One of the crucial changes Ethereum 2.0 will introduce is the support for staking. Users engaging in this activity will help sure the network and validate transactions. Some prerequisites are put in place before one can engage in Eth2 staking.
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Why Stake for Ethereum 2.0?
When the Ethereum 2.0 blockchain switches from proof-of-work to proof-of-stake, the network consensus rule will change. Rather than relying on miners to process data, it will be up to users who run a network node. Staking is a public good for this ecosystem, but it also provides users with intriguing rewards.
To begin staking on the Ethereum 2.0 network, users deposit a balance of 32 Ether. This balance is the threshold to activate validator software. Every validator stores network data of the specific chain shard for that node. Every user participating in proof-of-stake helps secure the network and is eligible for the associated rewards.
What Are the Ethereum 2.0 Staking Rewards?
Every user who stakes on the network helps the ecosystem achieve consensus. This results in transactions being batched into a new block or checking the work of other network validators. Depending on how much Ether is locked in staking, users will receive their portion of the rewards accordingly.
Judging by the table below, more users validating the network will result in fewer staking rewards. Currently, the annual return rate for validators is still 18.1%. That threshold may drop to 10.45% or lower when the Ethereum 2.0 ecosystem rolls out in full.
Nothing prevents individual users from setting up multiple validator nodes. Every node requires a 32 ETH initial deposit. It is possible to make money with this approach, although it will depend on how Etheruem’s price evolves. There are some costs to take into account as well.
How Should I Stake?
Operating a validator node to stake Ethereumis possible in many different ways. Using one’s computer is often the most comfortable option, assuming it connects to the internet 24 hours per day. If not, using an older computer – or buying a mini PC for this specific purpose – is one option to explore. Exploring this angle will introduce additional costs that need to be paid for by selling staking rewards.
Hosting the validator node through an online service provider is another option. The cost of doing so is between $120 and $150 per year. One downside to this option is how the end-user is not in control of their node. Instead, they have to rely on an external service provider to keep their validator active around the clock. Failure to do so results in lost staking rewards.
Punishing Malicious Ethereum 2.0 Stakers
Unlike other cryptocurrency ecosystems, there are penalties for Ethereum 2.0 users acting nefariously or irresponsibly. It is possible to lose ETH for going offline or failing to validate. That poses a severe risk, primarily when one hosts their validator node through a third-party service provider.
For now, the losses only pertain to nullifying staking rewards. However, if the malicious behavior continues, the validator node gets cut off from the network entirely. That includes forfeiting the initial 32 ETH deposit for running a node. Such a downside is a crucial aspect to ponder before committing to Ethereum 2.0 staking.
Accessing Staking Funds Takes A While
Considering how Ethereum 2.0 rolls out in phases, users who commit to staking won’t be able to access funds right away. Anyone who stakes and runs a validator will not be able to withdraw their balance until phase 1.5. No withdrawals are possible until the Ethereum network becomes a shard.
This situation may be different when users rely on a staking pool to support the network. Not everyone can commit 32 ETH at this time, which is understandable. A staking pool requires contributing fewer ETH, but service providers may have different requirements to withdraw funds. Conducting proper research is mandatory before exploring this option.
The concept of staking Ethereum caters to long-term ETH investors and those who genuinely want to support the network. For everyone else, it is an option, yet not a mandatory one. Using the network does not require one to run a node of any sort. That applies to both regular users and developers alike.
Even so, there are a lot of people who want to stake ETH to support Ethereum 2.0. The current reward schedule is appealing, mostly if the Ethereum price rises in the coming months and years. No one knows if that will be the case, however. Carefully evaluating the risks and requirements is paramount before making any long-term commitment.
You can now trade Ethereum with physical allocated Gold and Silver, with more pairs in the pipeline! This will let people hedge the risk of the ETH 2.0 roll out.