What Is Ethereum 2.0 Staking? How To Earn With Eth Staking?

In September 2022, the Ethereum (ETH) network upgraded to a proof-of-stake consensus algorithm. This merger is the answer to the scalability issue and relaxation of the transaction cost. Before the upgrade, Ethereum used a proof-of-work algorithm similar to Bitcoin (BTC). There was a lot of electricity because of the excessive use of proof of work (POW). Additionally, it has caused scalability issues and high transaction costs.

After the upgrade, Ethereum now consumes less electricity, is more scalable, and has relatively less transaction costs. What exactly is proof of stake, though? How can investors participate in Ethereum staking? Here in the blog we are explaining all ins and outs of Ethereum staking.

Key Takeaways

• The crypto community’s most sorted-after outcome is the Ethereum staking reward.

• Users tend to favour Ethereum over other staking options due to its rewards.

What is Ethereum 2.0?

Ethereum’s version number 2.0 denotes the switch from its existing consensus mechanism Proof of Work, to the Proof of Stake. Ethereum 2.0 or ETH2.0, also referred to as ETH2, is the merger of the execution layer of ETH with the proof-of-stake consensus layer. Energy-intensive mining is no more when the consensus mechanism after the switching from proof-of-work (PoW) to proof-of-stake (PoS). Moreover, the network is more secure using staked ETH.

What is ETH 2.0 staking?

The Ethereum (ETH) network is currently garnering the highest traction. Following this, the transaction costs are high, making them prohibitively expensive for several use cases. This is partly due to the success of DeFi projects, where customers are ready to pay high transaction fees due to the high financial value of the transactions.

Transaction fees are the cryptocurrency’s “gas” costs because they support the applications running on the Ethereum blockchain rather than just transactions. Non-finance DApps find it difficult to operate on Ethereum because of high gas fees.

To address these issues, the ETH Foundation has been working on a network upgrade (previously ETH2) to improve the security, responsiveness, efficacy, and scalability of the Ethereum network. The Ethereum network can support more use cases and handle more transactions.

As part of this upgrade, the current mining model for Eth is a staking model. Staking on a PoS blockchain means actively participating in transaction validation (similar to mining). With these blockchains, anyone can verify transactions and collect staking rewards by holding a minimal amount of cryptocurrency. Ethereum staking is possible on cryptocurrency exchanges like Coinbase, Kraken, Binance, etc.

Read more: What Is Staking Crypto And How Does It Work? 

What is the process for ethereum staking?

Network users must store 32 ETH on the blockchain to become validators, also called stakers. At the current price of ETH, that’s a tidy sum worth more than INR 39 lakh.

The task of approving transactions, creating new blocks, and maintaining the blockchain’s general functionality is then randomly distributed to validators. Stakers receive a yield paid in ETH in exchange for locking up their ETH.

The yield is recoverable if a validator needs to validate a block after the assignment. Investors can now take part in network staking thanks to that time. After staking ETH, it was under lock until the newly upgraded blockchain was operational.

• Ethereum staking pools: To participate in Ethereum staking, you only need 32 ETH. For most regular investors to qualify as validators, they must be able to lock up this much ETH. Here, pool staking may be helpful. They provide a way for people to collaborate to obtain the minimum score of 32 ETH required to become a validator.
  The pool’s participants receive proportionate shares of the associated rewards. Staking pool support is not a native protocol of Ethereum. Numerous significant cryptocurrency exchanges, including CoinDCX, Binance, and third parties, provide Ethereum pooling features.
• Lido DAO and Ethereum staking: There are ways for current Ethereum validators to obtain liquidity before the subsequent upgrade. The liquid stakeout, aka Lido DAO works in this way: The liquid tokens known as stETH, or staked ETH, are given to stakers in exchange for locking up their tokens.
  Several weeks after staking was made possible by Ethereum’s Beacon Chain, this solution went live in December 2020. Since then, it has developed into the favored market leader for Ethereum liquid staking, gaining over 80% market share in the early months of this year. Unlike many liquid staking options, it is also decentralized. Using Lido, stakers can receive the ETH staking rewards and the stETH tokens to trade within the decentralized finance ecosystem or earn additional yield.

How much can investors earn by staking ETH?

The payout for ETH staking is not at a specific rate. Instead, it will change based on how many validators actively participate at any given time. The protocol increases rewards to encourage more stakeholder participation when there are fewer validators.

Stakeholders currently make between 5price% and 20% per year. However, according to some analysts, this could increase to 8% or more after the merger and then decrease again. The percentage rate for the yield earned will depend on both this gross rate and the price of Ethereum, which has demonstrated extreme volatility in terms of dollar gains.