Learn How to Stake Your Ether
Rewards are earned on ether deposited in a smart contract on a validator node on the Ethereum Proof of Stake (PoS) blockchain network.
Ethstaking enables you to earn passive income in our zero fee Ethereum staking pool.
A staking deposit or “stake” is held for a fixed term of 3, 6, 9, or 12 months in an Ethereum staking wallet synched with a smart contract. Your supply of ether will grow as long as you are holding ETH in an Ethereum staking wallet. You are paid an amount that increases based on the amount of time that has elapsed. The longer a deposit is held in an Ethereum staking wallet, the greater is the reward paid when the staked ether is cashed out.
An ethstaker on the Ethereum PoS network will be chosen to validate block transactions with a weighted “vote” according to how much ether is held in the ethstaker’s deposit. The weight and impact of a validator’s vote in the network is directly proportional to the amount of ether staked and risked in order to participate in Ethereum staking.
HOW DOES ETHEREUM STAKING WORK?
Ethereum staking works through smart contracts enabled by the implementation of a family of protocols, dubbed “Casper”, which allow ethstakers to risk a deposit on their PoS validator node in exchange for rewards paid out as a fraction of the ether transaction processing fees on correctly validated blocks on the Ethereum blockchain.
The strength of the Ethereum staking network is proportional to the amount of honestly staked ether. Ether is staked as a sort of bond to vouch for the validity of new blocks in exchange for being rewarded a fraction of the transaction fees on valid blocks. Casper confiscates staked ether in the event that a validator votes for an invalid block.
Ethereum will move gradually to a purely PoS system that eliminates the need for computers farms running meaningless computations, first going through a hybrid stage that will be a mix of proof-of-work and proof-of-stake. Casper’s first iterative implementation still requires PoW mining to create new blocks of transactions, so it will not solve the problems of GPU scarcity and wasteful power consumption overnight.
Ethereum staking works as a way for ETH holders to make money from Ethereum’s move away from a PoW algorithmic consensus network and toward a PoS algorithmic consensus network, both during the partial transition and after the full transition to PoS. There will be money to be made as soon as Casper hits the mainnet. Early adopters may do extremely well. Ethereum staking will be a lucrative endeavor for individuals and businesses who hold enough ether, and for members of the Ethstaking.io zero fee Ethereum staking pool that will be efficiently capitalizing on the way Ethereum staking works.
How Does Ethereum Staking Work vs Ethereum Mining?
Ethereum staking works by;
1. requiring ethstakers to risk a minimum amount of money in the form of ether in order to,
2. prove that they are honest block validators so that they can,
3. earn ether rewards directly proportional to the amount of ether they each have staked in an open wallet deposit.
Ethereum mining works by;
1. requiring miners to perform a minimum amount of computational work to,
2. prove they are honest block miners in order to,
3. be granted a random chance to win the block reward for the block they are mining.
Ethereum Staking Explicit Finality
Ethereum staking imparts the idea of “explicit finality” to ether transactions, meaning that finality is nearly a mathematical certainty, as opposed to the PoW “probabilistic finality” implied by “skin in the game” via power wastage. The Ethereum network will at first only overlay finality on top of the PoW chain, with the underlying chain continuing to have an implicit transaction finality.
The Ethereum network achieves explicit finality after about 2.5 epochs, each epoch being a sequence of 50 proof-of-work blocks. A “checkpoint” is the last block in an epoch that is first “justified” and then “finalized” by the current set of proof-of-stake validators.
When accepting ether as payment on the Ethereum staking network, one would want to wait for a certain number of additional block confirmations (number of blocks added since a transaction appeared in the longest chain) depending on the size and importance of the ether payment. For payment for a coffee on the one hand, for example, a retailer would be okay with a few confirmations. For accepting ether as payment for a car, on the other hand, an auto dealer would want to see many more confirmations before feeling confident enough in the transaction’s validity to transfer the car ownership title to the prospective buyer.
Ethereum Staking Energy Efficiency
Ethereum staking works as a SHA256 ether “minting” alternative that eliminates the computational waste of PoW “mining”. Ethereum staking’s security comes not from miners burning energy, but, rather, from the economic value that is put up at risk of loss by “minters”. Whereas burning energy secures a PoW blockchain, economic value at risk of loss secures the Ethereum staking network. Securing the same number or amount of ether transactions in a block with PoS is much less equipment-intensive and thousands of times less energy-intensive compared with PoW.
Bitcoin’s PoW mining will continue to consume and waste gargantuan amounts of energy, while Ethereum mining’s smaller but still enormous energy consumption will be gradually eliminated by Ethereum staking.
Other Strengths of Ethereum Staking
Decentralized Yet Able to Regenerate: The Ethereum staking network can fully recover and regenerate from the permanent removal of almost all nodes. From only one node remaining, the PoS network can completely regenerate itself.
Security: The Ethereum staking protocols are designed to strengthen the network’s ability to identify and punish, and, therefore, disincentivize bad actors.
Scalability: There are dapps in the Ethereum development space that are being held back because of transaction speed limitations. According to Vitalik Buterin, “The applications are there; all are on the backburner now precisely because scalability is not there. I personally have cut down evangelism precisely because I see that the main bottleneck is now not interest, but tech.” Though Ethereum staking was not designed specifically to mitigate Ethereum’s scalability issues, it does help to make scaling the network less difficult. Explicit finality will work to maintain the Ethereum network’s security while it scales up via sharding.
Chain Liveness: “Liveness” is the ability of the blockchain to keep processing transactions in all circumstances. With Ethereum staking, an attacker cannot lock up the chain by blocking it from continuing to propose and vote on blocks and checkpoints. The chain is also kept lively and growing because Ethereum staking nodes are required to log on only once in every two months.
Developmental Flexibility: Explicit finality will allow the Ethereum development community to further explore heterogeneous node responsibility scenarios where each node in the network does less or knows less. It is not necessary for every node to hold all of the state or all of the transactions, nor is it necessary for every Ethereum staking node to validate every transaction.
Challenges Introduced by Ethereum Staking
Nothing-at-stake: If the chain is forked, the optimal Ethereum staking strategy is to validate both chains, since the validator then gets the reward regardless of the outcome of the fork. This weakness will be mitigated by creating a downside for validating both chains in the case of a fork.
Censorship: Validators can potentially censor ether transactions by remaining offline. The Ethereum Foundation is working to establish an optimal cost-of-censorship relative to rewards balance that mitigates this risk.
Long Range Attack: As with a 51% attack, the attacker in a long range attack would try to make a longer chain that rewrites the ledger in their favor. But, instead of the attack starting, say, 5 blocks back, the attacker goes much further back in the chain’s history, say 50,000 blocks. This is a potential problem for Ethereum staking since there’s no proof-of-work or other time-intensive requirement to rewrite a very long chain. The long range attack issue will be solved via ideas from the “slasher” protocol and its improved variations because, with Ethereum staking, validators are known and fault attribution is made at the validator level.
“The Rich Get Richer”: Ethereum staking is a consensus algorithm that rewards validators based on how much ether they’re staking. This can be perceived as putting us on a path toward growing wealth inequality within the crypto ecosystem. But Ethereum staking is in effect much more egalitarian than Ethereum mining because it gives little to no benefit per ether staked to having more ether staked. Ethereum staking ends up being a reward system in which “a dollar is a dollar” no matter how many dollars’ worth of ETH is staked. So, even though it is fair to suspect that Ethereum staking could exacerbate wealth inequality, it is, in fact, an improvement in this regard compared with Ethereum mining.
Risk Aversion: Ethmining rewards can be stored in cold offline wallets. Ethstaking deposits and ethminting rewards, on the other hand, must be allowed to mature in an open wallet. With the potential for draconian penalties and the prospect of prolonged ether-at-risk exposure, many average or risk-averse ETH holders may stay away from participating as a validator. Also, those with more to gain by “gaming the system” are more strongly incentivized to join as a validator during the early part of the Casper rollout. The risk aversion problem is expected to be mitigated over time as more and more potential ethstakers see the success of the proof-of-stake security and observe how Ethereum staking works.
HOW DO I STAKE MY ETHEREUM?
Ethereum staking is a momentous advance that has thousands of people asking, “How do I stake my Ethereum?” The lucrative promise of Ethereum staking is set to attract a whole new generation of Ethereum users and evangelists. As more and more ether is stored in Ethereum staking deposits, the price of ether will rise, and even more people will want to know how to stake Ethereum.
The final hard number for the amount of ETH required to stake has not yet been decided by the Ethereum Foundation, though it will be a number of ether that starts out higher before gradually being reduced to a much smaller amount. Anyone considering Ethereum staking for profit should consider buying as much Ether as their situation allows before the fork happens.
Whatever the number ends up being, ETH holders will be able to band together in “Ethereum staking pools.” You’ll pitch in your desired amount of ether, join your peers in locking it down, and rake in dividends that are shared in proportion to the size of the deposit of each member in the Ethereum staking pool.
The amount of ETH in your staking wallet will determine how large your dividends will be. As an Ethereum minter locking down your ether in a specialized wallet, you will have the first-hand knowledge necessary to confidently answer the question, “How do I stake my Ethereum?”