Ethereum staking queue crosses 300 000 users ahead of the platform transition to Proof-of-Stake protocol.
What’s the rush? And should you be one of those people already?
If you are a hardcore Ethereum fan and Vitalik Buterin’s tweets are your Holy Bible, you can leave immediately.
But if you are not sure what Ethereum staking is and do not know whether you should stake, please keep reading.
Ethereum is switching from PoW to PoS, what should you know?
Ethereum father Vitalik Buterin is a long time fan of Proof-of-Stake (PoS) protocol. If you look at the white paper of Ethereum back in 2011, the PoS was already seen as the way to go.
The very problem was its complexity. Back then lots of people deemed PoS impossible (or at least too complicated) to implement. So Ethereum went with Proof-of-Work (PoW) protocol that was well known because of Bitcoin.
Well, for the last few years PoS model has proved its viability. Many coins were launched with PoS and the absence of mining is now considered as a merit rather than a security problem.
Ethereum’s community has been planning to shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS) protocol for the last few years. That’s how long Ethereum staking has been discussed too.
According to leading Ethereum developers, the testnet of ETH 2.0 (the network that uses PoS) is in final testing stage now. No later than in autumn 2022 the Merge will happen, which will finally, well, merge the existing network of Ethereum of PoW with Ethereum 2.0 on PoS. And there will be no need for PoW anymore. Ethereum mining will be effectively over, miners will have to switch to other coins.
By the way, it’s the best moment to say “stop buying those GPUs” unless you are a hardcore gamer.
Anyways, latest news show that despite miners’ skepticism, a whole bunch of people are welcoming the upcoming Merge. Ethereum staking queue is heading to 300 000 people now. And it’s only March outside. What kind of madness awaits for us in June?
How does Ethereum staking work?
The PoS-powered blockchain bundles 32 blocks of transactions during each round of validation. Every round lasts on average 6.4 minutes.
These groups of blocks are named “epochs”. When the blockchain adds two additional epochs after it, it is considered irreversible. Only then the epoch is considered finalized.
Enter the stakers. The blockchain called The Beacon Chain divides all stakers into committee of 128 and randomly assigns them to a specific shard block.
Each committee is allotted a ‘slot’ and has a set time to propose a new block and validate transactions inside this block.
Each epoch has 32 slots. So it requires 32 sets of committees to complete the validation process.
Then the most interesting begins. Understanding Ethereum staking requires some math.
Once a committee has been assigned to a block, one member is picked randomly and gains exclusive power to propose a new block of transactions.
The remaining 127 members vote on the proposal and validate the transactions. The block is finalized if two-thirds of the validators agree. Once the block is attested and approved, the member who was picked as the main validator, gets his reward.
What is the reason to take part in Ethereum staking?
And here comes the most interesting part. If validators try to reverse this later with a 51% attack, they will lose their whole stake. And that’s the point of staking.
You stake your own money as a guarantee that your validations will be righteous. Trying to fraud you simply risk to loose your stake. Fair enough, right?
In PoW cryptos miners play a crucial role and take a reward for using their computational power. In PoS cryptos users can earn a small percentage from all transactions just by having a certain amount of coins on their wallets.
So with Ethereum shifting to PoS a lot of regular crypto users will get the opportunity to earn from the system circulating assets.
When you start staking, the staked amount of your coins is locked in the wallet or crypto exchange. You can choose pools and periods for Ethereum staking. If you withdraw your coins before the end of this period – you won’t get any reward.
There is a trick, of course.
You need at least 32 ETH on your wallet to become a validator on the network.
That means when the 300 000 users will do Ethereum Staking – about 1 million ETH coins will be locked for at least three months. This is the minimum staking duration for Ethereum.
Three Ethereum staking benefits
- Reward: you will get the reward for actions that help the network reach a consensus. In PoS protocols the action is just to keep your coins in the wallet. The chain will run securely, and you will get your reward without any mining rigs.
- Risks: unlike mining, Ethereum staking is far less risky. You can’t lose your ETH for malicious actions, going offline, or failing to validate the system. The biggest risk is losing your reward if you withdraw your coins before the end of the Staking period.
- The money needed: you need to have at least 32 ETH to become the full validator. But you also can stake less if you don’t have such an amount of money. Surely your reward will be less in this case. But at least you can join the Ethereum staking pool and earn without mining.
How much can you make staking ETH?
Quite a math is needed to understand how are rewards in ETH 2.0 calculated. Hope you were not bad at school. If not, reading the following might kill you.
Anyways, annualized interest rates and an inverse square root function are used to calculate rewards in ETH 2.0 staking.
The lower the overall amount of ETH staked, the lower the incentives for each validator will be. That’s kind of a given.
But there is more.
Block proposers and attesters gain different rewards.
The block proposer gets ⅛ of the base reward, known as “B,” while the attester receives the remaining ⅞ B. But that can be adjusted based on how long it takes the block proposer to submit their attestation.
The complete ⅞ B award will be given to the attester only if he submits the block it as quickly as possible.
The payment decreases if the slots pass without the attester, including the attestation to the block.
The math is quite complicated here. If you miss two slots the prize is reduced by 7/16 B. If you miss three slots you loose 7/32 B, and so on.
According to preliminary data, Ethereum staking can give you 2-18% annual percentage rate with most stakers getting somewhere near 5%.
That’s much less than the percentage rate of the Ethereum miners, who were able to regain their investments in mining equipment within 12-18 months during last couple of years.
But as soon as ETH 2.0 becomes reality the era of mining will come to an end.
Selling you GPU and putting your money in ETH and staking it will soon be the only way to be a part of Ethereum community.