Understanding the Pros and Cons of Ethereum Staking
Before we go into the details, let’s have a quick recap of what Ethereum is all about.
Ethereum is an open-source cryptocurrency platform. It also serves as an operating system running on a blockchain that helps developers establish decentralized applications.
Ethereum is only next to Bitcoin is popularity and is a favorite among miners and traders.
Since everyone knows that you can profit from Ethereum through trading, which is highly profitable, there are other ways to make money from it through referral programs, Ethereum faucets, and mining. And with the recent update, it includes staking — another way to profit from cryptos.
So, let’s look at what is staking, how it works, its benefits, and its associated risks.
What is Ethereum 2.0 Staking?
The Ethereum staking process involves holding a certain amount of ETH, usually 32 or more in your wallet that makes you eligible to participate in the network of a blockchain and get rewards in return.
While a minimum of 32 ETH is required to become a validator, with the proposed Ethereum 2.0 update, staking pools and services make it more accessible for everyone, which helps to increase their chances of getting rewards.
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How does staking work on Ethereum 2.0?
Staking on Ethereum 2.0 is straightforward, it’s just like with the other platforms, wherein you lock, load, and wait.
The upgraded Ethereum network will shift from the traditional rewarding proof-of-work (rewards its miners for solving complicated equations) to proof-of-stake (rewards are based on how much its users staked). It will replace miners with validators who will be running the validation.
Once the validators verify legitimate transactions, you receive a reward, and that’s how Ethereum staking works.
It’s worth noting that Ethereum staking does not involve expensive machinery and hefty electrical bills since you can work on a laptop or personal computer. However, validators must be online all the time; otherwise, they will face minor penalties under a program called ‘slashing,’ wherein their balance will be reduced. It’s usually a minimum sanction costs 1 ETH.
Slashing will be applied to all validators who commit malicious acts toward the network by taking a portion of their stake.
On that note, let’s also look at the value of Ethereum:
What are the minimum requirements to stake?
Before you can stake your ETH as a validator, here are the basic requirements that you must take care of:
- A minimum of 32 ETH or more on your Ethereum wallet, as we mentioned above
- A fast and reliable internet connection
- A computer or laptop with working hardware specs including a modern CPU. The recommended specs are 8GB of RAM, 100GB of SSD storage, and stable internet connection
Beacon nodes vs. Validator clients
With Ethereum 2.0, the concept of a single full node has been upgraded to maintain network security to two separate clients: beacon nodes and validator clients.
The update makes the distinction between these two terms, and the validators will need both of these to perform Ethereum staking.
A beacon node is responsible for maintaining a view of the beacon chain and the shards containing a unique set of account balances and smart contracts, which may be needed by the user or the validator.
On the other hand, the validator clients concern themselves in communicating with the beacon code to further understand the current state of the chain. It is done by attesting and proposing blocks when appropriate and then asking the beacon node to send it to its peers.
In a nutshell: If you are not a validator, the beacon code contains all the data you need to interact with the Ethereum blockchain.
What are the pros and cons and risks of Ethereum staking?
- Generates passive income
- Provides an opportunity to be an active participant in your favorite blockchain projects
- Takes away the need for costly hardware
- Users cannot withdraw cryptos for a defined period
- No guarantee on returns if there’s a sudden market crash
So, are you participating in the Ethereum staking process? Let us know!