Eth2 staking is where an individual deposits 32 ETH to become a validator in Ethereum 2.0. The Ethereum blockchain recently reached a major milestone when adequate ETH was transferred into a deposit contract to trigger the launch of the new beacon chain.
Also known as Phase 0 of ETH’s ambitious shift to a proof-of-stake (PoS) consensus mechanism, a total of 524,288 ETH needed to be deposited to ensure that this launch happened.
In the coming year, shard chains will be deployed enabling ETH to process a larger number of transactions per second. The upgrade has been desperately needed for some time now, with the network fees recently surging to unexpected highs due to the popularity of decentralized finance (DeFi).
Once the shift to PoS is complete, the miners will no longer get involved in validating transactions. Instead, the participating validators that stake Ether will be responsible for the addition of blocks to the blockchain. In the process, they will get new ETH as a reward. The team hopes that the new method will consume less energy than proof-of-work (PoW).
Downsides For Those Participating In The Beacon Chain
Currently, staking ETH is a considerable and long-term commitment. The minimum set amount that anyone could contribute to the deposit contract was 32 ETH. At some point in November, that was worth about $19,877.
The funds in ETH are going to be locked until the current mainnet ‘docks’ with the beacon chain. Currently, estimates suggest that the milestone may only get reached in 2022
which means that the aspiring validators may have to wait for a bit before they can get their funds back.
One of the most notable downsides associated with this transition to Eth2 is how it needs lots of commitment from the thousands of validators who have put their coins where they talk. It can be termed as a leap of faith since several other critical milestones linked to this project have been reached behind schedule.
Should any more complications arise, there is a possibility that it might be years before the deposited ETH gets released from the one-way contract; and by that time the cash value may have dropped by then.
Serving as a network validator also comes with several responsibilities and risks. ‘Slashing’ by itself means that the nodes can get penalized for failing to act in the network’s best interest; and as a result, there is a major risk that staking may make someone lose their crypto instead of making profits.
Notably, accidentally waving through any invalid transaction or going offline can result in severe consequences.
Can Anyone Participate In Ethereum 2.0 Staking?
It is almost impossible due to the limitations set by the deposit contract. Figures from Etherscan indicate that there are currently over 126 million distinct Ethereum addresses and about 113.6 million ETH are in circulation. It means that a single address cannot own one whole Ether.
Research from Adam Cochran back in April indicated that 17% of ETH was held by only 10 addresses. Furthermore, the top 10,000 addresses hold almost 94% of the crypto’s circulating supply. In general, these statistics make it appear unlikely that your average crypto enthusiast has adequate ETH lying around to begin staking, and mathematically impossible that anyone and everyone interested in staking will have 32 ETH.
However, there are other hiccups to the entry that must be tackled. Even the individuals that have 32 ETH to stake may be worried about how their assets are going to become illiquid for a long time. Creating and maintaining a validator node can also be a complex business.
Even though someone may be interested in receiving staking rewards, they might lack the technical know-how or time to do such themselves.
How ETH2 Staking Can Become Available For Everyone
Staking platforms are coming up that help in addressing some of the limitations that are currently provided by ETH2. The services can simplify the process of getting involved in Eth2, and open up chances to those who may have a smaller amount of ETH to stake.
Nonetheless, cryptocurrency enthusiasts must do due diligence about those staking services to guarantee that their crypto will remain safe. Platforms like Stkr, built by Ankr, to enable anyone to stake in a validator node with a minimum requirement of a mere 0.5 ETH.
That is 64 times smaller than the contributions that are required to be made to the deposit contract; opening up various opportunities to more people. Stkr then introduces these funds together in the form of Micropools and it allocates them to real-life Eth2 nodes.
Another feature that comes to Stkr that is probably going to appeal to the world of Eth2 staking is the fact that the users get a synthetic token that is known as aETH in exchange for the Ether that they lock up. The tokens can be used in decentralized finance (DeFi) applications; or sold at any time.
There can also be benefits for individuals with greater amounts of crypto to stake. An unlimited one-click deposit limit means that the high net worth users can gain exposure to the next iteration of ETH’s mainnet without having to operate their nodes.
Stkr also alleges that the approach eliminates the risk of a stake being lost in the case that a node performs poorly.
How The Ecosystem Works
Three primary roles exist within the Stkr ecosystem. Providers offer the computing resources that drive the Eth2 nodes, and they pay the insurance that works as a guarantee against any poor hardware performance. The funds will then be used as compensation for the stakers in the case that there is an outage.
However, the providers also stand to gain rewards in the case that their infrastructure runs without a hitch. By building on a good reputation, they are prioritized whenever any new staking funds require allocation.
The requesters, who are also known as Stakers, are the ones that want to lock up their ETH without having to host a node themselves. In time, the governors will be responsible to determine the future direction of Stkr using votes and will get incentivized to work in the ecosystem’s best interests.
Time and again in the cryptocurrency space, trends start to form. There was a rise of nonfungible tokens, ERC-20 tokens, and decentralized finance (DeFi). In the months ahead, attention might shift to Ethereum 2.0 as the launch of the world’s largest PoS networks comes closer.
Platforms that enable people from every background to get involved in staking will be an integral part of the newly formed ecosystem.