The Ethereum ecosystem has been gaining immense popularity in the last few years. This blockchain platform hosts a variety of DeFi projects and NFTs, while its native coin, ETH, remains the second largest cryptocurrency by market capitalization. Ethereum Foundation, the non-profit organization that supports this system, continuously attempts to improve the Ethereum network, making it more scalable, sustainable, and secure.

One of the most significant changes that Ethereum is undergoing now is the introduction of Ethereum 2.0, which implies a switch from the Proof-of-Work (PoW) to the Proof-of-Stake (PoS) protocol. This upgrade is aimed at solving the problem of fast-growing transaction costs (aka gas costs) and colossal energy consumption by shifting from mining to a staking mechanism. In this article, we will dive deeper into Ethereum 2.0, outline its key features, and provide you with all the important details on how to stake Ethereum (ETH).

What is Ethereum 2.0?

Ethereum 2.0 (also called Serenity or ETH2) is a number of updates planned by the Ethereum Foundation which are going to result in the ETH network moving from the PoW to PoS consensus protocol. The primary goal of this major network improvement is to solve the issues of scalability, high transaction fees, and energy consumption that have been plaguing Ethereum (ETH) since its inception.
The Ethereum Foundation has been working on these long-awaited upgrades for several years now. The first change happened in 2020 when the Beacon Chain was introduced. It opened the possibility of ETH staking. Another upgrade called “The Merge” is planned to occur in 2022. This step will unite ETH1 (the execution layer) and ETH2 (the consensus layer) into one network. The total shift to the Proof-of-Stake mechanism is expected to finish in 2023 - 2024.

What is Ethereum 2.0 (ETH) Staking?

The Proof-of-Work (PoW) consensus algorithm used by the current Ethereum ecosystem implies that miners validate transactions and add new blocks to the blockchain in exchange for rewards paid in ETH. Although this approach has proven to be secure, it has some significant pitfalls.

Huge energy consumption. PoW is quite resource-intensive as it requires expensive hardware and a lot of electricity to power it.
Ever-growing gas costs. As the network expands, the transaction fees increase.
Limited scalability. The current Ethereum network can only process around 15 transactions per second.

These issues can be resolved as soon as the Proof-of-Stake mechanism comes out. PoS is a much more efficient and eco-friendly way of validating transactions and adding new blocks to the blockchain. In this approach, instead of mining, there is a staking process in which users stake their Ethereum to validate transactions and earn rewards. As there is no need for expensive hardware or enormous amounts of electricity, PoS is much cheaper and more sustainable than PoW. Moreover, as stakers can validate transactions much faster, Ethereum’s scalability will also improve.

Why stake Ethereum for Ethereum 2.0?

Every ETH holder might wonder why it’s worth staking. Let’s consider the core reasons.

Extra income. Staking is a great way to earn passive returns. As long as you keep your ETH staked, you will continue to receive a percentage of rewards.
Ethereum network development. This is one of the ways to support the Ethereum ecosystem and its shifting to the PoS consensus algorithm. If you stake your ETH, you help to secure the network and make it more scalable.
Sustainability. Staking is eco-friendly. Unlike mining, it doesn’t require heavy energy consumption.
Easy to start. Anyone with a computer can become a staker. It’s not necessary to have expensive hardware or much capital to get started.

How does Ethereum 2.0 (ETH) Staking work?

ETH staking implies adding new blocks to the Ethereum blockchain. A user must deposit 32 ETH to become a full validator who is responsible for processing transactions, storing data, and adding blocks. The reward is earned for correctly validated transactions. If a validator submits fraudulent transactions or breaks the network rules, they are punished with a process known as slashing, which means that they could lose part of their investment and be kicked out of the ETH ecosystem.

There are some alternative ways to participate in staking. If a user doesn’t want to get into the details of this reward-earning approach or deal with hardware, they could make use of staking-as-a-service. For users who are limited in capital, there is an option of pooled staking. However, it’s crucial to remember that these techniques come with certain risks, especially related to the counterparty.

Ethereum 2.0 (ETH) Staking Rewards & Fees

In staking, the amount of the reward is variable. It depends on factors such as the total amount of ETH staked, the length of time it is staked for, and the overall inflation rate. For example, if you stake your ETH for a shorter period, you will receive less reward than if you stake it for a longer time. However, as long as you keep your ETH staked, you will continue to receive rewards regularly. Most commonly, users who stake their ETH take a reward of about 8% Annual Percentage Rate (APR). This means that if you stake 1 Ethereum, you will have 1.08 ETH at the end of the year.
When it comes to the fees, everything depends on the platform the staker is using. The amount can greatly vary. For example, Lido takes 10% for ETH staking, Coinbase has a 25% fee, while P2P charges a 10% fee.

How Much Do You Make Staking Ethereum?

As previously mentioned, the amount of money that can be earned from staking Ethereum can vary depending on several factors. The size of the reward is impacted by the amount of ETH that is being staked - the more ETH, the higher the potential reward. Another important factor to take into account is the time the Ethereum is being staked for - a longer period will typically result in more significant profits. In addition, it is also important to consider the current interest rate on Ethereum. The higher it is, the more money can be earned from staking this cryptocurrency. Currently, the average reward from ETH staking fluctuates between 3% - 8% paid annually.

When do I get my staking rewards?

An Ethereum staker gets a reward after each epoch, which usually lasts 6.5 minutes on average. However, it’s important to note that the user should be active during this time to receive it, meaning that they should be online and validating.

How Do I Track My ETH 2.0 Staking Rewards?

To track Ethereum staking rewards, the user needs to find their staking address. It’s possible to do it in two ways:

Find it via transaction history in the blockchain explorer (a tool that allows users to view information about a particular blockchain).
Get the staking address from the wallet and then insert it in the blockchain explorer to find the related information.

Overall, the process of tracking your ETH 2.0 staking rewards is relatively simple and can be done using either a blockchain explorer or one of the multiple tools that help to track rewards.

Unstaking period for Ethereum (ETH)

The unstaking or undelegation period is the time users must wait to withdraw their ETH if they want to stop staking. This period is required to ensure that all the rewards that have been earned are properly distributed.

On Ethereum, it is currently not possible to unstake your assets, once they are staked. Withdrawal of staked assets will be enabled in 2023 with the Shanghai upgrade. The unstaking period is variable and depends on how much ETH is queued to be unstaked at the time.

How to stake Ethereum?

There are a few different ways a user can stake Ethereum. Let’s have a look at them.

Solo staking

Solo staking means that users stake their ETH and do not pool it with others. This approach comes with the maximum reward since it is not shared with other users. For this type of staking, it’s necessary to invest 32 ETH and have a robust computer with a constant internet connection.

Staking as a service

This is an easier way for users to participate in staking without having to set up their own validators or run any special software. Instead, they simply deposit their ETH into the provider's smart contract. This model allows for earning rewards without having to bear the full costs and risks of running a validator node. Although Ethereum staking service providers typically charge a small fee, this is often offset by the higher rewards that they offer.

Staking as a service exists in three forms: custodial, semi-custodial, and non-custodial.

Custodial service providers completely manage the staking process. They own the users’ validator and withdrawal keys.
Semi-custodial service providers don’t hold users’ withdrawal keys, and thus don’t have access to the customer funds, but they do hold users' validator keys.
Non-custodial service providers allow users to earn interest on their Ethereum holdings without having to give up control of their private keys.

Pooled Staking

Pooled staking is when users pool their Ethereum together to have a better chance of validating blocks and earning rewards. This is a great way for users to earn rewards without having to stake 32 ETH. However, it’s crucial to remember that it’s not a native staking method, and thus it comes with increased third-party risks.

Centralized Exchanges

This staking method has gained particular popularity among ETH holders. A centralized exchange is a suitable choice for users who don’t feel comfortable holding Ethereum in their wallets and managing their keys. Although centralized exchanges typically offer higher rewards than other methods of staking, they also come with the risk of losing ETH if the exchange is hacked or becomes insolvent.

Why stake Ethereum with P2P?

P2P provides non-custodial services for Ethereum (ETH) staking. As previously mentioned, this means that users keep full control of their assets and the platform doesn’t have access to their private keys.

P2P is a cutting-edge solution that provides its customers with top-notch security, transparency, and strong community support. When it comes to ETH staking rewards and fees, after The Merge, it offers its users a ~8% APR and charges a 10% validator fee. By staking before The Merge, a 0.1 ETH flat fee is charged for every 32 ETH.

New and existing clients can benefit from a 0% validator fee per quarter when staking more than 320 ETH.
P2P is one of the leading Node Operators at LIDO, running thousands of nodes for almost 2 years. By opting for this ETH staking solution, users receive high-quality service and 24/7 expert account monitoring and support.

Possible risks of staking ETH

If you decide to stake your ETH, it’s important to be aware of the risks related to this approach. Let’s have a look at the most significant ones:

Unclear price of ETH 2.0. The value of Ethereum 2.0 will undoubtedly differ from the current Ethereum price. If it goes down, you will still earn rewards for staking, but the overall value of your investment will decrease. However, if Ethereum 2.0 turns out to be successful, its value is likely to increase along with your potential rewards.
Unstaking. Users will not be able to withdraw their staked Ethereum by the time Ethereum 2.0 is completely released. This could take a couple of years. Currently, the Ethereum Foundation has scheduled the terminal stage for 2023-2024.
Slashing. This is the risk of losing some funds. Slashing is a penalty imposed on stakers who fail to comply with the network rules or validate fraudulent transactions.
Private key loss. If a user loses their private keys, they will not be able to access their ETH, and thus will not be able to earn rewards.

While all these risks are possible, they are also relatively unlikely if you are well aware of the features and limitations of this approach.

What will Ethereum 2.0 Value Be?

Different crypto experts have various expectations about the Ethereum price in the short- and long-term perspective. However, the majority of them agree that the improvements related to Ethereum 2.0 will push this crypto to enter a bullish market.

Coinpedia expects Ethereum to be traded at about $5,000 at the end of 2023. Moreover, if the ETH 2.0 release turns out to be successful, the value of this crypto could hit a maximum of around $11,000 in 2025.

Coin Price forecast also has a positive forecast for the Ethereum price. However, it’s more reserved. This platform believes that ETH will reach the level of about $2,200 by the end of 2022 and will continue growing, approaching $2,800 in 2025.

Conclusion

Ethereum staking could be a great way of gaining extra income. Moreover, this process, in contrast to mining, comes with significantly improved scalability, security, and sustainability. However, before making any decision, it’s crucial to be aware of the risks involved. One of the main issues to take into account is that users will not able to withdraw their staked Ethereum by the time Ethereum 2.0 is completely released.

If you decide that the advantages of this approach outweigh its potential risks, you need to choose among the several possible ways to stake Ethereum and commence your journey.

ETH 2.0 Staking FAQ

What is Ethereum?

Ethereum is a decentralized, open-source blockchain featuring smart contract functionality. Its native token, ETH, is the second largest crypto by market cap after Bitcoin. Ethereum is a unique platform that serves as a home for many decentralized applications and NFTs. Currently, the network is undergoing some significant changes which will result in shifting from a Proof-of-Work to a Proof-of-Stake mechanism.

What is the Ethereum staking APR?

In Ethereum staking, the reward may vary depending on the amount of ETH invested, the time it is staked for, the inflation rate, and more. However, the average Ethereum staking yield is about 5.4%.

How often are staking rewards distributed?

Ethereum staking rewards are distributed by stakers every 24 hours. The amount of the rewards depends on the number of ETH tokens staked, the time they are staked for, inflation, and more. However, typically it is around 4% per year.

Is there an unstaking period?

Unstaking Ethereum or any other crypto means taking these coins out of the staking pool. There is no unstaking period in the Ethereum network, and your tokens will be transferable immediately upon unstaking. Note that once you have unstaked your coins, they are no longer eligible for staking rewards.

Is there a slashing risk for validators?

Yes, there is such a risk. Slashing is a type of punishment imposed on users who don’t comply with network regulations or submit fraudulent transactions. This could result in a user losing some of their funds or even being kicked out of the network.

Is there a minimum staking amount for Ethereum?

In general, there is no minimum amount to stake Ethereum. However, there could be some minimum requirements set by individual staking pools. P2P users don’t have to provide any minimum ETH staking amount.

Do staking rewards compound?

No, Ethereum staking rewards don't compound; most smart contracts do not allow for compounding rewards. This means that users cannot gain interest on their interest.

What is the Ethereum inflation rate?

The annual Ethereum supply is limited to 18,000,000. This means that its inflation rate has to decrease each year. As a result, in 2022, Ethereum inflation dropped from 1.10% to 0.51% during the first quarter.

Ethereum 2.0 staking - The Beginners Guide

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