It’s been a long time since it was first announced. But now, Ethereum 2.0 and Staking are here, to a somewhat degree.
Although live, ETH 2.0 is still to solve all the problems the current Ethereum environment has. And like in 2017, when CriptoKitties overloaded the network, Ethereum shows almost the same scalability issues caused by the enormous activity from apps, DeFis, and NFTs.
Believe it or not, the Ethereum Average Transaction Fees are X10 higher than last year.
The threat is quite visible. Ethereum is still on the second place by market cap. However, Cardano and Polkadot climbed up in the top ten.
Worry not, for Ethereuem is a tough player. Even if the Ethereum 2.0 will be entirely operable by the end of 2022, the network will gradually improve until it reaches 2.0 fully.
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Ethereum 2.0 and earning ETH?
Ethereum 2.0 comes as a series of updates meant to improve the Ethereum network greatly.
It started Phase 0 back in December 2020 with the official launch of the Beacon Chain.
In this phase, the Beacon Chain manages the registry of validators and implements the Proof of Stake (PoS) consensus mechanism for Ethereum 2.0.
The PoS chain will run alongside the original Ethereum PoW to ensure no break in data continuity.
Next, sometime in 2021, in Phase 1, the blockchain splits into 64 different ‘shards’ to improve scalability. This update theoretically enables Ethereum 2.0 to obtain a throughput x64 higher than Ethereum 1.0.
Then, in 2022, in phase 2, the Ethereum 1.0 will be ‘docked’ as a shard to Ethereum 2.0 and will involve adding ether accounts, enabling transfers and withdrawals, implementing cross-shard transfers and contract calls, and building execution environments. Also, the PoW mining will be turned off.
However, once the mining is off, it doesn’t mean it’s impossible to get ETH without buying.
There are already quite a few ways how to earn Ethereum that will continue even when the mining is gone.
Interest & Yield
The DeFis and the liquidity providing platforms made it possible that hodlers can get additional funds without spending their cryptocurrency.
Interest & Yield work quite in the same way in the crypto market like they do in the traditional banking system. You give your money to a project for a period of time and get them back with an additional APR without doing anything.
It’s basically the payment you get for loaning your crypto funds out.
Non-Fungible Tokens are more popular than ever in 2021. There is an explosion of NFT projects as well as art sold in the form of NFT.
Not all of us are able to build an entire platform that includes NFTs. But now, there are entire marketplaces for various pieces of art and digital collectibles that are registered on Ethereum in the form of Non-Fungible Tokens.
It seems crazy, but in March 2021, NFT projects are the best performers, and the crypto-collectibles arts are in high demand.
Although the general opinion on Non-Fungible Tokens is that they will improve the crypto space due to their potential, the majority of projects and crypto collectibles will devalue after the hype is gone. But it’s still worth it to look into.
Ethereum Staking is one of the most-awaited and welcomed updates in the crypto space. Right now, contributing to the network by staking is quite risky, requiring a staker to lock in 32 Eth. But there is more to it than that.
How does Ethereum staking work?
In the current status quo, Ethereum is able to support 15 transactions per second.
To scale up, Ethereum 2.0 comes with several updates centered around the idea of staking, eliminating the need for proof of work mining.
By switching to staking, Ethereum means to support thousands of transactions per second in the future.
Also, the increase in transactions per second does not come at the expense of current nodes.
The proof of stake consensus mechanism relies on an economic incentive to keep the validators honest. The validators can open up staking nodes by locking 32 ETH in a staking contract. And as they secure the network, they will receive a certain APR that can vary from 21.6% to 4.9%. The Anual Percentage Return evolves inversely proportional with the number of staked ETH.
The fewer people stake, the more the APR grows (21.6% – 524,288 ETH), and the more people stake, the more the APR lowers (4.9% – 10,000,000 ETH).
SIDENOTE. The current APR can be checked on launchpad.ethereum.org.
Opening up a node requires significantly less hardware power than the previous consensus method as the node needs to handle less information at a time. A node operator has to run one shard on his node, and that will be possible even with an office laptop.
Currently, Ethereum Staking is applied on the Beacon Chain that runs in parallel with the current proof of stake network. And right now, stakers are only ones adding new blocks on the Beacon chain.
More important in the staking process is randomness. Nodes are assigned randomly to shards and transactions so they cannot collude and take over a shard.
For some, it may look like a sandbox if you cannot validate the mainnet as well. However, the plan is that for stakers to validate blocks on the Ethereum mainnet, but after the docking, the current proof of work chain becomes a shard of Ethereum 2.0.
Staking Ethereum is made to be more accessible in order to encourage decentralization. You only need a dedicated computer and 32 ETH. If you want to lock up more ETH, you have to open up a separate node with another 32 ETH stake.
However, keep in mind that the technical knowledge to set up a node correctly is a must. If you mess up the node setup or get hacked or attempt to damage the network (even by mistake), your stake can get slashed and even kicked out.
It is not easy to get in as the waiting list is quite long and only allows 900 validators each day to get on board.
Of course, people that aren’t interested in setting up their nodes and waiting to get in can join staking pools.
Staking rewards vs. mining rewards
From some points of view, ETH may not be the best coin to mine due to the difficulty. But In terms of rewards, staking has the upper hand in some points and mining in some others.
The initial investment
A small setup for Ethereum mining with 4 GPUs RX 580 8GB that would generate 115 MegaHash/s would cost you around $4,000.
In the case of Ethereum Staking, you can start up a node with a laptop that costs as low as $500.
Setting up a staking node/mining rig
Setting up an Ethereum staking node requires technical knowledge at DevOps levels. Additionally, you have to lock up 32 ETH. If you already have that, you’re good. If you don’t, nowadays it is quite expensive to get them. Also, if you mess up something in the setup, you can quickly lose a lot of money.
Setting up an Ethereum mining rig requires technical skills, but this art is old to pull it off on your own by using tutorials only. If you made a mistake, your setup will simply not mine rather than losing your funds.
Ethereum mining goes through a particular context in 2021. The price of ETH is high and the transaction fees are high as well. Considering this context, you can mine with the previously mentioned setup and gain $2,098.72 a year. However, usually, Ehtereum mining is not profitable unless you have access to free or very cheap energy.
As for staking, if the APR has an average of 9% over the year, you can get 2.88 ETH.
And even if APR goes as low as 4.9%, you still get 1.568 ETH.
A mining rig’s maintenance can get quite expensive and complicated as you are constantly and continuously overclocking your hardware. You will definitely need coolers and a lot of power, even to replace components as they burn out.
On the other hand, a staking node just has to make sure it’s powered up and runs correctly, and that’s kind of it.
Miners can use their Ether as they want. If they want to sell, they can sell; if they want to use it in dApps, they can do that.
On the other hand, a validator has to commit those 32 Ether to the staking protocol. Right now, if you want to start staking, you will have to wait until phase 2 (in 2022) before you can actually take profits from validating transactions.
ETH 2.0 staking risks
Ethereum staking is definitely promising and also a little exotic. People are hyped by it; thus, the waiting list is so long.
But for anyone thinking of staking on Ethereum 2.0, there are a few thighs to consider before proceeding.
- You need to commit 32 ETH, and they can get slashed if you ‘misbehave’.
- You need quite the advanced technical skills to set up the node correctly, and any mistake can cost a part of your stake.
- You need to have your node online almost all the time. Too much downtime can result in you being kicked out.
- You are responsible for your own security. If you get hacked, you can get penalized.
- You have to commit 32 Ether for quite a long period of time, and if it happens that you will need those funds, you won’t be able to access them.
- Ethereum 2.0 comes as a series of updates meant to improve the Ethereum network significantly. It contains 3 phases. In Phase 0, the Beacon Chain is launched. In Phase 2, Ethereum becomes sharded. In Phase 3, the mainnet will become a shard of Ethereum 2.0.
- Although, PoW mining will stop once Ethereum reaches the third phase, it will still be able to earn Ethereum through Interest & Yield, NFTs, and staking.
- Ethereum staking requires aspiring validators to set up a node on a dedicated computer and lock up 32 ETH in order to forge blocks on the network.
- Compared to a mining rig, a staking node can be less expensive to start (only if you already have 32 ETH at hand) and is easier to maintain. PoW gives miners funds mobility and is easier to join.
- Besides the long-term commitment of 32 Ether, Ethereum staking can be quite risky for non-technical persons as they can lose their funds due to mistakes that may attract penalties.