The change in consensus mechanism from Proof of Work (PoW) to Proof of Stake (PoS) is the main reason behind Ethereum 2.0 expectations across the crypto world. In addition to improving scalability, speeding up and making transactions cheaper, this tipping point will also help generate passive income. Btcnewsweb.com will tell you everything you need to know about staking Ethereum 2.0.
What is staking
Proof-of-stake, or PoS, is a mechanism by which the owners of a certain share of the network’s tokens are entitled to a reward for verifying blocks. This is the opposite of the Proof-of-Work (PoW) model that is used in Bitcoin. PoW gives the right to validate blocks to those with the most computing power.
In staking, the validator must agree to block his tokens for as long as he wants to act in the interests of the network – to confirm transactions and generate blocks. In this case, it is unprofitable for the validator to contain malicious actions on the network, since his funds are stored there. When unlocking and withdrawing funds, the validator instantly ceases to be such and, accordingly, receives a reward.
Anyone can block (“put”) their tokens, but the choice of who will check the blocks and receive rewards is made by an automatic protocol. This choice directly depends on the total amount of the bet. It turns out that if someone has staked 2% of the total token supply, then he will be able to confirm 2% of the blocks. The protocol can also take into account the duration of the bet.
In Ethereum 2.0
The Ethereum development team is currently working on launching a significant update that includes a complete reorganization of the entire platform and the formation of a new, more scalable version.
The first fruits of the implementation appeared in the fall of 2020: users can already stake their coins to support the network, although there is still at least 1-2 years before the final launch of the system. There are three stages of implementation that need to be passed before Ethereum fully transitions to proof of stake from proof of work.
The main reason for the transition is the increased energy efficiency of this protocol compared to PoW. Another reason is that this option can provide better decentralization: in PoW, mining is concentrated in the hands of large companies over time, and there is also a race between hardware manufacturers.
With regard to PoS, no special equipment is needed to take part in it. A low barrier to entry gives the system a better chance of decentralization, although there will still be large companies that will immediately acquire a large share. In addition, Ethereum 2.0 will include the implementation of sharding technology to increase throughput.
How is staking in ETH 2.0
To become a full-fledged validator, a user needs to deposit 32 ETH or join one of the staking pools to deposit a lower amount. Proof-of-Stake in Ethereum 2.0 is supported by the new Beacon Chain mechanism. It does not change anything in the principles of operation of Ethereum, which we use today, but it performs two important functions:
- Introduces PoS consensus to the Ethereum ecosystem.
- Coordinates the work of the network.
The Beacon Chain is considered phase 0 of the network launch.
If you have less than 32 ETH, then you can use a lower amount through specially created staking pools. Some companies are willing to do this on behalf of their users. The current list of such companies is here: https://beaconcha.in/stakingServices.
The main advantages of staking on Ethereum:
- Availability. No hardware requirements and the ability to pool if you don’t have 32 ETH. Due to this, more people will be able to join the network. This will increase the security of the network by increasing its decentralization.
- Environmental friendliness. Staking does not require high-power, energy-consuming equipment, even a smartphone is enough to perform several operations in the wallet.
- Sharding. This technology is available for implementation exclusively in the Proof-of-Stake system. It will significantly increase the security of the network.
Sharding is the division of the database for the purpose of load balancing. This concept is widely used in IT systems. Specifically in Ethereum, segmentation will reduce the load on the network and increase the number of transactions per second, creating new chains (shards). In addition to scalability, this is important for several more reasons:
- Scaling up by increasing the size of the existing database allows you to maintain full decentralization. This speeds up the process and significantly reduces hardware requirements.
- Sharding will allow you to run Eth even on a laptop or phone. This opens up access to participation in the network for a huge number of people who previously could not afford expensive equipment.
Ultimately, a significant increase in network availability is expected by reducing the number of points of failure.
The nuances of work and possible problems
In Ethereum 2.0, a validator is a person who performs a computer process to reach a protocol consensus and thereby ensure that new blocks are added to the blockchain. The more votes a block receives from validators, the greater the chance of adding it to the blockchain. The strength of the vote of each particular validator depends on the amount blocked in his account.
The requirement to have a certain amount of funds in the account is related to the prevention of harm to the network through financial incentives. It is unprofitable for the validator to harm the system in which his funds are located.
The minimum bet is 32 ETH, and there is no point in betting more – there is no advantage. At the zero phase of the launch, funds cannot be withdrawn in the usual way, however, if you absolutely need to do this, then you can send an individual request. Then there will be no turning back, you will not be able to rejoin the network.
If necessary, the user has the right to suspend the functionality of the validator for several days, and then start it again, but this leads to a fine that is approximately equal to the amount that the user would have received during this period.
Stacking Eth 2.0 on Binance
The Binance cryptocurrency exchange has opened a staking pool in which anyone can invest their ETH in order to qualify for a share of the reward in the future (after the launch of the network). In this case, the amount can be any, not 32 ETH, so the entry threshold is minimal.
The process itself is also simplified as much as possible. The user adds assets to the pool and receives an equivalent number of new BETH tokens as proof of their stake. You can stake Ethereum at https://www.binance.com/ru/eth2. At the time of the launch of the network (according to Binance, it will take about two years), ETH will be distributed among all BETH holders. It is noteworthy that Binance guarantees the distribution of 100% of the income, leaving nothing for itself.
With the launch of Ethereum 2.0, the network should be much more scalable than it is today. But many people have a natural question – to put or not to put their tokens now? After all, the launch can take many months, and during this time the user will not have access to their funds. At the same time, experts expect stable profitability of this method and argue that it is worth it. It can also be said that most of the current stakers are enthusiasts who want not so much to make money as to support the network at this turning point.