How does Ethereum staking work?

The Ethereum blockchain has to be maintained. To be maintained, nodes have to validate blocks. Usually, this is done by mining using high-end hardware. However, Eth2 will mark Ethereum transitioning to Proof of Stake (PoS). PoS is a consensus system where validation is done simply in return for staking your cryptocurrency.

There’s usually a minimum required balance to stake. Staked balance cannot be used. Ethereum staking will incentivize you for validating blocks in ETH – called staking rewards.

How to make money with Ethereum 2.0?

With Ethereum 2.0, there is only one way to make money (apart from investing and deriving interest gains), and that is staking. You stake your ETH with Redot and earn rewards for validating blocks.

Note that the requirements for becoming a validator are pretty strict. Do your research and understand the implications before you even think about it.

Ethereum 2.0 staking benefits

Supporting the Ethereum network

First and foremost, you’re helping the Ethereum ecosystem. A blockchain needs block creation and validation to survive. Currently, it’s done by mining new blocks. When Ethereum completely transitions to Proof of Stake, the blockchain will be solely maintained by staking.

Theoretically, if there are no stakers, Ethereum will simply cease to exist. Though that’s not the case as millions are ready to stake and thousands already staking even though Eth2 hasn’t finished yet. By being a staker, you’re supporting Ethereum and helping it become more secure. The more stakers there are, the more decentralized the network will be. Consequently, the safer it will become.

Earning ETH rewards

Staking your ETH will incentivize you. Each block you validate will earn you rewards in ETH. The rewards are not fixed and depend on how much ETH is staked in total. The more total ETH staked, the fewer rewards. You can check the Ethereum Launchpad for real-time reward stats. For example, at the time of writing, the reward is 6.8% APR.

When staking began, the reward was 21.6%. When we hit 10,000,000 ETH, the reward will be 4.9%.

Stake Ethereum or simply invest?

Staking is not for everyone. If you’re planning on staking solo, then you need to keep these in mind:

  • Your node or system cannot go offline. It will need to run 24×7. If you go offline, you can make up for it, but if you go off for long periods, then it’s a loss.
  • Your node needs to validate blocks (when jobs are assigned to you, which happens randomly) in a clean, fast, and reliable manner. No shady tactics.
  • You cannot fail to validate a block that’s been assigned to you.

Any infractions of the above will make you lose part of your staked ETH.

Apart from that, you need good hardware like a lot of storage space, an SSD, a high-speed no-cap internet connection, etc.

If you’re not familiar with running a full node, you might want to join a staking pool, in which case the rewards might be lower or you might find risk.

Either case, sometimes, simply investing in Ethereum is better and more hassle-free.

Invest in small amounts that you’re comfortable with and see your portfolio grow. Over time, if all goes well, you’ll hold a considerable amount of ETH at which point, you can go for staking.