The long waited Ethereum update has finally arrived, and we can start staking our precious ETH’s to earn passive income on our hodl wallets.
Like myself, many of you have been holding on to Ethereum throughout the bear market. Maybe you even purchased a few more on the way down. If you did, good for you! Because we’re entering the new bull cycle and with Ethereum 2.0 being launched a new ATH in 2021 is in sight.
With the update, the much anticipated Proof-of-Stake (PoS) infrastructure is released and us humble investors can now start staking.
Now staking can be done in several ways. Like at some of the crypto credit cards you can stake coins to get better cashback deals.
Or at Lending platforms you can stake coins to get better interest rates.
However, on the Ethereum network is works like this….
What is Proof-of-Stake?
Proof-of-stake, or PoS, is a consensus mechanism used by some blockchains
PoS gives those a stake of network tokens, in this case ETH, the option to earn rewards for approving blocks. These stakers are called validators.
This is in contrast with Proof-of-Work , or PoW, the model utilized by Bitcoin (BTC). PoW validates block confirmation rights to those that deliver the biggest measure of computing power.
When a validator consents to stake its tokens, the stake is secured. As a rule, Once a validator agrees to stake its tokens, the stake is locked up. In many cases, it will be forfeited fully or partially if the validator doesn’t act in the interests of the network — intentionally or otherwise.
On a basic level, anybody can stake tokens; yet actually, a protocol will be utilized to figure out which members get chosen to become validators and gets a share of the PoS rewards. The right to validate a block and earn rewards is generally assigned based on the proportionate value of the stake.
So, someone staking 0.1% of the total overall value will get to validate 0.1% of all blocks. However, the length of time that the stake has been locked up may also factor into the validator selection protocol.
How Does Staking Work on Ethereum 2.0
Staking on Ethereum 2.0 will be fairly straightforward. There will be a minimum threshold of 32 ETH required to participate in staking, and validators will need to be running a validator node.
The first version of staking is launched on the Beacon Chain. Which at first, will exist separately to the Ethereum mainnet that is currently used. But in time it will be fully merged into Ethereum 2.0.
At the current price of ETH ($613), you’ll need to lock up nearly $20,000 to join the staking party.
However, you don’t need any special hardware to run a node.
How Much Do You Make?
According to Cointelegraph, the ROI for staking ETH is expected to be around 4%–10%.
Important Notes Before Staking
When you’re hustling to make money there is always risk involved. Here are a few important things to consider before you put your Ethereum at risk.
Validators are required to stake 32 Eth to become a Validator
The price of cryptocurrency high fluctuates, so the dollar cost of becoming a node will run up quickly.
With a group of friends I once staked 1000 DASH to run a masternode, which we held during the all time high of around $1500 per DASH. Even though the ROI was 8%, it was was quite an expensive node to run and it hurt us alot during the crash of 2018.
Deposting ETH into the deposit contract is a one-way transaction and cannot be reverted
For now, it’s a one way street. So take your time to evaluate before taking this exit.
All ETH + Rewards that are staked in the beacon chain cannot exit the system until Phase 1.5 (timelines currently unknown)
In the blockchain world, timelines are often pushed forward and Ethereum doesn’t have the best track record of pushing updates according to their roadmap. So take into account your ETH might be stuck longer than you initially plan.
Vitalik Burin Tweeted the roadmap yesterday and phase 2 is scheduled roughly 2 years from now:
You can find more rules, economic primers, resources, and instructions for Ethereum staking in this Google sheet.
Early adopter risks
Validators are participating in the initial launch of a new network. As with any new piece of software, there is the potential for software bugs. While unlikely, potential bugs may result in slashing.
We’ve all seen different hacks over the past years, including the DOA hack that later resulted in the Ethereum Classic hard fork.
So to consider this investment opportunity you really need to trust the team, network, and fundamentals of Ethereum.
Penalties for inactive validators
The validators will be expected to be online consistently or face minor penalties. You can find more information about this in their FAQ.
Stake Your Ethereum
As a long term investor in Ethereum, I’ve been waiting to stake some coins that I don’t plan on selling for the upcoming years. So for a fairly “safe” bet within the high-risk crypto industry, staking is a good option to earn some extra Ether’s. However, keep in mind that there’s a possibility these ETH’s will be unable to withdraw for the next 2 years.
Go to the Ethereum Launchpad to get started
The steps will require you to run a node and the technical aspects that come with it.
Personal View on Staking ETH
As an early adopter, I’ve been eagerly waiting for this opportunity with Ethereum 2.0.
I’ve always found ways to support the ecosystem of different projects I invested in. Whether that was by spending Bitcoin, mining, or setting up Nodes.
Even with the financial risks involved with this staking option, I’m very willing to support the ecosystem by running a node for the first few years.
However, I got stuck in the technical process of setting it up. As soon as I need to download Command-Line-Interfaces (CLI’s), to enter commands, or compress SHA256 files, I’m lost.
I’ll wait for the next update and hope it includes a more user-friendly way for setting this up. Once this happens, I’ll write a step-by-step guide on how to set it up.
For the people who are willing to think outside the box to get started, several exchanges Including Coinbase and Binance are offering to support the ETH 2.0 staking option. Remember whichever client you end up researching that you’re taking on some extra third-party risks.
Hope this was helpful for anyone considering staking and subscribe to my newsletter below for more updates on this topic.