Distributed Validator Technology: Decentralizing Ethereum's Proof-of-Stake

In recent years, Ethereum transitioned to the Proof-of-Stake (PoS) model, moving away from its initial Proof-of-Work consensus. This new PoS model changes how transactions are verified on Ethereum and how new blocks are added to the network. Instead of the energy-heavy mining required in Proof-of-Work, PoS works by selecting validators based on the amount of cryptocurrency they hold and are willing to risk as security.

This method is more energy-efficient and aims to improve network security and fairness in participation. However, switching to PoS introduced challenges, especially in maintaining network decentralization and ensuring secure validation. For example, security is a paramount concern in blockchain networks, especially for validators who participate in consensus mechanisms and have access to significant funds.

Traditional single-node validator configurations pose a risk; if a validator's private key is compromised, it can lead to serious consequences such as slashing or loss of staked ETH.

Ethereum has introduced Distributed Validator Technology (DVT) to tackle these issues. DVT spreads out the tasks and risks related to the validation process in Ethereum's PoS system. It works by dividing and sharing a validator's key responsibilities among several entities, decreasing the chances of centralized control and eliminating single points of failure.

In this system, a validator's private key is fragmented and distributed across a network, forming a strong cluster. These clusters work together, ensuring the complete key is never fully available on any computer. This method enhances network security and guarantees uninterrupted validation, even if some nodes in the cluster are compromised or fail.

Alon Muroch, Founder of the SSV.Network's core team broke it down saying, "Distribuited-Validator-Tech (DVT) is a protocol for delegating validator operations to a group of independent operators (cluster). DVT combines 2 core technologies: a BFT consensus protocol and threshold signatures. Cluster members reach a consensus, every epoch, on what duty data to sign, and then sign it using t-of-n BLS threshold."

"Each operator in a cluster holds a key share, those shares can be split from an existing validator using Shamir-Secret-Sharing or by some distributed-key-generation (DKG) protocol."

"Cluster members require consensus before signing, removing single point of failure setups in which a hacked or compromised service provider compromises the entire validator. DVT overcomes those challenges by using a fault tolerant consensus protocol (QBFT)."

DVT's integration into Ethereum's PoS framework is crucial for a more decentralized and secure blockchain network. By reducing the risks of centralized power and enhancing the security of the validation process, DVT significantly bolsters the integrity and reliability of Ethereum's network.

It ensures that the power to validate and create new blocks is spread across a broader group of participants, not concentrated among a few. This paper will examine how DVT strengthens Ethereum's decentralization, exploring its mechanisms and impact on the future of blockchain security and integrity.

Understanding Ethereum's Proof-of-Stake and the Need for Decentralization

Ethereum's transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) was motivated by the need to improve the inefficiencies and environmental issues linked to PoW.

PoS, which selects validators based on their cryptocurrency holdings and risk commitment, is more energy-efficient and accessible, reducing the heavy computational demand of PoW.

Decentralization is a key aspect of PoS, vital for network security and resilience. Unlike PoW, where the high computational demands can lead to a few entities dominating mining power, PoS provides a fairer system for participation.

Decentralization is important in PoS to avoid any single group having too much control over the network, which helps reduce the risk of unfair tactics like the 51% attack, where someone controls most of the mining power. A decentralized network is also more robust, less prone to specific points of failure, whether technical, geographical, or political.

Yet, achieving true decentralization in standard PoS models has its challenges. One main concern is the risk of wealth concentration, where wealthier stakeholders might have too much influence, potentially leading to a plutocracy. There's also the issue of centralization through staking pools, where smaller stakeholders combine their resources to increase their chances of being chosen as validators, unintentionally leading to a concentration of validation power.

These issues underscore the importance of systems like DVT, which aim to distribute the validation process more evenly across the network, reinforcing the decentralized nature of PoS. Addressing these obstacles, PoS systems aim to more closely adhere to the fundamental tenets of blockchain technology, striving towards an authentically decentralized and secure network.

The Basics of Distributed Validator Technology

Distributed Validator Technology (DVT) is an innovative method that transforms how blockchain networks validate transactions, especially in Ethereum's Proof-of-Stake system. DVT's main goal is to boost security and promote decentralization by spreading the tasks and powers of a single validator among many nodes.

It does this by dividing the validator's private key into parts, each handled by different nodes in the network. These nodes work together to do the jobs of a single validator, like proposing and checking blocks, without ever having the full private key in one place. This greatly lowers the risk of someone getting unauthorized access to the key.

DVT relies on several critical cryptographic techniques. First is Shamir's Secret Sharing, which splits the private key into multiple pieces. Each piece is given to different nodes, and only a certain number of these pieces can put the original key back together. This setup means no single node has total control or knowledge of the private key, making the system more secure.

Another key part is the Threshold Signature Scheme. This scheme decides how many key pieces are needed to perform a task, like making a signature. For example, in a 3-out-of-5 setup, three of the five pieces can create a valid signature. This ensures the system keeps working even if some nodes are down or compromised, as long as enough nodes are active and working together.

Distributed Key Generation (DKG) is used to create these key pieces. It's a complex method that makes sure each participant gets a part of the key, without any single participant seeing the whole key. This step is crucial when first setting up a DVT system.

Multiparty Computation (MPC) is also important in DVT. It allows multiple parties to jointly calculate something while keeping their inputs secret. In DVT, MPC helps nodes work together to make signatures, without sharing their key pieces.

Lastly, the consensus protocol in DVT is essential for making decisions in the network. It determines how nodes, each with a part of the validator's key, agree on actions like confirming blocks or approving transactions. This protocol ensures that even though the validation duties are spread out, the network runs smoothly and in sync, with all nodes aiming for the same goal. This protocol handles the usual blockchain operations and adapts to DVT's unique features, ensuring the system's distributed nature strengthens security without losing efficiency or unity.

A Closer Look at Distributed Validator Technology in Ethereum's SSV Network

The SSV Network, employing Secret Shared Validator (SSV) or Distributed Validator Technology (DVT), introduces a novel method for Ethereum staking. This technology facilitates establishing a decentralized and open-source network for staking ETH.

The SSV Ethereum staking network, recently rolled out its unrestricted mainnet.

The primary function of SSV is to divide a validator key into multiple KeyShares, allowing the operation of an Ethereum validator across various non-trusting nodes. This division aims to improve the security and redundancy of validator keys, potentially impacting individual stakers, the Ethereum network, and staking services.

SSV operates similarly to a multi-signature wallet with an additional consensus layer. It interfaces between a beacon node and a validator client to streamline the staking process. Its operation involves Distributed Key Generation, where operators collaboratively create a shared public and private key set. Each operator controls a private key segment, preventing total control by a single party.

The network uses the Shamir Secret Sharing method for reassembling validator keys, based on a specific threshold of KeyShares. Notably, each KeyShare alone cannot sign duties, yet the entire set is unnecessary if some are faulty, as indicated by the formula n≥3f+1. The flexibility is enhanced through BLS signatures, enabling the combination of multiple signatures to form a validator key signature. This integration aids in the distribution and assembly of keys as required.

SSV incorporates Multi-Party Computation (MPC) to secure KeyShares distribution among operators and decentralized computation of validator duties. This process ensures that the validator key is not reconstructed on a single device. To reach a network-wide consensus, even when certain operators are offline or malfunctioning, the Istanbul Byzantine Fault Tolerance (IBFT) Consensus process is employed.

The SSV Network ecosystem consists of stakers, operators, and DAO members. Stakers, including individual ETH holders or services, utilize SSV/DVT technology to enhance the security and decentralization of their validators, compensating operators with SSV tokens.

Operators provide hardware support and manage the SSV protocol, ensuring the network remains robust and functional. The DAO (Decentralized Autonomous Organization) plays a significant role in governing the SSV Network protocol and managing its treasury, with decisions made through governance functions and token holder votes.

The native token of the SSV Network, $SSV, is primarily used for payments and governance. Stakers pay operators $SSV; the token also enables participation in network decision-making. As more ETH is staked, operators and the DAO's treasury receive higher fees, potentially creating a cycle promoting network growth.

Muroch said, "Such an important public good like DVT needs to have the right governance to ensure it's aligned with the greater ethereum ethos. An active and prominent DAO empowers the ssv community to make decisions and drive innovation."

"The ssv DAO decides everything that happens within the ssv protocol: protocol params, contract upgrades, resource allocation and more.

We believe that a powerful DAO must be the driving force for ssv to serve ethereum and help make it more secure and decentralized."

Diva's Approach to Distributed Validator Technology

Diva, an Ethereum Liquid Staking protocol, utilizes Distributed Validator Technology to enhance Ethereum's Proof of Stake system. It introduces novel features for two types of participants: Liquid Stakers and Operators.

Liquid Stakers interact with Diva by depositing Ethereum (ETH). In return, they receive divETH, a unique Liquid Staking Token. This token represents the initial ETH stake and accumulates Ethereum Staking Rewards over time. The distinct aspect of divETH is its liquidity; unlike traditional staking where assets are locked, divETH can be freely transferred or traded, maintaining its value and rewards.

Additionally, divETH is dynamic, with its balance regularly updating to reflect accrued rewards or penalties. This token also has versatility in the DeFi ecosystem, as it's an ERC20 token and can be used for various purposes like lending or bridging. For those who prefer a stable balance, divETH can be converted into wdivETH.

Operators in the Diva ecosystem have a different role. They run nodes that are essential for the network's validation process, staking their divETH as collateral. This collateral secures the network and entitles them to Operator Rewards, supplementing the standard Staking Rewards that divETH generates.

The system incentivizes Operators to perform their duties correctly; because if they fail to do so, it can lead to penalties on their collateral. The more divETH an Operator stakes, the greater their potential rewards, as they can receive more Key Shares, which are crucial for the validation process.

What sets Diva apart, particularly for Operators, is its non-custodial approach. Operators never handle the actual funds or private keys. Instead, the Diva Smart Contract acts as a mediator, handling ETH deposits and setting up validators within Ethereum's Consensus Layer.

A unique feature of Diva is its use of Distributed Key Generation and Boneh–Lynn–Shacham (BLS) threshold signatures, ensuring secure and decentralized validation. Each Ethereum validator in this system is controlled by multiple Key Shares, distributed among various Operators. A consensus of two-thirds of these Key Shares is necessary for any validator action, ensuring reliability and security.

Diva's architecture offers a more accessible and flexible staking option than traditional Ethereum staking. While Ethereum requires a significant commitment of 32 ETH and the operation of a node, Diva allows Liquid Stakers to stake any amount of ETH without running a node.

Operators, on the other hand, can lock smaller amounts of divETH and still participate in node operation, often finding it more advantageous than operating a solo Ethereum validator. This approach simplifies the staking process and aggregates rewards from the entire network, leading to smoother and more predictable returns for all participants.

How Lido Utilized DVT

Lido's project involving Distributed Validator Technology (DVT) is a bit like a big experiment in teamwork for computers that handle cryptocurrency transactions, specifically Ethereum. They worked with a group called the SSV Network from April to July to test this out.

The involvement extended beyond Lido's existing Node Operators to include solo stakers, community stakers, and various professional organizations. This diversity of participants is crucial for a robust test of the DVT system.

Imagine a group of people (or in this case, computers) who need to agree on something before taking action. In Lido's test, they created teams, or "clusters," each with a different number of members. Some teams needed most members to agree before acting, while others required nearly all members to agree.

Each team had a leader responsible for organizing things and ensuring everyone was ready to work together. These teams comprised different types of participants – some were experienced with Lido's system, while others were new and came from the wider community.

The main task for these teams was to handle Ethereum transactions. They had to set up their systems following specific instructions and then work together to process transactions. Despite some initial challenges, most teams did well, showing they could handle transactions reliably and quickly.

The results were encouraging. After fixing some early problems, the teams worked better, showing that this method could be reliable in the long run. Lido plans to improve this system and eventually use it in the real world, not just in tests.

They want to make the process more secure and efficient and invite more people to join in future tests. This could lead to changes in how Ethereum transactions are handled, making the process more decentralized – not controlled by just one computer or a small group.

DVT in the Broader Context of Blockchain and Cryptocurrency

Distributed Validator Technology (DVT) offers a notable departure from traditional validator models in blockchain networks, representing a significant advancement in blockchain security and decentralization. In many blockchain systems, especially those using a Proof-of-Stake (PoS) mechanism, individual nodes or a small group of nodes often handle validation.

While these conventional models are somewhat effective, they tend to concentrate power and responsibility in a few hands, leading to potential centralization issues. This concentration can create security risks and uneven distribution of rewards and governance influence. DVT changes this by spreading the validator's duties across several nodes, diluting the influence of any single validator and leading to a more democratic, decentralized network. This approach improves security by minimizing failure points and creates a fairer system with wider participation.

The implementation and success of DVT in Ethereum could profoundly impact other cryptocurrencies and the future of blockchain technology. As blockchain networks grow and need to become more secure, efficient, and decentralized, DVT offers a model for enhancing these aspects. Its adoption might inspire new blockchain innovations, leading to more advanced, secure decentralized systems. The principles and methods of DVT could be adapted in various ways across different blockchain designs, possibly setting a new standard for validator operations in the broader blockchain field.

The wider implications of DVT for the cryptocurrency ecosystem and stakeholder trust are significant. In a field where trust is crucial and concerns about centralization and security are common, DVT presents a practical solution to some key issues. By promoting a more decentralized and secure validation process, DVT boosts the overall trustworthiness of the network.

This can increase confidence among stakeholders, not just in Ethereum but across the blockchain and cryptocurrency sectors. Knowing that they are part of a securely and fairly managed system is invaluable for users, investors, and developers. This increased trust and security could lead to broader adoption, more innovation, and a stronger, more resilient cryptocurrency ecosystem. Therefore, DVT is more than a technological advance; it marks a critical step in the growth and development of the blockchain and cryptocurrency world.