26 June 2020
What Is Staking In Ethereum And How Can You Get Involved?
Ethereum is the second-largest cryptocurrency. There are many ways to get involved in the Ethereum community, in addition to simply owning, buying, or selling Ethereum. One of the many ways is staking, but not everyone understands what this is
WHAT IS ETHEREUM STAKING?
Put simply, Ethereum staking is the act of holding/owning Ether. This allows you to participate in the Ethereum network and receive rewards.
With staking, you lock up a certain amount of a cryptocurrency, in this case, Ether. By locking the Ether in a wallet, you can participate in blockchain operations and receive rewards. Staking is theoretically possible with any blockchain that uses a Proof-of-Stake consensus. However, there are several variations of Proof-of-Stake.
WHY DOES ETHEREUM 2.0 MATTER FOR STAKING?
Ethereum 2.0 is a crucial part of staking, as this is part of the process of changing Ethereum to the Proof-of-Stake consensus mechanism from Proof-of-Work. This is just one of the many changes that will occur as part of Ethereum 2.0 and future phases.
Ethereum 2.0 is the name given to the current upgrade that the core development team is working on. Overall, this update will re-engineer the full Ethereum platform, creating a more scalable version.
You can expect Ethereum 2.0 to begin implementation in summer 2020.
How Staking Works On Ethereum 2.0
Staking on Ethereum 2.0 is designed to be straightforward. The minimum threshold for staking is 32 ETH. To be a validator, you must also run a validator node. You can run one of these nodes with consumer-grade laptops or computers. The only thing to keep in mind is that the node must be online consistently; otherwise, there will be penalties.
Returns On Staking With Ethereum
Although staking on Ethereum is still in the very early stages, we know what to expect from the returns. Returns should be about 4-10%.
There is also slashing, which refers to removing a portion of the stake from the validators if they act maliciously towards the network.
Pros And Cons Of Staking Ethereum
The most significant benefit of staking Ethereum is the passive income that you can earn just from holding Ether and leaving your computer connected to the internet while running the Ethereum 2.0 platform. It also provides you with the chance to actively participate in one of the most popular blockchains.
Keep in mind that when you stake Ether, you will lock up your holdings for a set amount of time. As such, you cannot sell your Ether if the market crashes and will instead have to face any losses. There is also the possibility that a smaller downturn in the market could negate any profits from staking. Depending on the staking method you use, such as staking pools, you also need to be aware of the risks associated with letting someone else control your Ether. Minimize that last risk by only participating in well-respected staking pools.
How Staking Pools Can Help You Get Involved
Many people may not want to stake enough Ether to qualify for the 32 ETH minimum, or they may not be able to ensure 24/7 uptime to become a validator. In these cases, staking pools are a great way to get involved in Ethereum staking.
A staking pool has multiple people working together to be a single validator for staking. A pool operator runs the staking pool. Some exchanges run their own staking pools, where they deposit submitted user funds into a wallet used explicitly for staking. You can also find staking pools that let you keep your tokens in your personal wallet, including a cold wallet.
PROS AND CONS OF STAKING POOLS
Staking pools let you combine your cryptocurrency with others, increasing your chances of being selected to be a validator so you can earn the staking rewards. Keep in mind, however, that because of the combined effort in staking pools, the rewards get spread across all participants. This typically results in proportionally less profit from staking. At the same time, you would still get more profit from a staking pool than you would if you were not able to be a validator at all.
Many people appreciate the idea of staking pools as a passive income method. Essentially, they let you earn the passive income associated with staking but without requiring technical skills to set up the validating node.
Additionally, the multi-person nature of staking pools means that you do not have to keep your tokens locked up for a set time. That is typically a requirement for validator programs, but not for staking pools since there are enough people to always ensure the minimum.