Know About Ethereum, Ethereum 2.0 Staking, Explained
What is Ethereum 2.0 staking?
Holding a certain amount of Ether (ETH) to participate in the network and obtain a reward in return. The process of staking involves locking up an amount of a given cryptocurrency in a wallet to participate in the operation of a blockchain in return for rewards. Theoretically, anyone can participate in staking on any blockchain operating a proof-of-stake consensus. Proof-of-stake has several variations, which also allow people to participate in staking.
The Ethereum core development team is currently working on a significant upgrade, which is dubbed ETH 2.0. It involves re-engineering the entire Ethereum platform, effectively launching a new, more scalable version. The implementation is due to start in the summer of 2020 and will most likely run for another year or two until all three phases are complete. Part of the ETH 2.0 implementation involves moving Ethereum from a proof-of-work to a proof-of-stake consensus.
What is proof-of-stake?
Proof-of-stake, or PoS, is a consensus mechanism used by some blockchains.
PoS provides those with a stake of network tokens the right to earn rewards for validating blocks. This is in contrast with proof-of-work, or PoW, the consensus model used by Bitcoin (BTC). PoW assigns block confirmation rights to those that demonstrate the largest amount of computing power.
Once a validator agrees to stake its tokens, the stake is locked up. In many cases, it will be forfeited fully or partially if the validator doesn’t act in the interests of the network — intentionally or otherwise.
In principle, anyone can stake tokens; but in reality, a protocol will be used to determine which participants get selected to validate blocks and earn the staking rewards. The right to validate a block and earn rewards is generally assigned based on the proportionate value of the stake. So, someone staking 1% of the total overall value will get to validate 1% of all blocks. However, the length of time that the stake has been locked up may also factor into the validator selection protocol.
Why is Ethereum 2.0 implementing PoS?
Ethereum seeks to decentralize and speed up the network.
Ethereum has historically operated a proof-of-work consensus. However, one reason for moving to proof-of-stake is that it’s generally considered to be far more energy-efficient than proof-of-work.
Ethereum’s core developers are heavily in favor of decentralization, which points to another reason for moving to PoS. Over recent years, the mining of the largest cryptocurrencies, including BTC and ETH, has become heavily dependent on a small number of large mining pools due to the race for developing faster and more sophisticated mining hardware.
By contrast, anyone can operate as a PoS validator without needing specialist hardware. Therefore, the theory is that PoS blockchains stand a better chance of being more decentralized due to a lower barrier to entry. ETH 2.0 will also involve the implementation of sharding, which is a partitioning technique enabling faster throughput.
How does staking work on Ethereum 2.0?
Just as with most other platforms, lock, load and wait.
Staking on Ethereum 2.0 will be fairly straightforward. There will be a minimum threshold of 32 ETH required to participate in staking, and validators will need to be running a validator node. As mentioned previously, this doesn’t need to be specialist machinery and could be done on a consumer-grade computer or laptop. However, validators will be expected to be online consistently or face minor penalties.
The rate of return for staking ETH is expected to be around 4%–10%. A program called “slashing” will apply to any validator acting maliciously toward the network by taking a portion of the validator’s stake.
Holding a certain amount of Ether (ETH) to participate in the network and obtain a reward in return. The process of staking involves locking up an amount of a given cryptocurrency in a wallet to participate in the operation of a blockchain in return for rewards. Theoretically, anyone can participate in staking on any blockchain operating a proof-of-stake consensus. Proof-of-stake has several variations, which also allow people to participate in staking.
The Ethereum core development team is currently working on a significant upgrade, which is dubbed ETH 2.0. It involves re-engineering the entire Ethereum platform, effectively launching a new, more scalable version. The implementation is due to start in the summer of 2020 and will most likely run for another year or two until all three phases are complete. Part of the ETH 2.0 implementation involves moving Ethereum from a proof-of-work to a proof-of-stake consensus.
What is proof-of-stake?
Proof-of-stake, or PoS, is a consensus mechanism used by some blockchains.
PoS provides those with a stake of network tokens the right to earn rewards for validating blocks. This is in contrast with proof-of-work, or PoW, the consensus model used by Bitcoin (BTC). PoW assigns block confirmation rights to those that demonstrate the largest amount of computing power.
Once a validator agrees to stake its tokens, the stake is locked up. In many cases, it will be forfeited fully or partially if the validator doesn’t act in the interests of the network — intentionally or otherwise.
In principle, anyone can stake tokens; but in reality, a protocol will be used to determine which participants get selected to validate blocks and earn the staking rewards. The right to validate a block and earn rewards is generally assigned based on the proportionate value of the stake. So, someone staking 1% of the total overall value will get to validate 1% of all blocks. However, the length of time that the stake has been locked up may also factor into the validator selection protocol.
Why is Ethereum 2.0 implementing PoS?
Ethereum seeks to decentralize and speed up the network.
Ethereum has historically operated a proof-of-work consensus. However, one reason for moving to proof-of-stake is that it’s generally considered to be far more energy-efficient than proof-of-work.
Ethereum’s core developers are heavily in favor of decentralization, which points to another reason for moving to PoS. Over recent years, the mining of the largest cryptocurrencies, including BTC and ETH, has become heavily dependent on a small number of large mining pools due to the race for developing faster and more sophisticated mining hardware.
By contrast, anyone can operate as a PoS validator without needing specialist hardware. Therefore, the theory is that PoS blockchains stand a better chance of being more decentralized due to a lower barrier to entry. ETH 2.0 will also involve the implementation of sharding, which is a partitioning technique enabling faster throughput.
How does staking work on Ethereum 2.0?
Just as with most other platforms, lock, load and wait.
Staking on Ethereum 2.0 will be fairly straightforward. There will be a minimum threshold of 32 ETH required to participate in staking, and validators will need to be running a validator node. As mentioned previously, this doesn’t need to be specialist machinery and could be done on a consumer-grade computer or laptop. However, validators will be expected to be online consistently or face minor penalties.
The rate of return for staking ETH is expected to be around 4%–10%. A program called “slashing” will apply to any validator acting maliciously toward the network by taking a portion of the validator’s stake.
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