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Ethereum coin staking is the act of locking up a certain amount of ETH for a set time to contribute to the security of the blockchain and receive network rewards. But before discussing how to stake Ethereum, let’s first talk about the blockchain. It is an open-source platform with its own cryptocurrency, Ethereum/Ether (ETH), and programming language “Solidity.” Besides storing transaction records for its currency, it allows software developers to create and publish games or business applications (called distributed applications (dApps)) and market them. The developed product is secure from theft, fraud, and censorship. This ability to program dApps is the reason Ethereum calls itself the “world’s programmable blockchain.”
- ETH staking is the simple process of locking up Ethereum coins for a certain period of time to receive network rewards.
- Besides being one of the leading transaction platforms, it is also a programmable blockchain used to create games, dApps, etc.
- Current widely-used token is the ETH2, which uses a more sustainable POS model.
Basics of ETH Staking any Investor Should Know
As mentioned, the act of locking several ETH tokens on distributed applications (dApps) for a specific amount of time is called Ethereum Staking. The investors are named “validators” or “stakers.” They process transactions, store information, and add blocks to the Beacon Chain (Ethereum’s new Proof-of-Stake consensus mechanism). Validators earn interest on their staked amount, expressed in Ether.
At the moment, you can stake Ethereum 2.0 on the EGG platform. Unlike its predecessor, ETH1, ETH2 uses the much more sustainable Proof-of-Stake (PoS) model.
- The PoS network uses much less electricity because it does not need to solve complicated equations, which reduces the costs of transaction verifications.
- PoS creates incentives for validators to lock their ETH proportionately to the amount invested, preventing mining pools from cooperating and making money.
- PoS gives the investor a portion of the mining power based on the number of crypto coins they possess.
As for the ETH staking rewards, the more one puts on stake, the more they will receive. However, the staker must abide by the rules of the network, or they will lose everything they have.
ETH Staking Guide for Newbies
Step 1: Connecting the wallet
Before you can stake any of the cryptocurrencies, you need to connect your wallet to the EGG platform. To do so, you can use the button below or go to Homepage>Assets>DeFi Staking> and tap on the “Connect Wallet” button on the upper right corner of the screen.
After clicking the button, please choose one of the available wallets: Fortmatic, MetaMask, Email (Cocoricos Account), Address or ENS name, WalletConnect, Coinbase Wallet, Torus, Opera, Liquality, Frame, Authereum, Gnosis Safe, XDEFI Wallet, KeepKey. Please remember that different wallets have different authorization methods. To keep things simple, let’s take a look at staking using the MetaMask wallet.
After MetaMask is selected, you will get a pop-up on the right corner of the screen with a signature request asking for confirmation to proceed. Once you click “Sign,” your wallet will be connected.
Step 2: Staking the Ethereum 2.0
Once connected, go to the “ASSETS” tab on the upper left corner of the EGG homepage, choose “DEFI STAKING,” select “Ethereum 2.0,” and click “Stake.” A small window will be displayed where you can write the amount of ETH2 tokens you want to stake, as well as see what you will receive in a year. After inputting the desired amount, click the “Stake” button.
Step 3: Confirmation
Finally, a pop-up will appear once again on the right side of the screen so that you can “Confirm” the Ethereum 2.0 tokens for staking. While the confirmation is being processed, please do not leave or refresh the page, as the process will reset, and you will need to start from the beginning. A second pop-up will appear during the wait, asking you to confirm the “Contract Interaction,” so your tokens are staked. The waiting time may seem long, but do not refresh or leave the page. Once you see the “Transaction Submitted” message, it means that your staking is complete.
Methods of Staking Ether
There are different methods for staking Ether. You can do it on your own or rely on third-party staking services. However, staking by yourself requires one to be comfortable with using and sending ETH1, having an uninterrupted connection to ETH1 and the Beacon Chain, as well as taking additional security measures to safeguard the private keys and assets. On the other hand, staking services allow the investor to overcome such technical barriers, which is why it is recommended for newcomers.
These are the three types of such services:
Ethereum Custodial Staking
This service is in charge of the entire ETH staking process in place of the investor and keeps the user private validator keys and withdrawal keys. Some of the risks associated with custodial staking services are:
- Severe slashing penalties
- Reduced overall rewards
- Increased likelihood of an attack on user keys as they are held in a centralized ecosystem.
Ethereum Semi-Custodial Staking
This type of service holds user validator keys but not withdrawal keys. Some of its risks are:
- Severe slashing penalties
- Reduced overall rewards
Ethereum Non-Custodial Staking
This method provides a streamlined ETH2 validator setup, as well as management. However, unlike the other two, it does not hold either private validator keys or withdrawal keys. The benefit of such services is that investors can:
- Maximize staking returns
- Reduce security risks
- Retain complete control over their assets
Other methods for staking ETH include:
Usually offered by staking pool companies and crypto exchanges. It exchanges the ETH you possess with a synthetic token, which is combined with other contributors, like in a staking pool. It is centralized and is not considered fit for staking above 32 ETH.
Virtual Server Staking (VSS)
Also centralized but more favorable in comparison to tokenized staking. Its main benefit is the omission of additional tokens. The quick onboarding and setup of VSS may be appealing to individuals who want to stake small amounts of ETH.
Since a validator node requires 32 ETH (about $133,714), using a staking pool allows the individual to pledge less and combine it with other contributors to reach the desired amount.
ETH Staking Expected Pricing and Behavior
Ethereum is making its way to turning into a $40 billion medium. Ethereum uses both the PoW and PoS systems simultaneously, but though both have validators, only the PoW chain processes users’ transactions. However, once it fully combines with the Beacon Chain, it will completely switch to the PoS system, and all of the staked and locked ETH will be released. Many of the stakers will most likely withdraw their money and returns, which will eventually make the % yield go up. In turn, ETH will become appealing to another wave of investors searching for a positive and stable yield. Aside from individuals, such investors could also be pension funds, financial institutions, banks, independent companies, nonprofits, etc. The advantages may extend far beyond the cryptocurrency space and simple use cases, but they nevertheless represent a watershed moment in the history of the investment world.
Blockchain – a database that stores data in blocks that are subsequently linked together in a chain.
Staking – the act of allocating or putting on stake cryptocurrency assets in exchange for rewards.
Open-source software – a computer program distributed under a license that allows copyright holders to use, analyze, edit, and share the software and its source code to anybody and for any reason.
Consensus mechanism—enables networks of computers to work together and stay secure.
Proof-of-Stake – a consensus mechanism that randomly assigns the node that will mine or validate block transactions depending on how many coins each node possesses.
Proof-of-Work – a system that necessitates a reasonable level of effort in order to dissuade the usage of computing resources for frivolous or malevolent purposes.
Node – stakeholders in a network and/or their devices.
Validator key – used to sign on-chain (ETH2) duties, such as block proposals and attestations.
Withdrawal key – used to withdraw Ether from ETH2 validators.
To summarize, Ethereum is a blockchain with its own ETH cryptocurrency that can be staked using different methods introduced in this article. Ethereum coin staking is the act of depositing ETH for a period of time. One of Ethereum’s current tokens, ETH, works using the Proof-of-Work method, while the upgraded ETH2 uses the more sustainable PoS model. The EGG platform allows you to receive both ETH and EGG tokens by only depositing Ethereum 2.0. In 2022, Ethereum plans to completely switch over to the PoS system and reduce its environmental impact by 99%.
Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of EGG Finance. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.