What Are the Risks of Hosting an Ethereum 2.0 Node?

Ethereum 2.0

Ethereum 2.0, a new version of Ethereum, was officially launched in mid-September 2022 with its Proof-of-Stake (PoS) model. The new version of Ethereum saves 99.9% of energy consumption and scales the Ethereum ecosystem, which can be done through Ethereum nodes deployment.

As there are benefits in the new version of Ethereum, thus, there are risks if one needs to host the Ethereum 2.0 nodes.

In this article, we will cover all the risks associated with the hosting of Ethereum 2.0 nodes below –

5 Risks of Hosting an Ethereum 2.0 Node –

1. Slashing of ETH –

As an inexperienced validator, operating on the Ethereum 2.0 node can be complicated because it can result in costly mistakes.

For example – If an inexperienced validator has staked 32 ETH can be slashed if they are seen working against the interest of the Ethereum network. And, if the deduction happens from the 32 ETH, the node of the validator will be thrown out automatically without them participating any further.

2. Interruption in the Uptime of ETH Node –

There could be an interruption in the uptime of ETH nodes because of the unreliable internet connection. And this may lead to being penalized, which means eliminating financial rewards from the operating Ethereum 2.0 nodes.

And, because of the unreliable internet connection, most people rely on external service providers where they can operate their Ethereum 2.0 node. But again, this approach comes with hidden potential danger. Selecting an external service provider may not guarantee continual services, which may trigger financial losses. Moreover, there may not be any compensation for downtime, which is primarily included in terms of service.

The penalties for going offline often are minimal. The validator who has gone offline will only lose the rewards that the validator would have earned.

3. Liquidity Issues –

The biggest concern of the validator in Ethereum 2.0 is the liquidity issues during phases 0-2.

When the validator deposits Ether (ETH), the ETH is sent from the ETH 1 chain to the ETH 2 chain, and the ETH is not returned. ETH 2 chain is focused on the validation of blocks.

The validators on the new version of Ethereum can’t withdraw their deposited ETH. The validator can only access their deposited ETH once the Ethereum upgrade is complete.

4. Centralized Staking Provider –

If the user is looking to deposit their ETH in the Centralized Staking Provider, then the user must be aware of its risk. If a Centralized Provider is hacked, the user’s funds will also be stolen from the deposits on that exchange.

5. Virtual Private Server (VPS) –

The validator node of the Ethereum 2.0 can be run using Virtual Private Server (VPS) from a physical location. Using Virtual Private Server (VPS) has numerous advantages and risks.

For signing the messages, the staking nodes must contain private keys. The administration of Virtual Private Server (VPS) providers holds access to their hardware, and any staff member may do any malicious activity that could gain access to those private keys.

There is a risk involved if the malicious attacker signs a block that could be out of the network’s interest area of the network then it could slash deposits. Moreover, blockchain node deployment companies like Zeeve can help with secure endpoints with the Ethereum network.

Closing Thoughts –

The risks related to the Ethereum 2.0 node hosting are challenging and difficult to maintain and quantify. It is always essential to thoroughly research the Ethereum 2.0 node and make the risk assessment before hosting an Ethereum 2.0 node.

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