Ethereum has made a name for itself in the crypto ecosystem, and it’s among the most sought-after cryptocurrencies in the market, following Bitcoin. But unlike its cousin, it wasn’t created to be digital money; instead, its founders had the vision of making it a global, decentralized computing platform where developers can build different applications, from games to advanced databases. Many crypto enthusiasts start learning how to buy Ethereum so that they can trade it afterwards, while others decide to HODL instead, which essentially means storing ETH safely in their wallet and hoping that the value of the asset will increase in time.
However, there’s another popular method to make money with Ethereum, and that is through staking. Staking essentially means locking in ETH in a smart contract, which allows you to secure the Ethereum network and earn passive income as a result. If you want to learn more about the mechanics of this process and how you can get started with it, continue reading!
Understanding Ethereum staking and how it works
As mentioned, Ethereum staking involves depositing and locking up ETH so you can become a validator on the network. Staking comes with numerous opportunities, such as direct Ethereum governance, contributing to the security of the network, and earning rewards on staked ETH. A validator refers to the entity that participates in the network consensus by building new blocks on the chain, authenticating transactions, and monitoring for malicious activity.
Staking is different from investing in the sense that, instead of buying ETH and letting it sit in your wallet, you earn tokens with interest. To activate the Ethereum validator software, you need to deposit 32 ETH, which will be further locked into a smart contract to ensure you will commit to the process. Once the ETH is staked, it cannot be transferred or used anymore; it can only let you earn validator rewards. However, it is possible to unstake it whenever you want, but keep in mind that this will lead to losing validator privileges and any potential rewards.
Ethereum staking can be done individually, by joining a staking pool, or utilizing a staking-as-a-service provider. If you choose individual staking or use a staking-as-a-service provider, you will need to deposit 32 ETH to get started, while a staking pool gives you the option to deposit any amount of ETH. Once the staked ETH becomes active, the validators are randomly selected to propose a new block, which means collecting network transactions and proposing them so they can be included in the Ethereum blockchain.
How to stake Ethereum
As mentioned previously, there are three primary ways in which you can start staking Ethereum, and it’s essential to weigh all these options and choose the one that makes the most sense to you based on your personal circumstances.
Solo staking
This method is also known as home staking, which means becoming an individual validator on the Ethereum network. The process requires running and maintaining an Ethereum node connected to the network by utilizing your own software and hardware. If you want to stake Ethereum at home, it’s important to first know that you will need strong Internet and machinery because this will always be necessary to keep the node online—if that doesn’t happen, your ETH will be penalized.
Also, home-staking requires a lot of responsibility, so make sure you are prepared for that. The good news is that once you get started with it, you have the opportunity to earn the highest rewards, right from the protocol, without having to deal with third parties. Plus, you are under complete control of the keys required to collect funds and rewards from staking.
Staking-as-a-service
This is also known as SaaS in the Ethereum community and refers to third-party services that are responsible for running and maintaining validator nodes for the user. However, when using this method, it’s still necessary to deposit 32 ETH and then delegate node operations to staking-as-a-service providers. This option is suitable for you if you lack the hardware or knowledge you need to become an individual validator, but still want to benefit from the opportunities of Ethereum staking.
Keep in mind that you will have to share your keys with the SaaS provider, which means you will only have partial control over funds and node operations. On the bright side, it also means that you will earn staking rewards from a fully maintained validator client.
Staking pools
Also known as pooled staking, this method involves different users contributing ETH tokens together to deposit the necessary 32 ETH and activate validator keys. Just like SaaS, pooled staking involves a third party, but the difference is that it’s possible to get started with a low amount of ETH. Many staking pools give users a liquidity token that serves as a receipt of staked amounts and can be utilized as collateral on DeFi apps.
Pooled staking is the most inexpensive way to get started with staking, and you also don’t need to generate validator keys on your own. However, given that different participants are involved under just one validator, rewards are smaller compared to the methods discussed previously, and you will also have to split them with other validators.
Before staking Ethereum, consider both the opportunities and risks
Ethereum staking is an excellent way to earn monetary rewards, and the best part is that if you don’t want to go through all the hassle of setting up your own validator, you can always rely on a platform that provides easier alternatives. Furthermore, staking Ethereum also provides accessibility, which is another great advantage. But make sure not to overlook the risks.
While rewarding, staking can have its downsides, such as market volatility, which could result in quick decreases in earnings if the market doesn’t perform well. Furthermore, when using a SaaS or staking pool, earnings become more prone to hacking, system theft, or government intervention, suppose the third party violates the law. It’s always wise to consider your risk tolerance as well as your budget before getting started with staking, so that you can ensure it is the right approach for you.
Alexia is the author at Research Snipers covering all technology news including Google, Apple, Android, Xiaomi, Huawei, Samsung News, and More.
