Staking Ethereum (ETH). How to stake Ethereum? The Ultimate Guide to Ethereum Staking.
- About Ethereum (ETH) staking
- Who is on the Ethereum team?
- What is ETH token?
- What are the tokenomics of ETH?
- What is proof-of-stake?
- How does Ethereum staking work?
- How profitable is Ethereum staking?
- Staking Ethereum: staking pool
- Is Staking Ethereum Safe?
About Ethereum (ETH) staking
You can stake ETH to earn rewards. Staking is a way to earn crypto rewards while helping strengthen the security of the blockchain network.
Ethereum is the world's largest and most decentralised Layer1 blockchain. The network is used for building dApps, holding assets, transacting and communicating without being controlled by a central authority. The Ethereum vision is to build a digital future on a global scale, that is powerful enough to help all of humanity.
Recently, Ethereum has been making waves as it shifted from proof of work (PoW) to proof of stake (PoS) consensus mechanism, allowing anyone to earn passive income by staking ETH. In this article, we will explore the world of staking and its benefits and risks, as well as share tips for finding a trustworthy staking platform. From security to fees and reputation, we will cover all the factors you need to consider when searching for a reliable staking platform.
Put simply, Ethereum staking is the process of locking up an amount of ETH – the native cryptocurrency of the Ethereum blockchain – for a specified period of time in order to contribute to the security of the blockchain and earn network rewards.
People who do this are known as “validators” or “stakers,” and are tasked with processing transactions, storing information and adding blocks to the Ethereum blockchain. As a reward for their active involvement in the network, validators can receive rewards and interest on their staked coins, denominated in ether.
Who is on the Ethereum team?
Ethereum was conceived by Vitalik Buterin, but its development and ongoing improvements have been made possible by a team of dedicated developers. The Ethereum team consists of numerous experienced developers worldwide, committed to making Ethereum more secure, efficient, and accessible.
Other notable Ethereum pioneers later started working on their own blockchain projects. For example:
- Charles Hoskinson would later launch Cardano.
- Gavin Wood would create Polkadot.
- Joseph Lubin would launch ConsenSys, the company behind MetaMask.
What is ETH token?
ETH is the native token of the Ethereum network and it is used to perform various important functions within the network:
- Staking: Users can temporarily lock up ETH to contribute to the security of the network. In return for the service, stakers are compensated with staking rewards.
- Gas token: Each transaction processed by the network comes with transaction fees. The transaction fees are split into two components: Base Fee & Tips. For a transaction to execute on Ethereum, a minimum fee (known as a “base fee”) must be paid, which fluctuates continuously (block-to-block) depending on network activity. The fee is paid in ETH and is required for the transaction to be considered valid. This fee gets burned during the transaction process, removing it from circulation. The tip fee is optional but is included to get your transaction processed more quickly when network congestion leads to a backlog of orders in Ethereum’s mempool, which refers to the remaining unprocessed transactions on the network at any given time. The higher the tip, the faster your transaction is processed.
What are the tokenomics of ETH?
ETH has no maximum supply and currently has annual issuance between 0.5% – 1% depending on how much ETH is being staked. Ethereum has a burn mechanism where a part of every transaction fee (The base fee) is burnt. This acts as negative issuance for the protocol and can result in deflationary tokenomics if network activity remains high.
Initial Distribution Breakdown
The initial distribution of Ethereum (ETH) is as follows:
- 83.33% is allocated to Ethereum Crowdsale
- 16.68% is allocated to Ethereum Foundation, Early Contributors & Others
- 31,000 BTC ($18.3M at the time) was raised in a public sale that took place between July 22, 2014, and September 02, 2014.
What is proof-of-stake?
As part of plans to enable a faster and environmentally friendly transaction validation process, Ethereum protocol developers executed a switch from a consensus model known as proof-of-work (PoW) to proof-of-stake (PoS) broadly known as "the Merge".
Proof-of-stake is a consensus mechanism that requires users to stake an amount of cryptocurrency to become validators. Validators tie up some of their ether, giving them a personal stake in keeping the network running securely, to participate in the process. They receive rewards in ether when they attest to a new block, which means they agree it is accurate, or they "win" a block, meaning they are randomly selected to create the next block.
Oftentimes, a validator in a PoS system will increase the chances of earning rewards on the network by staking more coins. Depending on the PoS system, users may also be able to delegate their stake to another user who can perform the responsibilities of being a validator on their behalf.
How does Ethereum staking work?
Unlike the PoW-based blockchain, the PoS-powered blockchain bundles 32 blocks of transactions during each round of validation, lasting 6.4 minutes on average. These bundles of blocks are what’s known as “epochs.” An epoch is considered finalized – that is, the transactions contained are irreversible – when the blockchain adds two more epochs after it.
During the validating process (also known as the “attesting process"), stakers are randomly grouped into “committees” of 128 and assigned to a particular shard block.
Each committee has a set time for proposing a new block and validating the transactions inside of it, called a “slot.” There are 32 slots in each epoch, meaning 32 sets of committees are required to complete the validation process in each epoch.
Once a committee is assigned to a block, one random member of the group is granted the exclusive right to propose a new block of transactions while the remaining 127 members vote on the proposal and attest to the transactions.
Once a majority of the committee has attested the new block, it’s added to the blockchain and a “cross-link” is created to confirm its insertion. Only then does the Ethereum staker who was chosen to propose the new block receive their reward.
Note that block proposers and attesters have varying reward models. The block proposer receives a fraction of the base reward, known as "B," while the attester receives the remaining fraction of B, which is adjusted based on how long it takes for the block proposer to submit the attestation. The attester has to submit it as fast as possible to earn the entirety of the remaining B reward. For each slot that passes without the attester including the attestation to the block, the reward reduces.
A base reward is the fundamental primary determiner of the issuance rate of Ethereum post-merge. The more validators are connected to Ethereum, the lower the base reward per validator. That is because the base reward is inversely proportional to the square root of the total balance of all Ethereum validators.
How profitable is Ethereum staking?
The reward distributed to stakers depends on the total number of ETH staked and the number of validators on the network. When the pool of staked ETH dips, the annual interest rate increases.
For example, when there were only around 500,000 ETH staked, the annual percentage rate of interest (APR) was a little over 20%. By August, 2023, there were more than 18.94% of all ETH tokens locked on the blockchain, meaning the APR had dropped to about 7.0%.
As soon as the pool of stakers is large enough to promote a decentralized ecosystem, the interest rate drops.
Staking Ethereum: staking pools
Staking rewards come from the block rewards earned by validators responsible for the security and integrity of the Ethereum network. Every time a validator successfully validates a block, they receive a block reward in the form of newly minted ETH. A portion of this block reward is then distributed among the users who have staked their ETH with the validator node.
A staking pool is the most popular staking model allowing users to participate in various staking platforms and earn rewards.
A staking pool is simply solution for staking ETH. Staking pools collect a small amount of ETH or other staked assets from different users to run the node.
The protocol rewards are distributed amongst the users that have staked their crypto assets in proportion to how much ETH or other assets are staked.
A Ethereum staking pool is one of the most viable solutions for users.
XBANKING the most popular Ethereum (ETH) staking protocol for securely staking your Ethereum.
Is Staking Ethereum Safe?
The Ethereum network is highly secure, and the PoS consensus mechanism used for staking is designed to discourage malicious behavior and incentivize good behavior from validators. However, there are some risks associated with staking, such as the possibility of slashing or losing a portion of your staked ETH if you engage in malicious behavior.
To minimize the risks of staking, choose a reliable and reputable staking service provider or validator. It's also recommended to keep your staked ETH in a secure and trusted wallet, and to ensure that your private keys are properly protected. Additionally, it's important to stay informed about any potential security vulnerabilities or updates to the Ethereum network, and to take necessary action to ensure the safety of your staked assets.
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