Ethereum’s development team is working on a significant upgrade, which will effectively launch Ethereum 2.0, to make the blockchain more scalable than ever before. The Ethereum 2.0 upgrade has been anticipated for some time, with many excited about its potential impact on scalability and functionality of decentralized applications (dApps).
The planned changes include upgrading the underlying blockchain protocol from proof-of-work to a new consensus algorithm called “proof of stake” – making it possible for anyone who owns the Ethereum token (ETH) to participate in staking just as they would mining rewards! The process will likely lead towards even more innovations beyond what we can imagine today; considering how much room there already seems to grow within this framework.
To understand what Ethereum 2.0 is, we need to start with the key differences between proof of work and proof of stake.
What is Proof of Work?
Proof of Work (PoW) is the traditional consensus mechanism to validate transactions on the blockchain, initially created by Bitcoin. There is no central authority governing the transaction process, as cryptocurrencies work on a decentralized blockchain.
Currently, miners are rewarded by solving complex mathematical calculations to validate the transactions on the blockchain. Mining requires intensive mining rigs and a massive amount of computer power. Many are concerned about the impact on the environment of the PoW mechanism.
What is Proof Stake?
The Proof of Stake (PoS) validation process is an even more decentralized option. With the PoS validation process control of the network is given to those who own a certain percentage of the token itself. With PoS, stakers are rewarded for securing the network and making transactions occur.
Without the use of expensive mining rigs and complex mathematical equations, Ethereum plans to reduce their carbon footprint by 99% with the new Proof of Stake process and increase transaction speeds from 10-15 transactions per second to 100,000 per second.
If you plan to hold a cryptocurrency for the long term, staking can generate passive income. By staking ETH you receive a reward for the delegation of all or a certain amount of your tokens to the staking process. Currently, when staking your Ethereum in the 2.0 blockchain, the option to unstake the tokens is not available until the Ethereum 2.0 migration has been completed.
How do you stake Ethereum?
Staking ETH offers investors the opportunity to help develop Ethereu 2.0 while earning more than 10% to 20% interest. There are two options to begin staking Ethereum 2.0:
Become a Full Ethereum Validator by Solo Staking
Staking Ethereum 2.0 requires depositing a minimum of 32 ETH to become a full Ethereum validator. Reliable and stable internet access is required by validators, as the validators are required to maintain connection of their nodes 24/7 to make secure transactions possible on the network.
Small penalties may be incurred if the nodes are down for a significant amount of time. Software and hardware specifications to become a full Ethereum 2.0 validator are available via the Ethereum Launchpad site.
Join an Ethereum 2.0 Staking Pool
Not everyone has 32 ETH and reliable internet to become a full Ethereum validator. Several cryptocurrency staking platforms and exchanges offer Ethereum 2.0 staking pools. Rocket Pool, Lido, Stakewise, Kraken, Binance, and Coinbase are some of the top platforms for staking your Ethereum 2.0 in a staking pool.
By joining a staking pool, you avoid having to run your own node. The staking pool is operated by professionals who know what they are doing; all the heavy lifting is done for you.
Solo Ethereum 2.0 validators have the possibility of earning higher APY percentages than those who join Ethereum 2.0 staking pools. Solo validators can earn up to an APY of 15%, whereas staking pools APY percentages average between 3-5%. There are also risks by staking Ethereum 2.0.
Risks of Staking Ethereum 2.0
Ethereum notes on their website that ETH tokens may be lost due to malicious actions, going offline and failing to validate transactions. As a solo Ethereum 2.0 staker you must maintain both the hardware and software. Staking pool participants must trust in someone else to do it for them, which is why it is vital to stake your cryptocurrencies on a trusted platform. Always beware of scams and phishing.
Staking your ETH has an unknown lock up period. Although the plan by Ethereum is to migrate to Ethereum 2.0 in June of 2022, it could possibly take up to two years for migration to actually happen. Network failures during migration should be very rare, however you possibly could lose a portion of your staked ETH during the migration. This information may be found in the Ethereum 2.0 staking Terms and Conditions.
Crypto prices are highly volatile. During the lock up period the price of Ethereum could decrease or increase significantly. The lock up period prevents the ability to set stop-loss orders. Staked ETH will not be able to be sold until the migration is complete.
Every day, Ethereum 2.0 is becoming more and more real. The network will take time to reach its destination but the journey has already begun. With this in mind, it is worth asking whether or not staking ETH for rewards now is worth the risk?
If you truly support Ethereum as an open-source project that empowers people around the world to create decentralized applications without censorship or third parties controlling your data, why not take some free rewards by helping secure the network? We will leave it up to you! Will you stake your Ethereum?
