Ethereum (ETH) 2.0 Rewards & Penalties Concept Explained by ConsenSys

In contrast to the Proof-of-Work-based Ethereum (ETH) 1.0, ETH2 will be governed by Proof-of-Stake consensus, where the operation highly depends on validator (staker) integrity. ConsenSys CodeFi by the ConsenSys decentralized blockchain development studio explained how Ethereum (ETH) 2.0 will monitor this integrity within its Phase 0 or Beacon Chain.

Crime and punishment

To become a validator (an actor that verifies the transaction before including it in the blockchain), the Ethereum (ETH) network participant will be asked to stake (to lock in a special manner) at least 32 ETH. With no regard to the actual volume of the stake, all rewards and penalties will be a function of the user's effective balance, capped at 32 ETH.

Once the user stake balance drops to or below 16 ETH due to the penalties, he/she is forcefully excluded from the network. The cause of such a punishment may vary depending on whether the stakeholder acts as a proposer (the one who launches the block validation) or as an attestor (the one who verifies the block).

The user may be slashed (prevented from operations) directly by the following:

1. By being a proposer and signing two different beacon blocks for the same slot.

2. By being an attester and signing an attestation that "surrounds" another one.

3. By being an attester and signing two different attestations with the same target.

The offender in Ethereum (ETH) 2.0 will be caught by a validator-whistleblower who will receive a significant portion of the offender's stake as a reward for being cautious.

Will it be worth it? 

ConsenSys CodeFi also calculated the approximate rewards for staking a certain amount of Ethereum (ETH). While being online around 95% of the time, the stakeholder can make 1.8 ETH every epoch (12-13 minutes) for every 1M ETH in his/her stake.

According to this estimation, it's much more profitable to stake a medium amount of Ether in one stake. Thus, Ethereum (ETH) 2.0 decentralization will be incentivized economically.