Ethereum (ETH) is one of the world’s most popular cryptocurrencies.
It’s the second-largest cryptocurrency by market capitalization, only beaten by Bitcoin. Initially a proof-of-work cryptocurrency, it switched to a proof-of-stake consensus mechanism after a September 2022 update called “The Merge.”
Ever since ETH switched to a proof-of-stake protocol, staking this cryptocurrency grew popular and has remained so even as the value of most decentralized assets has decreased. This article will examine why this is happening.
What is staking?
It is the process of locking up your crypto assets for a specified period to support the operations of a blockchain. In turn, you’ll earn rewards depending on the amount of tokens you staked.
In this case, you can lock your ETH coins to validate transactions on the Ethereum blockchain. In return, you’ll earn a percentage of transaction fees paid to the Ethereum network.
A centralized or decentralized crypto exchange is the easiest way to stake ETH tokens. These exchanges handle the backend process for you. You just need to add your coins to the staking pool, and you’ll claim rewards after the specified period.
Alternatively, you can run your own validator node on the Ethereum network. However, this option requires having at least 32 ETH.
Types of staking
There are two main types:
Delegated staking: Delegated is when you hand over your tokens to a third-party “delegator” to stake on your behalf.
This third party is usually an exchange or a dedicated crypto-staking service. You’ll hand your tokens to the delegator, and it’ll combine them with tokens from other users to create a validator node.
The delegator will distribute the rewards proportionally after the specified period. It’ll also collect a fee for its service.
Self-staking: This method implies plugging your own validator node into the Ethereum network. A node is a computer linked to a blockchain network to validate transactions and store data.
If you choose this option, you must stake at least 32 ETH, or over $50,000, as of writing.
Most crypto investors don’t have this amount, so they prefer the delegated method. You can hand over small amounts of ETH tokens to a delegator, combining them with other people’s tokens to form a validator node.
In self-staking, you’ll keep all the rewards, but in delegated, you’ll give some to the delegator. The drawback of the former is that it requires a sizeable amount of capital.
Why is Ethereum staking thriving amid a crypto market slump?
It continues to thrive despite a dwindling crypto market for several reasons.
Firstly, Ethereum is the second-biggest cryptocurrency, with a market value of around $200 billion (as of writing). Demand for this token remains very high, and Ethereum price has fared better than most other tokens.
Another reason is the popularity of delegated staking services.
Exchanges like Binance and Coinbase have made it unbelievably easy to stake ETH and other tokens. They act as delegators; users can simply add their tokens to the stake pool, and Binance or Coinbase will take care of the rest.
They’ll distribute the rewards proportional to the tokens each user added.
There are also dedicated staking platforms such as Lido. These platforms are designed solely to facilitate staking, and many investors are taking advantage of their ease of use.
Ethereum staking is thriving because demand for the token remains high, and it’s easier than ever for token holders to stake their assets. Ethereum is the most staked digital asset worldwide and will hold that record for the foreseeable future.