Exchange gets penalized for shutting down its Ethereum 2.0 validators

Exchange gets penalized for shutting down its Ethereum 2.0 validators

Key facts:
  • Validators receive penalties if they are disconnected from the network.

  • The penalties, in this case, are usually light due to the short time off-line.

Poloniex has suffered a disconnection of all its Ethereum 2.0 validator nodes. They were inactive for a period of 30 minutes on this June 22. This situation led to a loss in the returns of the exchange along with penalties.

According to the registry of the portal EthereumPoolbetween 6:40 am and 7:10 am (GMT -4:00), the 400 validators that Poloniex has registered at the moment, were turned off.

Notably these validator nodes are for the private use of the exchange, since Poloniex does not offer Ethereum 2.0 staking among its investment products, that is, it is not a staking pool. Therefore, any type of loss is assumed by the company.

The Ethereum 2.0 network did not suffer any type of complication, due to the few nodes that were deactivated. There are currently more than 400,000 validators and Poloniex nodes only represent 0.1% of the total.

Exchange gets penalized for shutting down its Ethereum 2.0 validators
The penalties in the case of Poloniex are discounted according to the amount of ETH that they stopped earning in the time they were inactive. Font: EthereumPool.

Each Ethereum 2.0 validator node is created by depositing 32 ethers (ETH, cryptocurrency of the Ethereum network) in a special contract, which cannot be withdrawn until after the final launch of this network. In order to maintain a fairer network, within your system validators can receive penalties in case of taking actions that may affect the network.

These penalties are discounts in ETH. The fines vary according to the activity carried out by the node which can range from inactivity due to poor internet connection, carrying minor penalties, to double spending attempts, which can end up with the loss of the total of 32 ETH to what is known as slashing.

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Exchange gets penalized for shutting down its Ethereum 2.0 validators

What about the validator nodes of the staking pools?

Although Poloniex’s Ethereum 2.0 validator nodes are private, there are several exchanges in the ecosystem that currently offer staking on this network, such as Coinbase, Kraken or Binance. which are in the top 5 of holders of the largest number of validators.

The service offered by these exchanges is known as staking pools. Users can invest in staking without the need to have the 32 ETH to become a validator. ETH amounts can be as little as 0.0001 ETH.

So far, it has not happened that any satking pool has received penalties. In that case, in theory, the company or organization itself should bear the losses. Although recent events show that companies sometimes transfer the consequences of their bad decisions to their users.

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