Ethereum is scheduled to switch to Ethereum 2.0 soon, but changes are already underway. The genesis block of Ethereum 2.0 launched on December 1, 2021, and is the first step towards long-awaited improvements to the network’s security and scalability. Ethereum will switch to the more eco-friendly proof-of-stake consensus mechanism and get rid of miners. To do so, more than 16,000 validators staked 524,288 ETH and will not be able to withdraw that collateral until the current Ethereum mainnet connects to this blockchain, which could take years. These node validators put down a minimum of 32 ETH each and will receive staking rewards for their contributions to the network. However, running your own Ethereum 2.0 node doesn’t come without a few risks, as you’re about to see.
The knowledge required to run an Ethereum 2.0 node
Operating a node is by no means easy and even innocent mistakes can cost an inexperienced validator real money. Up to 50% of the staked Ether can be deducted for malicious behaviour, even if it was accidental, before a node gets ejected from the system.
For instance, Node operators have to have 100% uptime. Though outside of a node operator’s control, a laggy internet connection is no excuse for brief downtimes. Hence, many people who want to operate their own node pay for an external hosting provider, so they have the uptime required to avoid any slashing. However, choosing an external hosting provider comes with its own set of problems. Finding a reputable company will take some time in the best cases, and market-leading solutions are not a shortcut to quality, as evidenced by an outage of Amazon Web Services in November 2020. Also, external hosting providers obviously cut into the profit margin a node operator has. Either way, this risk factor is not easy or cheap to eliminate.
Other risks associated with running an Ethereum node
Besides possible outages, Ethereum 2.0 validators also have to store their validator keys safely. Physically damaged hardware or data loss due to a technical fault can lead to a loss of validator keys, which again incurs financial penalties. Furthermore, validators need to make sure keys aren’t stolen or messages double-signed so malicious actors cannot compromise the network with inaccurate data. In the worst-case scenario, an ejection from the network can lead to a one or two-year ban from the Ethereum network.
That’s why some operators turn to different solutions, such as third-party node services. These non-custodial solutions can help node operators run a node without the hardware overhead or the technical expertise required by having your own physical node. The upside of these providers is that they offer intuitive user interfaces and easy-to-understand hosting plans to ensure customers make the decision that’s best for them. On the other hand, these services often take a cut of the block rewards earned by validators.
At the end of the day, each node validator operates under their individual set of circumstances. Where one might benefit by going through a third-party service, another is better off with hosting their own physical node. Either way, staking on Ethereum 2.0 can be a profitable business – if done right.