The Ethereum 2.0 update has been driving the rise of the entire cryptocurrency in the last two months. https://bybitnote.com/ The key to the update is the shift from being rewarded for processing computations using graphics cards (Proof of Work: PoW) to being rewarded for just staking Ethereum and contributing to Ethereum ecosystem (Proof of Equity: PoS).
Today, we’re going to take a look at Ethereum staking ahead of a big change in the Ethereum ecosystem just around the corner. What is Ethereum Staking?
Like depositing money in a bank, you can think of staking as depositing money in a bank.
Staking Ethereum is a public action for the Ethereum ecosystem, which makes the Ethereum network safer and rewarded in return.
Specifically, Ethereum Staking refers to depositing 32 Ethereum to operate the ‘verifier’ software.
Validators are entities that reside in the beacon chain and participate in the consensus process of the Ethereum protocol. Verifier clients are software that uses the private key of the verifier to act on behalf of the verifier. A single validator client can have multiple private keys and manipulate multiple validators.
Being a ‘verifier’ preserves data, processes transactions, and provides new blocks to the blockchain. These actions make Ethereum a safer virtual asset for everyone, resulting in a new Ethereum reward. This process is called a proof-of-stake. Currently, the certificate of equity is being introduced by Beacon chain.
Currently, the total number of Ethereum staked is 14,039,150 and the total number of validators is 415,849. And the annual interest rate (APR) is around 4.1%.
Advantages of Ethereum Staking
© Az1975, from Pixabay
acquisition of compensation
The reward is for contributing to the Ethereum network reaching an agreement. If you become a verifier, you will run a program that verifies the work of other verifiers and processes transactions into new blocks. This is what helps keep the Ethereum chain running safely.
In addition, the more Ethereum is staked, the more Ethereum is required to control a large portion of the Ethereum network. In other words, Ethereum networks are more secure from attacks such as hacking. If the hacker wants to control the Ethereum network in a bad way, the hacker must control the majority of the Ethereum’s entire validators, which means that more than half of the Ethereum must be controlled. This is practically impossible.
a better environment
On the other hand, PoS-style staking does not require expensive and enormous power-consuming graphics cards or mining equipment. You can participate in the equity certification system with just a home computer or even a smartphone. In other words, the equity method makes Ethereum more environmentally friendly.
How to Steak Ethereum
The way you steak Ethereum depends on how much Ethereum you’re going to deposit. To be a validator on your own, you need 32 dirium, but you can deposit less.
© Wasdrew, source Unsplash
How to steak at home alone
This is the method that contributes to the decentralization of the most Ethereum network and also has the most rewards. And you don’t have to trust others in depositing your assets.
This method requires at least 32 Ethereum and requires a single computer for Ethereum Staking, which is connected to the Internet 24 hours a day. And I need some know-how about software.
This penalty is a penalty payable to Ethereum for failing to stay online 24 hours a day. Malicious behavior as a validator can also result in a large amount of Ethereum being fined and, in some cases, expelled from the network. In other words, all 32 of this Ethereum could be confiscated.
Entrustment to Service Providers
If your computer cannot run 24 hours a day or is burdened by lack of software knowledge, but you want to deposit 32 Ethereum, you can also entrust the hardware operations to the service provider and earn compensation for Ethereum staking. Of course, you’ll have to pay a commission commissioned by the service provider.
Since this method entrusts your Ethereum to the company, you must create a power of attorney in this process, deposit 32 Ethereum, and upload your sign key to the service company. This allows the company to perform verification on its behalf.
This method delegates the authority to manage your Ethereum to a service company, so a certain amount of “trust” is required. In order to prevent accidents, it is common to keep the “key-to-withdrawal” on your side.
Pooled staking method
Unlike the above two methods, this method is popular in which you can participate in Ethereum staking even if you do not have 32 Ethereum or do not want to stake all of it.
You can think of it as similar to a CMA account. This method represents Ethereum, where the ERC-20 method of liquidity tokens are mostly staked.
This method allows you to withdraw money at any time and store your Ethereum in your personal wallet, so the staking is as simple as a token swap.
Setting up and maintaining a staking pool requires specialized skills. As a result, participants pay a certain portion of the staking compensation they receive as a fee to the operator.
© Pixels, source, Pixabay
a centralized exchange approach
Many exchanges offer staking services for users who are not used to storing Ethereum in their personal wallets. It’s the least expensive way to earn revenue while retaining Ethereum.
This is how a centralized exchange integrates a huge amount of Ethereum and becomes a large number of validators, so on the contrary, there is a risk of being a big target for hackers’ attacks at once or being greatly affected by bugs at once.
There is no way to stake Ethereum like this that fits everyone with one choice. Each way has its own strengths and weaknesses.
To summarize the process of staking Ethereum,
It’s about depositing Ethereum, running a validator client, and getting compensation.
Currently, there is a mixture of PoW and PoS, but when the Ethereum 2.0 update, Merge, scheduled for mid-September, is completed, the only way to agree on the Ethereum network will be the equity certification method. Against this, the hard fork of the work proof blockchain is almost certain.
Regarding Ethereum updates and the right investment strategy, you can refer to the posts I’ve posted for a few days.
Today, we looked at Ethereum Staking ahead of the Ethereum 2.0 update.