What is Ethereum 2.0 Staking?

0
7221
staking-eth 2.0

Ethereum’s most significant and highly awaited upgrade, the Ethereum 2.0 – is scheduled to launch this coming November 2020. On top of completely revamping the entire network itself, one of the most anticipated changes coming to the Ethereum 2.0 is the introduction of the proof-of-stake (PoS) consensus. This will provide Ethereum holders a viable way to earn rewards in exchange for their ETH investment – the Ethereum 2.0 staking.

 The fundamentals of Ethereum 2.0 staking

Before you could begin staking on the new Ethereum 2.0, you must first need to operate a validator node to locking up your ETH holdings. Doing so will allow the operator to take part in the block creation – wherein validator nodes will be chosen to vote on brand new semi-random blocks.

The PoS implementation will work the same as how the current mining system operates, albeit with many more advantages. The majority of the crypto industry considers PoS as a far more decentralized and secured alternative. The PoS algorism will help with current network scaling issues by handle transactions more efficiently.

Mining on the Ethereum 1.0 will still be available once Ethereum 2.0 staking does eventually go live. However, mining rewards are expected to fall progressively to discourage the mining in the long run.

 How does Ethereum 2.0 staking works?

As complex as it may initially sound, staking on the upcoming Ethereum 2.0 will be relatively simple and easy to understand. Basically, you need a minimum of 32 ETH (approximately $12,000 at current rate) in order to participate in the Ethereum 2.0 staking.

However, what people find most compelling is the fact that you do not need any specialized hardware to take part in the staking process. This is because most consumer-grade computer devices can comfortably support at least one validator slot. Notably, even though some may still choose to take advantage of powerful computers and ASIC devices, Ethereum notes that it will provide no apparent advantages.

This accessibility comes with a price, though. Staking participants must stay online and must be available to validate incoming blocks at all times. On top of that, they will need a bit of technical prowess to run the node software of Ethereum promptly. Validators will then need to wait an approximate 18 hours before they could withdraw their ETH, assuming that there is no existing queue.

It is also worth noting that the Ethereum 2.0 will be utilizing disincentives in order to preserve network security and integrity. Validators that fail to stay consistently online will receive small penalties while those that are found malicious will undergo the “slashing” process. It is the process wherein the network takes away a portion of the validator’s stake in the hopes of forcing them out of the network entirely.

As per the question on how much one could get from staking, there is no conclusive answer as of yet. That being said, Vitalik Buterin, Ethereum network’s creator, recently raised a proposal that may set annual returns to fall between 1.5% and 18% – depending heavily on the amount of collective ETH in circulation. Many believe that the average rate will settle to around 8% annual in the long run.

Market prices are also expected to make an impact on staking profitability. This means that the current market conditions will heavily influence the amount of ETH the participants could potentially receive. One thing is for certain, though. Interest rates will go up the longer you stake your ETH.

 Staking Pool.

As mentioned earlier, ETH staking operation requires handling of validator nod (physical equipment) and a minimum of 32 ETH to be locked up.

Staking pools allow people who are not interested in operating a nod to participate in staking (with small fees). The staking pool also enables small ETH holders (less than 32 ETH) to participate in staking.

Many major crypto exchanges offer staking pools for their client’s deposits on certain crypto protocols.  The staking conditions and interest rate varies with the exchange and the coin.

Will there be risks?

As beneficial as staking may sound, it also comes with its own set of risks. Keep in mind that engaging in the practice of staking means that you are willing to lock up your crypto holdings for a definite period. However, this also means that you won’t be able to suddenly pull out your cryptos when you immediately need them. However, unlock period (18 hour) of ETH staking is fairly short when compared to other crypto currencies such as ICON and FTM.

 When can you start staking in Ethereum 2.0?

You will be able to participate in the process of staking in the Ethereum 2.0 as soon as the upgrade launches this coming November.

 Conclusion

As it currently stands, the network plans to keep the Ethereum 1.0 running in simultaneous with the Ethereum 2.0 after it officially goes live. During the first phase of Ethereum 2.0, users will have the option to transfer their existing ETH holdings to the revamped platform and promptly use them for staking purposes.

That being said, even after staking is officially introduced into the Ethereum network, it does not necessarily mean that it will completely replace the current mining system. The network reaffirms that the Ethereum 1.0, alongside its mining system, will not be scrapped altogether without its community’s approval.

LEAVE A REPLY

Please enter your comment!
Please enter your name here