validating infrastructures. One of the ways it measures this is by tracking the generation and inclusion of attestations of Attestant validators for the Ethereum 2 blockchain, which is a critical metric as the sooner an attestation is included on the blockchain, the higher its reward. This article takes a look at how Attestant calculates attestation effectiveness, both individually and on aggregate.
An attestation is a vote by a validator about the current state of the Ethereum 2 blockchain. Every active validator creates one attestation per epoch (~6.5 minutes) consisting of the elements shown on ==FIG1==
An interesting element is the chain head vote, which is a vote the validator makes about what it believes is the latest valid block in the chain at the time of attesting. The structure of a chain head vote is shown on ==FIG2==
the slot defines where the validator believes the current chain head to be, and the hash defines what the validator believes it to be. The combination uniquely defines a point on the blockchain, and with enough votes the network reaches consensus about the state of the chain.
Although the data in each attestation is relatively small, it mounts up quickly with tens of thousands of validators. As this data will be stored forever in the chain, reducing it is important, and this is done through a process known as aggregation.
Aggregation takes multiple attestations that have all chosen to vote with the same committee, chain head vote, and finality vote, and merges them together in to a single aggregate attestation ==(FIG3)==
An aggregate attestation differs in two ways from a simple attestation. First, there are multiple validators listed. Second, the signature is an aggregate signature made from the signatures of the matching simple attestations. Aggregate attestations are very efficient to store, but introduce additional communications and computational burdens (more on this below). If every validator was required to aggregate all attestations it would quickly overload the network with the number of communications required to pass every attestation to every validator. Equally, if aggregating were purely optional then validators will not bother to waste their own resources doing so. Instead, a subset of validators is chosen by the network to carry out aggregation duties1. It is in their interest to do a good job, as aggregate attestations with higher numbers of validators are more likely to be included in the blockchain so the validator is more likely to be rewarded. Validators that carry out this aggregation process are known as aggregators.
FIG1:== Structure of an attestation
FIG2:== Structure of a chain head vote
FIG3:== Structure of an aggregate attestation
What is Slashing on Ethereum?
Slashing describes the process whereby other network participants forcibly eject an offending validator from the Beacon Chain while continuously draining their balance. In the most extreme cases, a slashed validator may lose their entire stake in the network. Because validators do not want to lose their investment in resources and infrastructure, slashing ensures that network actors act in a fashion that does not harm the network. Slashing is a mechanism put in place to enforce good behavior. It is an irreversible punishment that ‘slashes’ a percentage of an offending validator's current stake. It results in a steady loss of ETH over time until the network forcibly evicts the validator and labels them “slashed.” Its main purpose is to reward validators who keep the network running smoothly while penalizing those who do not maintain their validation responsibilities. Slashing prevents low-effort attacks like creating contradictory forks of validators attesting to past checkpoints. Besides misbehavior or suspicious acts, penalties can occur due to misconfigurations that could obfuscate or undermine the system's integrity. (Read More)
Methodology
In this dashboard, I am going to use the new Flipside schema (Ethereum.Beacon_Chain) to analyze the decentralization of the PoS network as well as the slashing of proposers and attesters since The Merge update (That Took Place on 15th September).
As proof, We can check each step’s results with the official Beacon Chain Websites’ statistics (Consider that this website is showing data from before the Merge event. So, you have to filter its timespan since 15th September in order to compare results to this dashboard charts.)
According to the above data, Since The Merge update (15th September) till today (9 November), There are more than 396k procuded blocks on the Beacon Chain. We can see there is almost a constant number of produced blocks on each day over time.
Total number of registered validators on the chain since The Merge update is more than 34.9k. Also, we can see the daily number of active and total validators since 15th September over time on the right chart.
As we see, there are increasing number of new validators on beacon chain over time. This means, the Ethereum is becoming more and more decentralized over time since the network power is being distributed among increasing number of validators.
Deposits
Since the Merge upgrade, Total 1.112M ETH was deposited into the Beacon chain in 37.3k deposit transactions.
The median and maximum volume of deposits to the Beacon chain 32 ETH. The minimum volume of deposit is 1 ETH and the average deposit volume to this chain is 29.8 ETH.
According to the left chart, Majority of validators (more than 99.3% of them) have deposited 32 ETH into the beacon chain.
34642 validators has deposited 32 ETH into beacon chain.
235 validators deposited 16 ETH.
1 validator deposited 1 ETH.
1 validator deposited 2 ETH.
1 validator deposited 9 ETH.
1 validator deposited 64 ETH.
So, since the majority of validators have deposited 32 ETH into the beacon chain, we can say the network power is well distributed among these validators.
In an average day on Beacon chain, there are 667 deposit transactions with the average deposit volume of 19.86k ETH by average daily number of 651 validators.
According to the above and left charts, the highest ETH volume (more than 55.616k ETH) has been deposited into the beacon chain on 23rd September 2022.
Moreover, we can see there was high number and volume of deposits into the beacon chain on September till 1st October.
Since 2nd October till 18th we can see decreasing deposit activity into the beacon chain.
But again after 19th October, we can see high deposit activity on Ethereum’s beacon chain over time.
Attester and Attestations
For this part, I have used ethereum.beacon_chain.fact_blocks table to analyse the block performance on beacon chain. the proposer_slashings and attester_slashings column shows the data for the blocks which had experienced slashing.
It is important to bear in mind that this explicit penalty — slashing — did not exist for miners on POW Ethereum. In other words, miners only needed to contend with opportunity cost as a deterrence to attack the network. The point is that, regardless of level, diversity on a post-Merge Ethereum is difference in kind from what it was pre-Merge.
According to the above charts, There are not any slashed proposer on the Ethereum’s beacon chain since the Merge event.
But, there are few (only 23) blocks that have experienced slashed Attesters. this number is way too low compared to the other 393k blocks that have not experienced any slashings.
As a proof, We can compare our results with data on website. (consider that the data on this website also includes before merge timespan).
On below, I have brought an screenshot of all slashed validators and their epoch and slot number since the Merge event.
As we see, the only slash reason is Attestation rule offense and there is not any trace of Proposer rule offense after the Merge event on the Beacon chain.
In an average, there are 3.28 Slashed Attester in a day and 7020 not slashed blocks.
Moreover, we can see the logarithmic chart of daily number of produced blocks over tim on the beacon chain breakdown by slashing status. As we see, Majority of slashes has happened during the first days of the Merge upgrade (since 15th September till 23rd September), But after this timespan, we can see only 2 Attester slashed on the beacon chain. So, This indicates that the network is becoming more stable and powerful as time goes on since the Merge event.
Also, we can see 23rd September was the day with most number of Slashed attester blocks (16 slashings). Also, the epoch number 148711 has experienced the most number of slashed attesters.
Conclusion
- As one of the most heated conversations in crypto, talk surrounding the true decentralization of digital assets will continue. It will come in many shapes and sizes — comparing the decentralization of proof-of-stake vs. proof-of-work, or talking about how decentralized Ethereum is becoming in general. While it’s challenging to provide an objective black-and-white answer, the increasing number of validator participation, operators and depositors, and protocol upgrades paint a more decentralized network after the Merge.
- There are more and more number of validators joining the Ethereum’s beacon chain after the Merge event which shows the network is becoming more decentralized. Since majority of these validators have deposited 32 ETH into the chain, the power is well and fairly distributed over the network.
- After the Merge event, There was not any Proposer slashing on the network, But there were some (23) attestation slashings which majority of them has happened during the first 10 days of the merge implementation. So, as time goes on, the network is becoming more stable and powerful.
- The highest ETH volume (more than 55.616k ETH) has been deposited into the beacon chain on 23rd September 2022. Moreover, there was high number and volume of deposits into the beacon chain on September till 1st October. Since 2nd October till 18th we can see decreasing deposit activity into the beacon chain. But again after 19th October, there were high deposit activity on Ethereum’s beacon chain over time.
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Why Ethereum Is More Decentralized After the Merge
Only hours after Ethereum’s successful Merge to proof-of-stake (POS), various critics propagated a rumor that just three entities now have the power to halt the chain. This alarming accusation was quickly refuted with a closer examination of the stakers in question. Figment’s research team explained that some of these entities are composed of several or dozens of independent operators. Take Lido, for example. Lido represents the largest entity on Ethereum by stake. At the time of publication, more than $5 billion worth of ETH is staked on Lido. Although that seems like a lot of Ethereum in one place, Lido is composed of about 30 independent operators — Figment being one of them. Additionally, the cumulative deposits have grown to over 4,000,000 ETH, and the number of Lido’s unique depositors has increased to over 90,000 depositors as of Oct. 16.
To attempt a 51% attack, you’d need collusion from all 29 Lido operators and two other major validators. Even if all entities colluded, the remaining honest validators could decide to keep building on the minority chain and ignore the attacker’s fork.
Secondly, if an attacker attempted to revert a finalized block, they would commit to losing at least one-third of the total supply of staked ETH. Because finality requires a two-thirds majority, the attacker would effectively need to meet that requirement to get around the penalty. It is important to bear in mind that this explicit penalty — slashing — did not exist for miners on POW Ethereum. In other words, miners only needed to contend with opportunity cost as a deterrence to attack the network. The point is that, regardless of level, diversity on a post-Merge Ethereum is a difference in kind than what it was pre Merge. It is clear that the cumulative stake of Lido validators does not present an existential threat to Ethereum. When compared to the number of validator participants prior to the Merge, the network has moved toward greater diversity and security.
Benjamin Thalman, Ethereum protocol expert at Figment, explained:
> Mining, generally, has a higher barrier of entry than staking and the fixed costs scale linearly. Typically, mining is a business where you lose position if you stand still; you need to continually add to your hardware while managing your costs. Running a profitable mining operation is especially challenging for so-called solo miners. Being a validator on a proof-of-stake network is much different. There are associated costs, but there isn’t the same increasing returns to scale; in other words, there isn’t the same pressure to continually be investing more. In fact, on Ethereum, the bulk of consensus rewards comes from attesting, rather than proposing. Even though an individual validator might only propose a block once every two months, they still receive rewards from attesting – an activity that happens roughly every six-and-a-half minutes. In other words, proof-of-stake is less likely to push towards centralization the way mining does.
Ethereum co-founder Vitalik Buterin further explained that in addition to the cost barrier, an adversary would need a larger percentage of network control to exploit the system. Plus, even if such an event occurred, Ethereum offers more recovery options.
Validators generally understand the value of decentralization and the threat centralization poses to network credibility. The continuing rise of validator participation after the Merge is a sign that the network is maintaining a healthy level of participation and isn’t facing an existential risk of exploitation.
On the left chart, you can see the correlation of Slots number vs Attestations over time which is quite positive.