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- 1 Considered the most adaptable network, Ethereum makes staking viable as well.
- 2 It follows a particular validation system and ensures that members are paid based on their performance.
In terms of scalability and adaptiveness, Ethereum is the most dominant crypto in the world. It is known for spinning many protocols that help in creating different tokens.
From NFTs to meme tokens, this high-end protocol has its footprint everywhere. Its switch from proof-of-work (PoW) to proof-of-stake (PoS) has made it staking-friendly too.
Let’s dive into Ethereum staking and learn what it is.
Ethereum Staking: In Essence
After the consensus shift, the ETH network witnessed some infrastructural changes. These multi-phased modifications raised the network’s scalability as well as security. As a result, Ethereum saw a boom in its adoption in DeFi projects. Soon, the network found itself overburdened with transaction costs.
This boost increased the gas fee cost forcing the community to do something about it. To address this issue, the blockchain introduced a staking model. Since the mining was already ousted, staking has already made its way into the mechanism. However, it wasn’t pushed as an inclusive program that could offer rewards to people.
The Ethereum Foundation revamped its consensus in January 2022 which followed many changes. It paved the way for a staking system that people could join to earn rewards. They can do it via platforms like Binance, Coinbase, Kraken, etc. The PoS raised ETH’s transaction processing capacity exponentially.
The network can now process 100,000 transactions per second. It can support several projects while delivering efficacy and security now.
Here’s How Ethereum Staking Works
ETH PoS algorithm can handle 32 blocks of transactions in every bout of validation. Each bout lasts for approximately 6.4 minutes. The community calls the groups of blocks “Epochs”. When three epochs are collected in the network, they become irreversible. That’s when the block is considered final and ready for validation.
The network has a “Beacon” chain that divides up stakers into different groups. Each group consists of 128 stakers and they’re randomly assigned slots. As per the mechanism, the epochs and slots are divided into a set of 32 to execute the validation process. In every group, one member gets the power to propose a new block.
There are no parameters to choose that member, it’s also done randomly. The remaining members vote on these proposals and decide their fate. The Beacon chain’s job is to collect the information from all the blocks and keep everyone in sync. It also monitors the actions of validators and reward or punish them based on performance.
Ethereum follows a sharding process that divides the blockchain into parts. These parts are usually called “blocks” or “shards”. Every shard keeps a record of its smart contracts and account balances. When the majority approves a proposal, a new block is added to the network. A cross-link is formed to authenticate and incorporate the new blocks.
The stakers who propose the new block receive the rewards. The cross-linking process also integrates the individual shards with the main chain. At the final stage, the Beacon chain shows the status of every shard. The process of validation reaches the “final” stage when the distributed network isn’t alterable anymore.
To process this particular phase, the network has a dedicated protocol called Casper. This protocol gets validators to review the blocks on certain checkpoints. Only after a thorough assessment does the process come to an end. When two-thirds of the validators agree on a block, it’s considered finalized.
In case the validators try to reverse a block, they’re at the risk of losing the whole stake.
How Much Can Stakers Earn on Ethereum?
The network deploys an inverse square root function and annualized interest rates to reckon the rewards. In simple words, the rewards depend on the amount of ETH staked. The more the tokens, the better the incentives. However, the reward models vary for attesters and block proposers.
The latter are known as the “B” and they receive ⅛ of the base reward. On the other hand, the former gets the remaining 7/8B. This amount is usually adjusted based on the time taken by the block proposer to submit their vote. The attesters have to submit them as soon as possible to receive the full reward.
In Ethereum 2.0, the issuance rate depends on the base reward. That happens due to the inter-dependability of square root and base payment.
Should Stakers Choose Ethereum For Staking?
The most notable fact about ETH staking is its annual percentage rate. It could be between 6% to 15% depending on many factors. Nonetheless, there’s a minimum holding requirement of 2 ETH for every staker. The only condition is, the stakers may have to hold it for years.
Crypto users can participate in ETH staking through an exchange too. But in that arrangement, they won’t be running a validator. So, they must analyze all the other staking options before choosing one.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
