How Ethereum Staking Works
Ethereum staking is already available to users. Let's consider how it happens, what nuances and risks exist for validators.
The first version of the Ethereum blockchain worked and continues to work on the PoW consensus. Therefore, mining farms with powerful video cards are used to form a “chain of blocks” and issue coins. But the development team has already started moving the platform to PoS consensus. Therefore, you can mine a coin by storing it on your wallet. How does Ethereum staking work?
Features of the process and remuneration of validators
The ether staking procedure differs little from the similar process for other digital currencies. The algorithm is the following:
- The user registers in the blockchain and downloads a full-fledged ether wallet to his computer.
- A blockchain participant acquires ether and also “blocks” it in his wallet. At the same time, the coins remain in his property, and do not transfer to another account.
- “Blocked” coins participate in the formation of new blocks, for which their owner is paid a reward in ethers.
The nuances of the process:
- Coins and staking profits will become available only after the transition of the entire Ethereum blockchain to the new consensus. According to preliminary estimates, this will happen during 2022.
- To participate in staking, you need to block at least 32 ETH. If the user does not have them, you can place part of the coins in a joint staking service or on an exchange.
Blockchain participants are rewarded for forming blocks and joining them to the chain, as well as for validating the work of other participants. As of the end of 2021, the profitability of this Ethereum mining method was:
- Pools – 5.95% of the blocked amount;
- Validators – 6% of the coins placed on the account.
Penalties and risks
The reward in the form of Ethereum coins is awarded for the fact that blockchain participants benefit the ecosystem. But the developers also provide for a system of fines for “harm”. Penalties apply for the following actions:
- Disconnecting the wallet used for staking from the Internet (that is, it will not participate in validation);
- User actions aimed at destabilizing the operation of the blockchain;
- Incorrect verification of transactions within the blockchain.
From the inception of the ETH2 blockchain until the fall of 2021, about 150 ecosystem users were fined for violating the staking rules. The main reason for the accrual of penalties is the violation of attestation.
The reward for keeping coins on the account depends on inflation. The more users will place tokens, the greater will be the emission of cryptocurrency. Inflation is distributed among all participants in the blockchain. That is, payments to everyone are reduced.
For example, with the validation of 1 million ether, the annual issue will be about 181 thousand coins, and the maximum reward will be more than 18%. If 100 million coins are used for validation, the emission will be about 1.8 million. That is, the maximum reward will be 1.81%.