Have you been wondering about ways to earn passive rewards from your Ethereum? Through Ethereum staking, you can take your existing holdings of ETH and make them work for you. Staking gives users the ability to participate in the security of the Ethereum network while earning rewards.
Since the move to Ethereum’s new proof-of-stake (PoS) protocol, staking has become a critical part of general blockchain operations. Whether you currently hold ETH or plan to in the future, it helps to know about staking, how the process works, and what kind of rewards you can earn.
What is Ethereum Staking?
Ethereum staking is done because both the blockchain and network require trustworthy users to verify transactions. The process of staking is rather simple. In essence, you are locking up your ETH tokens in order to support the network. Best of all, you earn rewards for your efforts.
This is all possible because of The Merge. Ethereum changed its consensus protocol mechanism, switching to a proof-of-stake concept. The change became a reality as a means for Ethereum to bring down fees, improve transaction times, and create a smoother blockchain experience.
By staking ETH, users are able to help keep the network secure and decentralised. It is a great way to be more involved in the Ethereum network while also earning rewards on your existing ETH tokens.
How Does Ethereum Staking Work?
To begin the process, a user must stake at least 32 ETH in order to activate the Ethereum validator software. This allows them to participate in network consensus directly. That 32 ETH is locked into a smart contract as a form of collateral, ensuring that the participant is committed to being a validator.
While the ETH is staked, it can’t be transferred or used. That said, it can be used to earn validator rewards and even passive income. Additionally, ETH can be unstaked anytime you want, but you will lose out on validator purchases, and any future rewards will stop.
Validators are chosen to propose and confirm new blocks. These blocks are critical for moving transactions along on the blockchain. Honest validators are rewarded consistently while dishonest ones can be slashed, aka lose their staked ETH or worse.
The move, as mentioned, was predominantly done to improve transaction speeds and to reduce fees. There is also the matter of environmental impact. The new PoS protocol is much less energy-intensive, lessening the carbon footprint left behind.
Ways to Stake Ethereum
Before you become active in Ethereum staking, it helps to know that there are a variety of ways to do so. Let’s take a closer look at how to staking, including solo staking, staking-as-a-service, centralized exchange staking, and liquid staking.
1.) Solo Staking
Also referred to as home staking, solo staking involves becoming an individual validator on Ethereum’s network. In order to do so, you will be required to run and maintain an Ethereum node that is constantly connected to the internet. This can be done using your own hardware and software.
You will also need to have at least 32 ETH in order to stake. Given that most people now have a computer of some sort and a connection to the internet strong enough to keep those nodes going at all times. If they go offline, the validator’s ETH will be subject to penalty.
Though it is a substantial responsibility, there are serious benefits to solo staking. These stakers tend to earn the highest possible rewards while also earning directly from the protocol rather than through the use of a third party. Solo stakers also have full control over the keys used to collect funds from staking rewards and ETH deposits.
2.) Staking-as-a-Service Providers
Known as SaaS within the Ethereum community, staking-as-a-service involve third-party services that maintain and run validator nodes on behalf of a user. The same 32 ETH requirement is in place to become an active validator, but those node operations are then delegated to a provider for a cut of the rewards.
SaaS is typically more ideal for those who want to stake their ETH but don’t have either the time, knowledge, or hardware to become their own validator. This method also requires the sharing of validator keys with the SaaS provider, reducing control over fund access and node operations. That said, it means that the validator client will be fully maintained in order to earn staking rewards.
3.) Centralised Exchange Staking
Staking of ETH can also be done through a centralized exchange. These platforms allow users to sign up, create a wallet, and then buy, sell, and trade their preferred forms of cryptocurrency. Through this platform, staking can be done as well.
Each platform has its own process for staking, but it does provide a secure place to stake ETH. These platforms are some of the largest in the world, providing all the rewards of Ethereum staking in a safe place.
4.) Liquid Staking
Liquidity pools, staking pools, or pooled staking involve several users all contributing ETH together in order to meet the 32 ETH requirement in order to activate a set of validator keys. This is similar to staking-as-a-service in that it gives over validator node operations to a third party.
The good news here is that it can be done by staking a lower amount of ETH. Users are given a liquidity token representative of their staked amount. Those tokens can also be used as collateral on decentralised finance applications as well.
This is far and away the cheapest means of getting involved in ETH staking. Most pools accept any amount of ETH, and the user can still access rewards. Just keep in mind that rewards through liquid staking are smaller and are split up among a number of users.
How Much Can You Earn from Ethereum Staking?
Ultimately, the million-dollar question is, “How much can you earn from Ethereum staking?” Rewards vary depending on how much ETH is staked, not to mention the activity of the Ethereum network. You can use a helpful calculator to estimate your returns as well.
Generally speaking, Ethereum stakers can expect to earn roughly 3-5% APY. There are several factors like how much you stake and network activity that can change your earnings. Do your homework so that you can find the right spots to start staking and make the most in rewards.
It also depends on where you do your staking. For instance, some platforms have lower rates of reward because of added services or fees. Before staking Ethereum, compare platforms, fees, and any other factors that could ultimately impact the rewards coming back. Even a percentage point one way or another can make all the difference in terms of how much you earn.
Risks of Ethereum Staking
Though there are clear benefits to staking Ethereum, there are inherent risks as well. These are the most common risk factors to consider when it comes to staking Ethereum:
· Slashing. In order to discourage validator misconduct, slashing can occur where your stake in ETH is reduced or even eliminated, depending on the behavior.
· Loss of Access. In some cases, validators can lose access to staking when done through third-party platforms and exchanges.
· Smart Contract Bugs. Though liquid staking is far more affordable, there are known bugs that can cause issues.
· Lock-Up Periods. When staking, your ETH is locked for a certain period of time. If you decide to unstake your ETH, there may be delays before you ultimately receive your funds.
All that said, staking is generally much safer than many of the high-risk DeFi protocols out there. Like anything in the cryptocurrency space, the risks will always be there. Being able to earn rewards via a trusted platform makes it far less likely that you run into issues.
How to Start Staking Ethereum in Australia
Are you looking to get started? Staking your Ethereum is simpler than it seems. The key is to know how to do it. Here’s a basic walkthrough of how to start staking Ethereum for users in Australia:
· Know your staking method. Choose between solo staking, exchange staking, SaaS, and liquid staking.
· Do your homework and find a platform that can be trusted. If you can’t find much on a given platform, stay away until you can verify that it is reliable and trustworthy.
· Initiate your staking by transferring or using your existing ETH. Remember, the minimum stake is 32 ETH, and that can be achieved through any number of staking methods.
· Finally, confirm the terms. Make sure that you are aware of everything you are signing up for, then begin staking.
Using an Australian exchange is commonplace when it comes to Ethereum staking. You can use some of the largest platforms in Australia, like CoinSpot, Kraken, and Binance Australia to gain access to quality staking features.
