Now that Ethereum’s merge is complete, staking the cryptocurrency can be one of the most options for users looking to hold ETH and profit at the same time.
Since abandoning Proof-of-Work, Ethereum now offers Ether owners the ability to stake the cryptocurrency in order to help maintain the blockchain – and receive ETH as a reward.
To become an Ethereum validator – ie. someone who is in charge of auditing blockchain transactions – holders must meet a few requirements.
32 ETH must be staked to activate validator software. You will be in charge of maintaining data, processing transactions and adding new blocks to the blockchain as a validator. This will help in maintaining Ethereum’s security for everyone – and of course, reward validators with fresh ETH.
Staking Benefits
As previously stated, stakers get monetary incentives for investors looking to help maintain the chain’s security by running software that correctly groups transactions into new blocks and verifies the work of other validators.
On top of that, Ethereum developers claim that the staking consensus mechanism helps the blockchain become more secure.
The logic is the following: As more ETH is staked, the network becomes more resistant to assaults since it then takes more ETH to control a majority of the network.
In order to threaten the security of the network, hackers and scammers would need to possess the majority of validators, which would mean they’d need to have complete control over the system’s ETH supply.
When it comes to energy usage, Proof-of-Stake is significantly more reasonable than the previous mechanism.
Proof-of-Work requires mining – a process that works on the back of powerful computer engines solving mathematical problems in order to run the blockchain.
In counterpart to PoW, Staking requires 99% less energy – resulting in fewer energy costs for users and an overall greener blockchain.
How to stake ETH
With the second-highest cryptocurrency by market capitalization adopting a completely new consensus – many cryptocurrency enthusiasts are curious to learn how to participate in Ethereum’s proof-of-stake.
Before jumping right in, users must first learn a few requirements and information about staking – which will aid them in not only keeping their Ether safe but also getting the most rewards out of the blockchain.
There are a variety of ways to take part in Ethereum staking. Each of these routes eventually targets a different user group, and varies in terms of risks, incentives, and trust presumptions.
Compared to others, some are more decentralized, tested in war, and/or hazardous. Before transferring any ETH anyplace, always conduct your own research. We share some information about well-known initiatives in the area.
Solo Staking
In order to become a “Solo Staker” – which is a participant willing to stake ETH by himself without trusting its fund to staking pools, one will need to hold at least 32 ETH and have a dedicated computer running on the blockchain.
Staking As A Service
It is also possible to stake the cryptocurrency without the need for a dedicated computer service.
Hiring third-party node operators to stake your currency could be the way to go for Ether holders looking to participate in PoS without having to run a computer 24/7.
The process known as “Staking as a Service”, or “SaaS” allows anybody with 32 ETH who doesn’t feel comfortable handling the technical complexities of hosting a node.
SaaS does require fees in order to run the node servers, which means the staking rewards are less than Solo Staking.
Pooled Staking
Staking is not only for those who own roughly US$43,500 in Ether.
Pooled Staking is perhaps the most popular form of PoS token management today.
Staking pools are a cooperative strategy that enables multiple people – even if they don’t own the 32 ETH necessary to activate a set of validator keys.
The majority of pools use smart contracts, which allow money to be placed into a contract that securely maintains and records your stake and awards you a token to signify this worth. Other pools could be run off-chain and without the use of smart contracts.
The use of smart contracts in order to stake cryptocurrency is known as “liquid staking”.
“Liquid staking” makes staking as easy as a token transfer. Additionally, this choice enables customers to keep possession of their assets in a personal Ethereum wallet.
One thing to keep in mind when pool staking is that is not a process supported by the Ethereum Protocol.
This means that doing research in order to find secure and trustable pools is a must for anyone looking to enter a pool staking process.
Centralized exchanges
Keeping ETH in a dedicated wallet can be cost-effective. With that in mind, several centralized exchanges provide staking services.
These exchanges serve as a backup to let you earn some yield on your holdings of ETH with no supervision or work.
In order to manage a high number of validators, centralized exchanges aggregate sizable ETH pools running thousands of validators.
The trade-off is that this process is more prone to attacks. The size of these pools creates a large target for hackers.
