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December 4, 2020

Market Spotlight

The Lowdown on Eth 2.0 & POS with Attestant


Attestant is an institutional grade non-custodial staking service for Eth2. The team has been working closely on the launch of the Ethereum 2.0 Beacon Chain, which was the first of a multi-phase and multi-year process to see the network migrate from a proof-of-work (POW) to proof-of-stake (POS) consensus algorithm. Steve Berryman and Robert Olsen, both co-founders of Attestant, joined Paul Gordon, editor of Coinscrum Markets, to work through the launch of Eth2 and what happens next. 

For his part, Steve has a background in banking and information technology. In 2015, he started to explore what else was out there, which is when he discovered Ethereum. He and some others who were also based in London wanted to stake, and they decided to build something for themselves, which eventually turned into Attestant, where there are nine people on the team today. 

Robert has been in the space since 2012 and has been fascinated ever since he received his first bitcoin, for which he thanks Max Keiser, saying he went down the rabbit hole and is still digging. 

Genesis Block 

There was a chain of events that occurred before the launch of the Ethereum Beacon Chain. A couple of weeks prior to the launch, a deposit contract was deployed on Ethereum 1, which kicked off the genesis block for Ethereum 2. It was deployed in a decentralized way. It is basically a dead-end contract, Steve explained, saying that it is “quite worrying” because the money goes in there and it doesn’t come back out again, adding that this is how Eth2 is going to start. 

When the new chain starts up, it will take this contract as the starting point for Eth2. By Nov. 24, the contract hit the amount that it needed in order for the genesis contact to start, and that was about half a million ether. 

(4:29) “Once that hit, then there were seven days before the Beacon Chain would actually start. So then the various teams, there’s various client teams working on building different clients with Eth2 who were just finalizing their release. And on Dec. 1…the thing just kicked off. And it was quite nervous, we had people put quite a lot of money in and everybody wanted to see a very clean and smooth start. In fact, we wanted it to be very, very boring. We wanted the thing just to start and just nothing happen and just start producing the first blocks. And that’s what happened,” said Steve.  

There was about 90% participation and that was good enough to get finalization of the first ether, Steve explained, adding that history was made for Eth2.

Sharding for Scalability 

Beacon Chain currently doesn’t do very much, but with the additional phases over the next two to three years, additional components will gradually be added in and bring this whole thing together. Sharding will be introduced to help solve the scaling issues that Etheruem has suffered through until now.

There will be 64 shards to start, Robert explained, and that’s going to “massively improve the scalability of the network.” It means a 64x increase in throughput. The shards will operate independently but will write to the main Beacon Chain. The shards can be thought of as sidechains, Robert said, and the Beacon Chain acts as the backbone. 

(8:19) ”So even though there’s a bit of a roadmap and it’s still changing, a lot of the software has been in development for a while. And…we expect to see the shards coming first and then a small time after that, we start switching on the transactions so people can start for the first time moving their Eth2 around,” said Steve. 

Shards will have very little smart contract functionality to start, and that will grow in Phase 2, during which time a full virtual machine will be added. 

Staking Rewards 

With well over half-a-million Eth deposited into the contract, those funds are locked up potentially on a one-way street. But they will eventually be converted into Eth2 as long as everything goes according to plan. Those funds are locked up for two-to-three years, and an incentive will be rewarded in some way. 

The way that the rewards system works is a certain amount of ether is given out every day, which for the most part is a fixed amount. The more people who stake, that same amount of ETH has to be divided among more people, Steve explained. So if the genesis block just started with the 500,000 ETH, it would have been around 22%. But it’s already clear that the genesis block was more than that: there’s now 1 million ether on the deposit contract. 

Eth Staking Risks 

Unlike mining, Eth staking doesn’t require computer power. But it does require an understanding of the security risks of setting something up, Steve explained. A modern computer would be fine to run the Beacon Chain, and Steve suggests the 64 gig, though it would probably also work on a 32 gig. 

The Ethereum Foundation created a launch pad, which goes step-by-step. It starts easy but then begins to get scary the more steps that they’ve added in. 

(13:41) “With mining, you don’t really have much to lose apart from if you get switched off, you just don’t earn any rewards. But with this, you’re keeping hot keys online. So you’ve got to be aware of some of the security problems. You certainly wouldn’t want to just use it on your standard machine because you want to keep the amount of software that’s running on that machine to a minimum,” said Steve.

Institutions and Attestant

Attestant is a staking service, and Steve expects a lot of people will try and run Eth2 themselves. The one thing that is unique with Ethereum, he said, is the fact that there are two keys — a withdrawal key and a key for validation. The withdrawal key doesn’t have to stay on your machine. So even though you’ve got slashing risk, you don’t have the same risks as a lot of the POS systems where it’s the same key, so if somebody gets on your machine and manages to get your key, you lose your funds. Here, the worst that can happen is they can slash your funds, which is not great but at least there’s one level of protection there. 

One thing that Attestant is doing involves signatures. One of the features on Eth2 is that it can aggregate signatures together. So you can take 32 signatures and add them all together, and it’s not that much bigger than the original signature. And you can still prove the 32 signed it. It reduces the size of the chain for these POS systems. 

(16:45) “The thing we’re doing is we’re taking that to use it for our key signing. So whereas normally there would be one key to sign for a block, what we’ve got is we split the keys up and they’re actually created in  a distributed manner. We call the system Dirk…and we made the source code open source,” said Steve. 

So what Attestant does is they create a key from say five keys. You create these keys on five different machines. And then they say that there’s a threshold that three of them have to sign. And it’s not just that they’re signing for that block. They are all signing independently, and then that goes out to the Beacon Chain. It becomes very secure because unless you can gain access to all signers, you’ve got nothing, Steve said. 

Attestant has been testing it for nine or 10 months and it is their contribution to the community. They expect a lot of people will take the distributed key approach as they start to understand Eth2. 

(23:43) “The infrastructure that we have in place and the code that we’ve written over the last year, this is where the people that are coming to us, the banks, financial institutions, high-net-worth individuals, and family offices, they have tens of millions of ether that need staking on behalf of their customers. And the golden rule is ‘don’t lose the collateral.’ So we optimize more for not losing funds as opposed to maximizing your return,” said Robert. 

Staking Regulation 

Attestant is non-custodial, and based on conversations with the FCA, they are outside of the regulatory parameters. The company essentially runs as a software as a service. But it is an area they are watching because they believe regulations are coming and they will cover staking services at some point. 

In the future, staking will probably be the lowest-return, safest investment, said Steve. And everything else will be built on top of it. And there will be something like an Ethereum yield curve. 

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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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