As of July 2021, over $14bn worth of Ethereum has been staked on the Ethereum 2.0 network, but what exactly is Ethereum staking?
As Ethereum continues its upgrade to Ethereum 2.0, staking will overtake mining as the method for validating transactions when the Beacon Chain merges with the mainnet.
Here's what you need to know to get started.
What is Ethereum Staking?
Ethereum staking is the new method of verifying transactions on the Ethereum blockchain, which was first introduced with Ethereum 2.0.
Staking uses Proof-of-Stake (PoS) to validate these transactions. Holders can deposit ETH into the network to create new blocks, with Cardano staking following a similar procedure.
The full Ethereum 2.0 release date is set for 2022. The next phase - 'the merge' - will see ETH reduce its reliance on Proof-of-Work (PoW) algorithms. Bitcoin mining and Dogecoin mining both use PoW algorithms. The merge with the Beacon Chain is slated for a 2021 release.
Alongside providing network security, one reason for the shift to staking is that it is seen as a less environmentally damaging practice compared to mining.
Vitalik Buterin, Ethereum's co-founder, has been a long-time advocate of the switch to Ethereum staking. Buterin has released several posts on PoS in the past five years.
Speaking at the virtual StartmeupHK conference in May, Buterin said:
Proof-of-Stake is actually a solution to [concerns about environmental issues], among many other things. It just requires far less resources to maintain.
How to Stake Ethereum
There are several different methods for staking Ethereum, depending on how much ETH you have to stake.
To activate the validator software for adding new blocks and processing transactions, you will need to deposit 32 ETH. If you have 32 ETH and want to create your own solo Ethereum node, then you can follow Ethereum's official guide here.
However, if you don't have 32 ETH, or don't want to go through the process of becoming an Ethereum validator, you can instead join a staking pool.
Staking pools set up the validation process, and do not require 32 ETH to join. These pools will charge a fee for their service. Many cryptocurrency exchanges, such as Kraken, Coinbase, and Binance run these pools.
As Ethereum 2.0 has yet to fully upgrade, stakers will not be able to withdraw any of their deposited ETH until the upgrade is finished.
Ethereum Staking Rewards
By validating transactions, Ethereum stakers are eligible to earn staking rewards.
There is no fixed rate for Ethereum's staking rewards, with the returns depending on a number of factors in the network, including the total ETH staked, for example. Current estimates for the rewards also vary, with Kraken posting: "Rewards are expected to be between 5% to 7% per year."
With 6,125,525 ETH currently staked at the time of writing, this will yield an estimated APR of 6.3%, according to the Ethereum Launchpad.
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