What you need to know about staking Ethereum

If you are willing to trade cryptocurrencies, you will eventually tackle this conundrum: crypto mining consumes a lot of energy.

According to Bitcoin mining companies CleanSpark In Henderson, Nevada, the production of one Bitcoin requires 1,074 kilowatt hours of energy. That’s the energy needed to keep a four-person household humming for 37 days.Author of Ethereum blockchain estimate Mining Ethereum coins (Ether or ETH) via the “Proof of Work” protocol consumes as much energy each year as Finland’s total energy consumption. It also has a carbon impact on the environment, similar to Switzerland.

Why so much energy?As the name implies, proof of work requires work (especially a lot of computing power) as miners actively compete to find the very rare ones first. Cryptographic hash Used to acquire blocks and add them to the blockchain.The first to find hashes requires a huge amount of computer processing power, sometimes in the form of hundreds, if not thousands. Crypto mining rig 24 hours a day, 7 days a week. The first miner to find and verify the block will be rewarded in cryptocurrency. The complexity of finding that hash makes it almost impossible to go back and modify the blockchain history, making the chain unaffected by corruption and thus very secure. Proof of Work is a consensus mechanism used for both Bitcoin and Ethereum.

However, over the last two years, more efficient, lower cost and environmentally friendly consensus mechanisms have emerged that are used to build blockchains and generate crypto coins in the process. Staking..

In 2020, the Ethereum blockchain that creates ETH was then Ethereum 2.0 (or Eth2), The second separate coin system alongside the original Ethereum blockchain. Currently known by the Ethereum Foundation as Ethereum Marge. “merge“We will move from the traditional proof of work mining approach to an approach called the“ proof of stake ”. This causes the validator to invest a certain amount of capital to prove the validity of the block. This is what the Ethereum people call “new.” “Ethereum Engine” and “Public Interest of the Ethereum Ecosystem”.

How the proof of stake works

In Proof of Stake, when a group of users in a validator and staking pool stakes altcoin (Ether in this example) to validate blocks on the blockchain, each new block in the Ethereum blockchain is created. Will be done. Validators are randomly selected to suggest the validity of the block. The block needs to be proven by the majority of other validators. Therefore, the validator presents ETH assets as collateral to validate the proposed block (these assets are reserved during this process). If the block is considered legal, the stacker receives the asset and receives an additional “reward” for the coin to successfully validate the block and bet new coins. However, if the block is considered fraudulent, or if the validator is acting maliciously, the bet amount will be “reduced”.

In staking, the validator and the staking pool validator split the rewards earned each time a new coin is created.The big attraction of staking is that the amount of money you earn is quite large, but in reality it can vary from 2% to 20%. Depending on the number of validators Participation. For those in the staking pool, it’s generally less than 10% each year. Still, there is a reward for those who bet coins to make sure the chains on the block are legal.

Finally,”Beacon chain“-The Ethereum 2.0 backbone-is expected to be integrated with the original Ethereum blockchain, which eliminates the proof of work and all Ethereum is cast by staking. Current expectations The merger (subject to change) will take place in the third or fourth quarter of this year.

Saving energy is important. According to Ethereum supporters, if the energy per transaction to mine a single Bitcoin is the same size as Burj Khalifa in Dubai (the tallest skyscraper in the world at 829 meters), mine a single Ethereum. What you do will be the same size as the Leaning Tower of Pisa, only 56 meters high. Staking is only 2.5 centimeters, which is a typical screw height.

How to bet Ethereum

A good place to start learning about staking Staking description section Of the Ethereum website.

To qualify as an Ether Validator comfortably at home, you need a computer and an internet connection, and you need to bet 32 ​​Ether coins (about $ 91,600). At the exchange rate As of April 29, it is $ 2,862 per coin. If you are running your own rig Technical details on how validation works That you need to work hard.

You can also have someone else perform computer operations on your behalf while lending you a 32 Ether called “32 Ether”.Steak as a service“Or SaaS.

There are many service providers to go for SaaS.One of the most prominent Figment NetworkA Toronto-based start-up that claims to be the world’s largest blockchain infrastructure provider.

Figment offer Many details and insights about the staking process On that website. The current estimated annual yield of staking is between 2% and 20% of the Ether value and should be rented at a fixed amount of 32 Ether. There are many variables that can affect returns, such as the number of other parties participating in the staking effort and the speed at which the Ethereum blockchain will cast new Ethereum coins.

For those who don’t have an Ether worth $ 91,600, the third option is a pool staking service where multiple parties combine Ethers by service providers and stake together.

One such service is LidoOffers pooled staking in other currencies including, Ether and Solana, Terra and Kusama.The group claims to have promoted 75% of recent Ethereum staking..Lido advertise With staking operations accumulating $ 10.4 billion worth of Ether, Ether’s current annual rate of return is 3.8%. Some of the other coins have higher APR.

Proof of Stake Alliance

As with lending, the main drawback is that staking locks Ether’s holdings for a period of time. If you bet now, your ETH coins will be locked until the Eth2 rollout is complete. Since staking is a new service, the details of the length of the period are still ambiguous. Perhaps this is currently being argued for up to a year and a half, as long as the Proof of Stake system takes to achieve smooth operation. It’s a long time to tie up your money.

Cryptographic trading company Dharma Capital is under development to address that lockup. LiquidStake, It lends a dollar-backed USD Coin (USDC) to anyone who agrees to bet Ether. However, Liquid Stake is expensive. That is, in addition to the 10% to 11% of the rewards generated from staking, you will earn 13.5% interest in the form of an additional USDC.

Similarly, the Lido operation handles lockups through its own token system called Stacked ETH (stETH). This replaces Ethereum stakes during use. According to Lido, StETH can be used “all in the same way” as regular Ether. “Sell it, use it, and-because it is compatible for use in decentralized finance (DeFi)-use it as collateral for on-chain lending.” Transaction enabled in ETH 2.0 If so, users can also exchange stETH for ETH, “says the service.

There are two main risks to remember in staking. First, if the validator using ETH cannot properly perform the validation computer operations, the reward will be forfeited to both you and the validator. Second, if multiple parties fail in this way, they could lose half of Ether’s stock. Both scenarios are considered in the form of slashes.

A broader and more intriguing concern is that the pool of lenders and verifiers, such as Lido, will be an area of ​​concentration. This raises many questions, such as whether the malicious behavior of the validators monitored by the pool can be minimized. Recent blog posts Lido staff say how to run a great staking pool is a new area and still sophisticated.

It’s important to remember all of these issues, but you shouldn’t be discouraged from making a little money with crypto while helping to save the planet.