How does Ethereum 2.0 staking work? A beginner’s guide on how to stake ETH

ETH staking

The Ethereum network is now congested, raising transaction costs to prohibitively expensive levels for many use cases. This is partly due to the success of Defi projects, where consumers are willing to pay high transaction fees due to the huge financial value of the transactions.

Transaction fees are a “petrol” cost in Ethereum because they fund actual applications running on the Ethereum(ETH) Blockchain, not just transactions. Non-financial DApps (decentralized applications built on  Ethereum) have a hard time running on Ethereum due to high gas fees. 

To address these issues, the Ethereum Foundation has been working on Ethereum 2.0, a network upgrade that attempts to improve the security, speed, efficiency, and scalability of the Ethereum network. The security and scalability of the Ethereum network allow it to process more transactions, remove bottlenecks and handle more use cases, especially outside of finance. 

From mining to staking model

Proof of stake is a consensus method that Blockchain networks use to achieve distributed consensus. Staking is a process used by PoS Blockchains to secure the Blockchain and generate new blocks. The process of selecting validators to set up a new block is called staking.

The choice to produce/validate a block is proportional to the number of coins. As a result, anyone with a small number of coins can engage in staking and earn extra coins in proportion to their staking amount.

To become a validator on the network, users must stake their Ether (ETH), the native cryptocurrency of the Ethereum(ETH) Blockchain. Validators, like proof-of-work miners, are responsible for organizing transactions and creating new blocks so that all nodes can agree on the state of the network.

Validators, sometimes known as “stakers,” are trustworthy for processing transactions, storing data and counting blocks to the Beacon Chain, Ethereum’s latest consensus model. Validators accept interest on their staked coins, which are denominated in Ethereum, as a reward for their active participation in the web.

To become a validator on Ethereum(ETH), users must invest 32 Ethereum(ETH). Validators are assigned to create blocks at random and are accountable for double-checking and verifying any blocks they do not make. 

The stake of the user is also utilized to incentivize positive validator activity. For example, a user may fail a portion of their share if they go offline (fail to validate) or lose their entire asset if they engage in willful collusion. Furthermore, users may be able to delegate their stake to another user who can perform the tasks of a validator on their behalf, depending on the PoS system.

How does Ethereum staking work?

The PoS-based Blockchain, in contrast to the Proof-of-Work or PoW-based Blockchain, aggregates 32 blocks of transactions during each validation round, which takes an average of  6.4 minutes. “Epochs” are the names given to these groups of blocks. If the Blockchain adds two more epochs to it, it is considered irreversible.

Beacon Chain divides participants into a “committee” of 128 people and randomly assigns them to a specific shard block. Each committee is assigned a “room” and has a set time to propose a new block and validate internal transactions. Each epoch has 32 slots, which requires 32 committee sets to complete the validation process.

Once a committee has been assigned to a block, a random member has exclusive authority to propose a new block of transactions. In contrast, the remaining 127 members vote on the proposal and certify the transactions.

Why stake ETH for Ethereum 2.0?

The primary reason why many someones would want to invest in Ether is to obtain the APR, or annual percentage rate, which can range from 6% to 15%. With the minimum requirement of 32 ETH, you may expect to gain anywhere between 2 and 5 ETH at current prices.

What’s the catch, exactly? You must reserve your ETH for years. Some people may be hesitant to accept this option if they don’t have 32 ETH to lock up on the fly or prefer to spend ETH for other decentralized applications.