Ethereum is transitioning its model in 2021 from proof of work (POW) to proof of stake (POS), which allows you to stake your Ether coins (ETH) in return for more ETH.
Staking is part of Ethereum 2.0, an upgrade designed to make the network faster, more scalable and more sustainable. Mining on Ethereum will eventually phase out, leaving staking the only way to earn new ETH – which comes with benefits and risks to weigh up.
Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific
provider, service or offering. It is not a recommendation to trade.
What is Ethereum staking?
Like general crypto staking, Ethereum staking is a process of validating transactions on the Ethereum network to earn new ETH coins. By locking up a minimum of ETH in a wallet, you gain the ability to confirm whether a transaction conforms to signature requirements and other rules. In return for your work, you get additional ETH coins, called staking rewards.
Anyone can become a validator by staking through the Eth2 software, through your Ethereum wallet or by joining a staking pool. The minimum amount of ETH required to run a validator node is 32, so anyone with less than that will want to join a pool or another service that lets you stake small amounts of ETH for rewards.
The goal of staking is to make the network more secure from attacks and yet more decentralised. Ethereum staking will be the only way to create new ETH coins when the Eth2 upgrade is complete.
What is Ethereum 2.0?
Ethereum 2.0 – referred to as Eth2 or Serenity – is the coin’s network upgrade designed to improve three areas:
- Scalability. Eth2 will support thousands of transactions per second, a vast improvement from 15 transactions per second.
- Security. ETH holders who take their coins can validate the network. This increases the number of validators, also increasing security against all forms of attacks.
- Sustainability. With ETH mining removed, you’re able to earn ETH by holding it in your wallet, rather than spending power and energy that hurts the environment.
How to stake Ethereum
The two ways of staking Ethereum depend on how much Ether you’re willing to deposit.
You must stake 32 ETH to become a validator on your own. The simplest way to stake solo is through a wallet like MyEtherWallet, which comes with a 0.75% fee.
Ethereum staking with a wallet
Through a partnership with a node-hosting service called Staked, MyEtherWallet lets browser and mobile wallet users stake ETH directly through their wallets. You must deposit the full 32 ETH required to become a full validator and be willing to pay a 0.75% fee.
If you don’t have 32 ETH to deposit, an alternative is Trust Wallet, which allows you to directly stake using the DeFi protocol Lido with less than 32 ETH.
Or keep the process on your computer to avoid the fee:
- Download the Eth1 client and the Eth2 launchpad – a local copy of the blockchain.
- Set up and run the Eth2 terminal.
- Install the validator software.
- Learn how to manage keys and protect a mnemonic.
- Buy ETH after comparing exchanges.
- Deposit your ETH to the official ETH staking address after verifying it at ethereum.org.
Ethereum staking through a pool
If you don’t have 32 ETH or want to deposit that much, consider joining a staking pool. This is a simpler process than staking alone, because the pool and services staking for you typically do the technical work for you. Because these pools are providing a service for you, most pools charge either a flat fee or a percentage of your rewards for the convenience.
Pools are run by Coinbase, Kraken and Binance among others (warning, Binance offers cryptocurrency derivatives which the regulator banned from sale to UK consumers in January 2021).
Joining a pool is a matter of creating an account and following the instructions for staking your ETH.
You can’t withdraw your ETH staking deposit until the mainnet merges with the Beacon Chain, which should happen late in 2021. Write down your ETH address and your recovery phase to avoid losing access to your ETH down the line.
Hardware requirements to stake alone
You need storage space and a stable connection to run the validator software:
- Hard drive. Staking requires around 450 GB for the Eth1 mainnet blockchain alone as of April 2021, and it grows by around 1 GB a day. The Beacon Chain of Eth2, started in December 2020, also grows every day.
- Internet. You need a 24/7 uptime without bandwidth caps to sync and validate without interruptions, although some downtime as a validator is permitted. You need bandwidth of around 800 MB an hour, and that’s likely to increase.
Ethereum staking vs mining
Until the network fully upgrades to Ethereum 2.0, you can earn ETH coins through both mining and staking.
|Requirements||Expensive and powerful mining hardware||ETH coins, Internet access and a computer|
|Earning difficulty||High – mining is very competitive and has a large investment to get started||Low – staking can be done in pools with minimal equipment and entry investment|
|Environmental impact||High – requires a lot of electricity||Low|
|How many ETH you can earn||Depends on your mining hardware||Depends on the number of ETH you are staking and the number of ETH staking overall on the network|
|Withdrawal limits||None||Must wait until Ethereum 2.0 upgrade is complete|
How does Ethereum staking work?
With Ethereum staking, you secure and add new blocks to the Beacon Chain. You must deposit either 32 ETH to become a full validator or join a staking pool with a lower amount.
You earn rewards for correctly validating transactions. If you make too many mistakes – for example, validating conflicting blocks – you can lose a part of your staked coins through a process known as slashing that’s designed to punish poor validators. You might also be booted from the network.
Staking will validate all of Ethereum after the network’s upgrade is complete and the mainnet merges with the Beacon Chain.
Slashing is a penalty designed to punish validators who submit fraudulent transactions to the Ethereum blockchain. If a validator breaks the rules, they will have a portion of their staked 32 ETH removed from their ownership and be booted from the network.
How much can I earn with Ethereum staking?
At the time of writing you can earn anywhere between 3% and 8% of your invested ETH, paid annually in ETH coins.
Your rate of return depends on the number of ETH staked at any given time across the network. When fewer ETH are validating the network, the reward is higher to provide an incentive for more users to stake their ETH. The more ETH staked at the same time, the lower the reward.
The dollar value of your return depends on the current price of ETH. If the price of ETH rises, your reward increases even more. But if the price of ETH drops, your reward value drops as well.
When do I get my staking rewards?
The network transfers ETH taking rewards to validators every epoch – every 384 seconds or roughly 6.5 minutes. The number of coins each validator receives is calculated based on the state of the Ethereum network after an epoch is complete.
You must be an active validator during the previous epoch to receive a reward, meaning you need to be online and validating the network – you will only be rewarded for the epochs you participate in. Calculations of potential rewards provide only an estimate, and you won’t know your exact reward amount until you receive it.
Benefits of staking Ethereum
Aside from earning ETH rewards, staking is designed for those who want to be part of the community actively building the foundation of the new Ethereum.
You help the network grow and contribute toward a decentralised world. If this kind of work aligns with your ideology, it might be your main reason to stake.
Drawbacks of staking Ethereum
Before getting started, weigh potential drawbacks that include:
- You must lock up your ETH. You can’t access your ETH until the Ethereum mainnet merges with the Beacon Chain, which should happen in late 2021.
- You can lose ETH. If you’re offline for more than 50% of the epoch time or make mistakes, it can cost you. How much you lose depends on your impact on the network. Let’s say you and more than two-thirds of validators are offline. You could progressively lose up to 50% of your stake over 21 days. After 21 days, you might be kicked out of the validator pool.
- System bugs. Since Ethereum 2.0 is in the early stages, it could result in bugs and penalties. You could lose some ETH because of this.
- You must keep your address safe. Without your withdrawal address and recovery phrase, you could lose all of your ETH.
- Value affected by the market. Because your ETH is locked, if the price of Ether drops, you could lose the value of your cryptocurrency without the ability to sell them off.
Ethereum staking is the process of locking up a portion of Ether to validate the Eth2 Beacon Chain and earn rewards. You can stake solo with 32 ETH or join a staking pool with a lower amount. Either way, you can’t withdraw your deposited Ether until Ethereum 2.0 is fully complete in late 2021. If the risks feel worth the reward, you’ll need to buy some ETH to get started on your staking journey.
This information should not be interpreted as an endorsement of cryptocurrency or any specific provider,
service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and
involve significant risks – they are highly volatile and sensitive to secondary activity. Performance
is unpredictable and past performance is no guarantee of future performance. Consider your own
circumstances, and obtain your own advice, before relying on this information. You should also verify
the nature of any product or service (including its legal status and relevant regulatory requirements)
and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.