Ethereum (ETH) Stacking: A Complete Guide

Features of steaking in Ethereum 2.0

Previously, the project worked exclusively on PoW. But on December 1, 2020 at 12:00 UTC (15:00 MSC), a new ETH2 – Beacon Chain was launched, Phase 0 was started.

They started developing a set of updates back in 2014. It was called Serenity. So this was a planned step to help move away from PoW mining and smoothly transition to PoS.

Anyone can become a validator or delegate their coins by joining a pool. But the developers announced that the cryptocurrency will be frozen in staking until the two chains, ETH1 and ETH2, are fully merged. The merger will begin in Phase 1.5.

After that, there will be an additional 1+ day (256 epochs) blockchain lock-in period to prevent users from withdrawing coins en masse and triggering a sharp drop in the exchange rate.

The advantages of Ethereum staking are in the table.

How it happens

The process of staking is the same as in other blockchains on the Proof-of-Stake algorithm. The user needs to lock a specific number of coins in the account. The higher the number, the higher the profit.

Rewarding validators

Users receive Ethereum coins for maintaining the stability of the network. Rewards are accrued both for grouping transactions into blocks and for validating the correctness of other participants. Their size will depend on the type of staking and the number of blocked coins.

The annual rate in the fall of 2021 was:

• Pools – 5.95%.
• Validator – 6%.

Nuances and risks

Users become validators to be rewarded for work that benefits the network. But there is also a system of penalties.

Sanctions are applied in situations where the investor’s actions can carry potential harm to the blockchain.

Penalties are assessed for:

• Leaving the network.
• Malicious actions.
• Improper verification of cryptocurrency transactions.

From the launch of ETH2 through the fall of 2021, 150+ users have been fined. The main reason is attestation violation.

Revenue Potential

The reward level correlates with inflation. If the total number of blocked coins is small, the issuance of new cryptocurrency is reduced.

As rates rise, however, issuance increases. Inflation is distributed proportionally among all validators and pools. The calculations are in the table.

The Ethereum 2.0 Staking calculator is used to calculate the exact amount in ETH.

How to participate

The user must choose who they want to become:

• A full-fledged validator. His duties include storing data, processing new transactions, and adding links to the blockchain. This job keeps the network running and secure.
• Pool Participant. You can send your coins to the associations. You don’t have to be on the network all the time to get the reward.

Self-stacking

To become a validator, you need to block from 32 ETH on the account. This is a large amount (at the exchange rate of October 2021 ~$109,540). Therefore, it will not suit every coin holder.

To start ETH staking, you need to use the Eth2 startup panel. To do so, the following steps are taken:

1. Familiarize yourself with the theoretical part and confirm, “I understand that a deposit of 32 ETH is required. The transfer of coins to the Beacon chain is irreversible and unilateral”, “Able to technically set up the validator” and so on (10 points).

   

   The user needs to confirm that they are aware of the risk of being fined
2. Select a client and start setting up the node. The validator will need to process attachments from the Eth1 network. Therefore, clients on both circuits need to be started.

   

   Options for software that can be installed to start passive earning
3. Select and install for Eth2. The options are Prysm, Lighthouse.
4. Generate key pairs. Need to choose the number of validators, your operating system, how to run the CLI. You can go through the application installation. Then you need to download the program with a line command from GitHub. Then generate the deposit keys and save them, prepare the validator file. The instructions describe each step.
5. Upload the created validator file to the system.
6. Transfer coins from the first chain to the second chain.

You can use pre-configured validator nodes, such as the Avado device. Hardware will save time and effort when configuring the node.

Or you can use services that offer Validador-as-a-service: Staked, Blox Staking, Attestant. These are separate teams with their own infrastructure and staff that help run nodes for others. They do not handle the storage of funds.

Collaborative Staking

Users with less than 32 ETH in their account can also earn passively. Popular options:

• Pools.
• Exchanges.
• Lending platforms.

Staking pools

A user can join validating pools. It is not necessary to have 32 ETH to enter a pool. You can familiarize yourself with the list of services and their terms and conditions (minimum number of coins, profit, other features). Examples of pools:

• Rocket Pool – from 0.01 ETH.
• Ankr Staking – from 0.5 ETH.
• Stakewise Pool – any number.

Lending platforms

You can start earning passively through third-party sites. This method is popular among traders and investors who want to make the most profit. Platforms allow you to borrow tokens against Ethereum frozen in the process of staking.

Examples of sites include DHARMA Capital or LiquidStake.

Among the disadvantages of steaking through lending platforms are:

• The user is exposed to additionalrisks.
• There is a possibility that the validator will be liquidated.
• It is possible to get penalized.

Exchanges and custodians

An easy way to start earning on the cryptocurrency blockchain is by staking Efirium on trading centralized platforms. Such a feature is supported by Binance, OKex, MEXCl and others. It is possible to allocate less than 32 coins. At the same time, the term of the minimum blockchain will be the same as with independent mining (until the full merger of 2 chains).

Example of obtaining passive income: OKEx offers from 5 to 20% profit per year in the cryptocurrency etherium.

Disadvantages of this approach:

• When using custodial exchanges, the client transfers access to private keys. There is no 100% control over the assets.
• Risk of fraud.
• The reward system is not transparent.

How Efirium 1.0 and 2.0 will coexist

During the Zero Phase, the 2 chains will run in parallel. Therefore, in 2021, 2 types of earning are available to users: through PoW mining and PoS staking. Then will come the merger and complete abandonment of mining with video cards and ASIC devices. All phases are in the table.

Steaking on Binance

Therefore, the centralized exchange Binance offered a safe way to earn money, in which you do not need to take on the role of validator.

The Steaking ETH 2.0 program has a low barrier to entry.

Features

The platform has made passive income in the Eth2 chain profitable and affordable. To start earning, you just need to freeze from 0.1 coins. In October 2021, it is about $420. The principle is simple: the user adds Ether to the CEX pool, and in return receives a similar number of tokenized BETH assets. Their functionality is similar. They can be used for:

• Transactions.
• Trading.
• Investments.
• Launching smart contracts, decentralized applications.

All rewards are shared between users in proportion to their contribution.

The reverse transfer of BETH to Ether is possible only after the merger of the two chains. The ratio is 1 to 1.

The exchange does not set the level of annualized yield (APY). The size of the reward depends on the Etherium blockchain project. The more participants there are in the staking program, the lower the APY will be.

Advantages

The pros of this way of generating passive income:

• The exchange covers 100% of operating costs.
• Low entry threshold – from 0.1 coins.
• Binance takes care of all fines that may be charged to validators.

Process

The official website of the exchange displays instructions on how to start ether staking. The process is simpler than connecting a client and mining on your own.

Registration

Only users who have an account can receive passive income. To register, it is enough to:

1. Specify your email or phone number.
2. Confirm the contact information. You need to enter a code of 6 symbols in a special field.
3. Confirm your identity.

More details about creating an account are described in the platform review.

ETH deposit

Instructions for depositing funds:

1. You need to click on the “Start Staking” button.
2. Specify the amount in ETH and click “Confirm”
3. An additional window with terms and conditions will open. You need to agree with them.

Minimum period of steaking

It will be possible to exchange tokens back to ethers after the launch of phase 2.0. That is, the coins are frozen for 1-2 years. The user consents to such a long lockup.

Withdrawal of remuneration

For maintaining the stability of the network, investors receive BETH tokens (1 to 1 in relation to Ethereum). The funds are transferred to spot accounts on the exchange. Data about the blocked cryptocurrency is displayed inside the profile.

Summary

The transition to PoS is an important step that solves the problems of slow processing of transactions, high commissions. This gives prerequisites for the growth of the exchange rate. Therefore, despite the long period of blocked coins, many crypto-enthusiasts decided to participate in the process of staking already in the early stages.

Frequently Asked Questions