Cryptocurrency

Ethereum 2.0 Staking – Everything You Need To Know about ‘How to Stake ETH’

What is Ethereum Staking - Everything You Need To Know

Key takeaways 

  • Ethereum staking rewards are the most sorted after results the crypto community is looking forward to. 
  • Ethereum staking explained with various staking options available for the users to choose from.
  • Risks and rewards of Ethereum staking

What is Ethereum 2.0? 

The Ethereum 2.0 is the new version of the Ethereum crypto asset known to the world. The 2.0 is the indication of Ethereum’s transition from its current underlying Proof of Work consensus mechanism to the Proof of Stake consensus mechanism. To simply put, Ethereum 2.0 also referred to as ETH2, ETH2.0 is simply the merging of the existing execution layer of Ethereum (the Mainnet that is in use as of writing this piece) with the proof-of-stake based consensus layer (also called Beacon Chain). Switching from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism eliminates the need for energy-intensive mining and also secures the network using staked ETH.

On 1 December 2020, the PoS based Beacon Chain was created, which has so far existed as a separate blockchain, running in parallel to the PoW based Ethereum Mainnet. The approaching Merge is when these two systems finally come together, and proof-of-work is replaced permanently by the proof-of-stake consensus layer.

What is the difference between Ethereum (ETH) and Ethereum 2 (ETH2) 

Here are some of the most prominent differences between Ethereum 2.0 and Ethereum.

SHIFT FROM POW TO POS CONSENSUS MECHANISM

This transition from PoW to PoS in the Ethereum Merge has been already explained before, but it has a few more added benefits that often go unnoticed. It adds an additional layer of security too to protect the blockchain from scams and frauds, for example – any validator who is caught authenticating illegitimate transactions faces a reduction in his staked funds in a process called slashing.

Also, apart from being a greener blockchain technology, it makes Ethereum 2.0 become more decentralized than the existing Ethereum. This is due to the fact that since validators don’t have to buy expensive mining rigs anymore, anyone with a certain amount of ETH can participate in the validating process, thus with a greater participation comes more decentralization.

SHARDING

Another important update that makes Ethereum 2.0 different from the classic Ethereum is sharding. As mentioned earlier, the Ethereum Merge would be followed by the process of sharding, and the introduction of 64 shards, or new chains that are connected to the older Ethereum chain to link with the previously recorded data.

Theoretically, this would solve Ethereum’s scalability issues going forward. Sharding is basically a process to add multiple lanes onto an extremely busy highway that earlier had only one.

BEACON CHAIN

Beacon Chain, which was launched back on 1 December 2020 will be the backbone behind Ethereum 2.0. It will essentially be the connection between all the 64 shards that are planned to be created in the Ethereum 2.0 process. Also, this Proof of Stake based Beacon Chain will be responsible for performing the crucial function of randomly choosing a validator and monitoring its activity on the chain and is also responsible for any slashing that may be required.

What is Ethereum Staking

Before we dive into what Ethereum Staking is, it is important to take a quick recap of what we discussed above. The staking of the Ethereum (ETH) network became a whole another section of interest for the crypto people since the network began its process of transitioning to PoS consensus. The previously PoW run Ethereum network has been overburdened due to the success of various DeFi projects, which forced the transaction costs to skyrocket. The various DeFi projects along with the use cases of Smart Contracts have also resulted in consumers being willing to pay high transaction fees due to the tremendous financial value of the transactions. 

As per the definition by Ethereum.org, staking is the act of depositing 32 ETH to activate validator software. As a validator, those individuals will be responsible for storing data, processing transactions, and adding new blocks to the blockchain. This will help in keeping Ethereum secure for everyone and earn the validators new ETH in the process. This new process which is better known as proof-of-stake is being introduced by the Beacon Chain. (The first step taken by the Ethereum network in the process of transitioning to PoS)

Additional Read: Will Ethereum 2.0 Replace Ethereum

How to stake Ethereum?

Staking on Ethereum can be done in a variety of ways. It can be executed via staking platforms, or one can stake their own ETHs. However, staking on the new Ethereum network requires setting up a staking node using Ethereum and Ethereum 2.0 clients. Ethereum clients? Well, they are simply applications that allow nodes to communicate with the Ethereum network.

Staking ETHs and which method of staking one will go for; all depends on how much they are willing to stake. The only requirement to get started with Ethereum Staking is having a total of 32 ETH. One of the benefits of ethereum staking is that they cater to activating a validator. But it is possible to stake less than 32 ETH. Let us take a look at all the options available for ETH staking or Ethereum 2.0 staking.


Solo home Staking

  • Full control
  • Rewards
  • Very Impactful

The most sorted after staking method, as per various crypto enthusiasts, is solo staking. It provides full participation rewards, improves the decentralization of the network, and it does not require trusting anyone else with one’s funds.


Staking as a Service

  • 32 ETH
  • Validator Keys of the Individual
  • Entrusted Node operations by operators

This is the most suitable way to go for Ethereum Staking if the participant is not comfortable in dealing with hardware but still wants to stake their 32 ETH. Using the staking-as-a-service option also allows delegating the hard part while earning native block rewards.


Pooled Staking

  • Stake the amount you are comfortable with
  • Simple
  • Most popular
  • Earn Ethereum staking rewards

There are many pooling solutions available to assist users who are not comfortable in staking 32 ETH or have lesser than 32 ETHs with them. A bunch of these options includes liquid staking. This method involves an ERC-20 liquidity token which then becomes the representative of the staked ETH. Liquid staking makes staking as simple as a token swap while users can hold custody of their assets in their own Ethereum wallets.

Is there a staking minimum and maximum?

There is no minimum amount of ETH requirements when it comes to ETH staking, however, there is a limit to the maximum one can stake. This amount is not written in stone and has the potential to change over time. 

Rewards & Risks associated with staking ETH?

Solo Staking Staking as a Service Pooled Staking
REWARDS REWARDS REWARDS
  • Maximum Rewards
  • Unburnt Transaction fees after the Merge
  • Rewards for batching transactions into a new block
  • Usually caters to full protocol rewards after deducting the operator fee
  • Availability of a dashboard for tracking the validator client
  • Rewards depends on the method of pooled staking chosen
  • Liquidity tokens used in DeFi can be stored in the individual’s wallet and sold if they decide to exit
RISKS RISKS RISKS
  • ETH is at stake
  • Penalties may occur, which will cost ETH tokens
  • Malicious behavior may result in the slashing of ETH tokens
  • Similar risks as in Solo staking
  • The signing keys are entrusted to a third party, which can result in malicious behavior
  • Risks depend on the method used
  • Pooled staking risks has a combination of counter-party, smart contract and execution risks

Ethereum Merge and Staking

Ethereum staking rewards after merge

With over $34.5 billion Total Value Locked on Ethereum, the staking rewards for users who have been an early adopter of the Merge is anticipation a good outcome. Users may earn yield on any ETH that they have staked as a reward for helping secure the network. Usually, ETH staking rewards are given based on how much ETH is validated and what rewards the network is offering over a certain time period. To put in simply, when there is very little ETH staked, the protocol rewards will be larger as an incentive for more ETH to come online. As there will be an increasing amount of ETH staked, the reward will be reduced. 

As reported by IntoTheBlock, the yearly Ethereum staking reward is likely to fall within 6% and 8% once the merge goes live in September 2022. 

Latest News on Ethereum Merge

  • Ethermine launches new ETH staking service

World’s largest Ethereum mining pool, Ethermine recently announced the launch of a staking pool service; Ethereum Staking; for users. According to the Decrypt report, the Ethereum Staking will permit users to contribute funds as low as 0.1 ETH to a massive pool of user contributions that will be collectively staked to create and earn new ETH, once the much-anticipated merge transitions Ethereum to a Proof of Stake model this month.

  • Total Staked ETH More than Doubles Ahead of Ethereum Merge

According to the Bitcoinist report, the total amount of ETH staked on the Ethereum network is up by more than 100% on a year-over-year basis. Staking is currently accounting for more than 13.4 million of all ETH! This makes up more than 11% of the total supply of ETH. This growth comes despite the fact that staking can be risky, but with the Ethereum developer’s team moving as scheduled for the completion of the Merge, it has ingrained renewed interest in users.

Source: Arcane Research

  • Ethereum Merge’s Bellatrix Upgrade is Happening Today

The Ethereum (ETH) blockchain is all set for the Bellatrix upgrade which is set to take place approximately around 5 pm IST today; 6 September 2022. Once the Ethereum Epoch value is expected to reach 144,896 on the Proof of Stake chain; the Bellatrix upgrade will take its course.

Wrapping Up!

With one of the most anticipated event of the crypto space, the Ethereum Merge is tentatively transitioning fully to its Proof of Stake consensus by September 2022. However, the negated mining option have caused a little bit of a confusion for Ethereum miners. To understand more about the misconceptions created during the MErge duration, check out our 6 misconceptions about Ethereum Merge blog. For latest news on all things crypto, keep an eye out for CoinDCX Blog, as we bring you the latest news on crypto!

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