On September 15, 2022, the Ethereum blockchain completed its most important merger in 7 years, transitioning from PoW to PoS consensus mechanism. In addition to reducing energy consumption and lowering barriers to entry, people are also worried that the consensus mechanism of PoS will bring greater centralized control of the network, because PoS will give more voting rights to people who hold a large number of stakes. Therefore, after the upgrade is completed, developers will need to participate in development and testing to minimize potential network failures, enhance decentralization, and scale the network as much as possible.

The Ethereum roadmap shows that distributed verification technology will be the next key development after the merge. According to Messari’s latest report, DVT can improve the security of validators, and may become one of the advancements in the Ethereum network.

What is DVT?

Distributed Validator Technology (DVT) is similar to multi-signature consensus voting. It enables Ethereum PoS validators to operate on multiple nodes or machines, allowing validators to vote on multiple nodes in support of Ethereum. The core purpose of this technology is to verify its distributed operations. Initially introduced in a research paper by members of the Ethereum Foundation, it was originally referred to as SSV. With a 3-of-4 setup (explained conceptually below), DVT enables individuals, groups, or communities of nodes to collaborate and form a single validator. DVT enhances fault tolerance by introducing a fault-tolerant layer for the verifier. During the verification process, if a certain node fails, the verifier can still continue running, eliminating the risk of single point failure, double signature penalty, and fork penalty.

Related concepts

Consensus: The responsibilities of a single validator are assigned to multiple co-validators, and signing a message requires the co-validators to reach a consensus through voting,

M-of-N threshold signature: The verifier’s private key will be divided into N shares, and each verifier holds 1/N. Once M validators reach a consensus and sign, the signing process will be completed.

Working principle

DVT consists of 4 key parts: distributed key generation, Shamir key sharing for BLS signatures, secured multi-party computation, and the DVT BFT consensus layer.

Distributed Key Generation (DKG): Encrypted private keys are distributed among all participants, thus preventing one party from directly controlling the entire private key.

Shamir’s private key sharing: Private key sharing means that the private key is split and distributed to different participants. If the private key needs to be reset, a predefined share threshold needs to be combined (for example, 3 out of 4 shares ).

Multi-party computation (MPC): Multi-party computation is the most critical in distributed validator technology. With scaled computing, operators can use their private key share to sign messages and perform computations without having to recreate them on any single device. Multi-party computing enables operators to securely coordinate keys in a distributed fashion across different machines, enabling key generation and reconstruction

Consensus reached: Fault tolerance is achieved through the consensus algorithm between Beacon nodes of the threshold signature scheme. After the ETH validator is connected to the Beacon node, a consensus can be reached.

As shown in the figure above, the DVT operator initially computes the process of generating a shared public key and private key encryption. Subsequently, the private key is split and shared with different participants, while also distributing the private key share to the operator. Next, the operator conducts multi-party calculations to randomly select a verification node (which will share information with other nodes). Once the participating verifiers successfully pass the predefined threshold certification, a consensus can be achieved.

Why is DVT needed?

DVT is designed to solve many problems that arise after the merge, among which centralization is the core threat that needs to be dealt with. In addition, under the influence of protocol rules, the damage to validator assets and the decline in Ethereum’s ecological stability are also problems that need to be solved urgently.

Risk of Centralization

According to Ethereum rules, users who hold less than 32 ETH are restricted from maintaining validators. For these users, staking services are the only solution, which further leads to a large number of crypto assets being stored on centralized exchanges. Lido Finance, Ethereum’s largest staking service, has deposited more than 4 million ETH, accounting for 32% of the total amount of staked crypto assets. When large amounts of crypto-assets are deposited in exchanges, it poses risks to the Ethereum ecosystem such as hacker attacks, unreasonable censorship systems, and technical errors, resulting in centralization risks.

Single point of failure

Private keys are crucial for independent validators. If a private key is lost or forgotten, the assets become inaccessible. After the merge, the PoS protocol rules prohibit redundancy, allowing each validator to sign only one validator. This means that if issues such as node downtime or hacker attacks occur, a single-node validator without fault protection can cause the validator to fail. As a result, the assets are directly affected, and it further impacts the overall stability of Ethereum.

Double signature penalty

If a validator uses the same key to sign multiple times and is offline due to problems such as network failure or cloud failure, the user will lose part of the staked amount.

Forking penalty

Under the PoS system, after the Beacon node connected to the validator fails, a fork will be established. But in this case, if the verifier is affected and is deemed offline, the verifier will still be punished.

The consequences of centralization and centralization are contrary to the purpose of blockchain, and security threats and asset penalties can have a negative impact. In order to solve the above dilemma, distributed validator technology has emerged.

What development potential does DVT have?

To enhance the decentralization, security and operating efficiency of Ethereum, DVT has garnered high expectations from industry professionals.

Advantage

DVT, as a validator running as a node cluster, has higher flexibility and lower risks, which can improve the stability of staking.

For large validators, DVT ensures high availability and lowers infrastructure costs. Improved redundancy and reduced curtailment risk allow fewer validators to run more nodes, resulting in lower hardware costs. Additionally, DVT allows clients to configure and run addresses on multiple nodes, reducing the risk of a single address or client failure.

For small validators, DVT can provide a level of protection comparable to larger validators. By using DVT, small validators can achieve efficiency similar to that of large validators. Additionally, DVT reduces the ETH requirements for running nodes, allowing users to participate in community staking or utilize a pool or family validator for validation.

For liquidity staking protocols, DVT can increase efficiency, reduce risk, and allow operators to participate. By providing redundancy in the network, DVT is no longer dependent on any one operator that may cause offline downtime. Additionally, operators can organize themselves into different clusters, improving the performance of the staking protocol.

Use cases

Application in decentralized staking pools: Using DVT, staking pools can switch to a decentralized model, reducing penalties and slashes by reducing downtime.

Staking infrastructure providers: Through DVT, infrastructure providers can enable active-active cluster redundancy, achieving flexibility in deployment and configuration. Previously, in order to accommodate individual or institutional staking, infrastructure providers were required to provide redundant solutions for institutions in an active-passive configuration. Active-active redundancy can now create fault tolerance by spreading validators across multiple machines with the goal of ensuring that redundant systems can always operate.

Set up independent validators: With DVT, validators can distribute signing authority across multiple nodes in active-active cluster redundancy, thus minimizing the risk of signature failures and penalties due to downtime, double signing, etc.

Related projects

Since the proposal of DVT, both Obol Network and SSV Network have developed projects based on DVT.

1. Obol Network

Obol Network has launched the plug-in client Charon to enable DVT, which can run in a fault-tolerant distributed manner. By adapting DVT technology, Obol introduces active-active redundancy to address the shortcomings of operating an active-passive system. Instead of running on one machine, the validator runs on multiple machines to create fault tolerance, tolerating partial node failures. By communicating and reaching consensus, multiple Charon clients act together to simulate a unified validator. In doing so, Charon enables validators to be used by any client that supports the Beacon Chain standard’s HTTP API and maintains existing remote signing infrastructure. So, for validators, Charon provides an easier path to adoption.

In the future development direction, Obol Labs will continue to focus on DVT and promote its application in applied cryptography and cryptoeconomics.

2. SSV Network

SSV Network has introduced a network infrastructure layer for decentralized staking. In SSV’s model, each validator needs to select 4 nodes from the operator network for multi-signature voting. The network consists of two layers: the SSV peer-to-peer (P2P) network layer and the Ethereum contract layer for network governance. The P2P layer primarily reads the operator list and validator equity allocation from the smart contract to operate the validator. The contract layer is responsible for adding operators, creating them, and allocating assets based on DVT operator ranking and evaluation.

Currently, SSV Network has provided funding for multiple projects that utilize DVT. Moving forward, the network will continue to focus on developing applications using decentralized Ethereum staking infrastructure.

Conclusion

For users, DVT solves many challenges of staking and lowers the entry barrier for ordinary people. For developers, DVT also has significant benefits. With DVT, institutions or independent validators can enjoy the security and flexibility of the protocol, enjoy active-active redundant configurations, and diversify operations based on a variety of factors. In the near future, we can expect DVT to empower staking, enabling complementary validation node configurations and collaborative work to achieve a truly decentralized Ethereum.

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