A Comprehensive Guide to Ethereum Staking for Every Beginner

In terms of scalability and adaptability, Ethereum is the most dominant cryptocurrency in the world. It is known to spin up many protocols that help generate various tokens.

From NFTs to meme tokens, this advanced protocol has its traces everywhere. We also made it staking-friendly by switching from Proof of Work (PoW) to Proof of Stake (PoS).

Let’s take a closer look at Ethereum staking and find out what it is.

Ethereum Staking: Essentially

Since the consensus transition, the ETH network has seen some infrastructure changes. These multi-step modifications improve the scalability and security of the network. As a result, Ethereum has seen a surge in adoption among DeFi projects. Soon the network became overburdened by transaction costs.

This has increased the cost of gas fees, forcing communities to do something about it. To solve this problem, blockchain introduced a staking model. Since mining has already been ousted, staking has already been introduced into the mechanism. However, it has not been promoted as a comprehensive program that can provide compensation to people.

The Ethereum Foundation revised the consensus in January 2022 with a number of changes. This paved the way for a staking system where people could participate to receive rewards. You can do this through platforms like Binance, Coinbase, Kraken, etc. PoS has exponentially increased ETH’s transaction processing capacity.

The network can now handle 100,000 transactions per second. You can now support multiple projects while providing efficiency and security.

Here’s how Ethereum staking works:

The ETH PoS algorithm can process 32 transaction blocks per verification. Each match lasts approximately 6.4 minutes. The community refers to groups of blocks as “epochs.” Once three epochs have been collected into the network, it becomes irreversible. At this point, the block is considered final and ready for verification.

The network has a chain of “beacons” that divide stakers into different groups. Each group consists of 128 stakers who are randomly assigned slots. According to the mechanism, epochs and slots are divided into 32 sets to run the verification process. In every group, one member is authorized to propose a new block.

There are no parameters in selecting that member and it is done randomly. The remaining members vote on the proposal and decide their fate. The beacon chain’s job is to collect information from every block and keep everyone in sync. It also monitors the behavior of validators and rewards or punishes them based on their performance.

Ethereum follows a sharding process that divides the blockchain into multiple parts. These parts are commonly referred to as “blocks” or “shards.” Every shard records smart contracts and account balances. If the majority approves the proposal, a new block is added to the network. Cross-links are formed to authenticate and integrate new blocks.

Stakers who propose new blocks receive rewards. The cross-linking process also integrates individual shards with the main chain. In the final step, the beacon chain shows the status of all shards. The verification process reaches a “final” stage where no further changes can be made to the distributed network.

To handle this specific step, the network has a dedicated protocol called Casper. This protocol requires validators to review blocks at specific checkpoints. The process concludes only after a thorough evaluation. A block is considered confirmed when 2/3 of the validators agree on the block.

If a validator attempts to revert a block, they risk losing their entire stake.

How much can a staker earn on Ethereum?

The network uses the inverse square root function and annual interest rate to calculate rewards. Simply put, rewards depend on the amount of ETH staked. The more tokens you have, the better the incentives. However, the reward model varies depending on the prover and block proposer.

The latter is known as “B” and receives ⅛ of the base reward. On the other hand, the former gets the remaining 7/8B. This amount is usually adjusted based on the time it took the block proposer to submit a vote. The attestor must submit this as soon as possible to receive full compensation.

In Ethereum 2.0, the issuance rate varies depending on the base reward. This occurs due to the interdependence of square root and base payment.

Should stakers choose Ethereum for staking?

The most notable fact about ETH staking is the annual percentage rate. It can range from 6% to 15% depending on various factors. Nonetheless, the minimum holding requirement for all stakers is 2 ETH. The only condition is that the staker may have to hold on to it for years.

Cryptocurrency users can also participate in ETH staking through exchanges. However, the agreement will not run validators. Therefore, they must analyze all other staking options before choosing one.

Andrew is a blockchain developer who became interested in cryptocurrency while majoring in blockchain development in graduate school. He has a keen eye for detail and shares a passion for writing and coding. His back-end knowledge of blockchain helps provide a unique perspective on the craft of writing and reliable skills in explaining concepts such as blockchain programming, language, and token issuance. He also frequently shares technical details and performance indicators of ICOs and IDOs.