How to Stake Ethereum

Learn what it takes to stake Ethereum

What Is Staking Ethereum?

Staking ether (ETH) is locking some cryptocurrency in a smart contract and offering your services to the network as a validator. Validators with 32 ETH are randomly chosen by the network to verify transactions and add new blocks to the blockchain. In exchange for the work, they earn freshly minted ETH and portions of network transaction fees.

This article will explore Ethereum staking, its benefits and risks, and share tips for finding a reliable and trustworthy staking platform based on criteria such as security, fees, and reputation.

Key Takeaways

• Ethereum staking involves committing ether as collateral to validate transactions on the Ethereum network and earn ETH.
• Ethereum can be staked independently or through a third party such as a crypto wallet, exchange, or staking pool.
• Ethereum replaced its energy-intensive, computation-driven Proof-of-Work (PoW) mining mechanism with a financially-governed Proof-of-Stake (PoS) mechanism.
• Ethereum staking offers the benefits of passive income, network security contribution, governance influence, ecological sustainability, and capital appreciation.
• It also carries the risks of hardware expenses, cybersecurity threats, opportunity costs, and capital depreciation.

Understanding Ethereum Staking

Ethereum’s native token ether is used on the blockchain as a payment, a reward, and as collateral. Its use as collateral is what staking is all about.

Why Stake?

To operate, the blockchain and network need participants it can trust to honestly verify that a user has enough ether to send a transaction and has signed it with the right private key. The network sends the transaction to a randomly-selected node’s pool, which broadcasts it to other nodes. These nodes add it to their pools and broadcast it also, in a process called “gossiping.” To host a node and become a validator, a user must stake 32 ether.

The selected node processes transactions into a block and broadcasts it to other nodes, who also process the block to verify its validity and add it to their stored blockchain if it is. The randomly selected node receives a reward proportional to the number of validators on the network, the validator’s effective balance, and the total amount of ether staked on the network. Other validators also receive rewards for participating in block validation.

Staked Ether Is Locked

The validator who proposed the block had 32 ETH locked into a smart contract for the chance to be chosen. This ETH cannot be used or transferred until the validator requests that the network release (unstake) it. This process can take several days to complete, as the network is limited to 16 withdrawals per block or 115,200 validator withdrawals per day.

The ether committed to staking is the participant’s guarantee that they will not act unethically as a validator.

Staking Penalties

The network is programmed to take staked ETH away if a validator acts dishonestly (a very rare occurrence). Validators are also required to ensure that their hardware remains functional, they stay connected, and don’t miss their target and source voting. In certain circumstances, they may face penalties, such as having the rewards they would have received removed from their balance.

How to Stake Ethereum

Participants have options to solo stake, participate in staking-as-a-service, or join a staking pool. The tradeoffs and trust assumptions of staking independently or through an intermediary vary:

• Solo staking: The most secure option, you’ll need to 32 ETH to stake and have a dedicated computer with a reliable and constant connection.
• Staking pools: You join a pool using any amount of ETH, which is used to create a node of 32 ETH. Rewards are distributed based on the pool rules, most of which are based on how much you stake. Some pools lock your ETH in a smart contract and offer you an ERC20 token that represents it.
• Staking-as-a-service: The least secure option because you’re trusting others to act honestly, you’ll need to delegate your ether to a service provider and trust that they’ll act in your best interests.

Minimum deposit requirements for pooled staking, if there are any, are lower than for solo taking and staking-as-a-service. Some providers may require a minimum deposit of 0.01 ETH or less.

Hardware

Hardware costs for the Ethereum validator node depend on what you use. Building a computer to serve as a node can cost between $700-$1500, not including monthly expenses, and can go up from there, depending on the specific components, their quality, and replacement schedules. Staking is not nearly as computationally intense as mining, so the hardware should last quite some time. However, if you intend to stake for a few years, you’ll need a large hard drive or be comfortable adding storage because the blockchain grows over time.

There are a few staking device manufacturers that sell plug-and-play products designed specifically for staking. These devices generally cost between $1,600 and $6,900, depending on the hardware included in the device.

Benefits of Ethereum Staking

Ethereum staking allows you to passively earn income on your ETH holdings. These rewards are distributed periodically and have the potential to appreciate if ether’s market value goes up. The amount of rewards depends on the amount of ETH you stake, the length of time you stake it, and the overall activity on the network.

Ethereum staking strengthens the network’s security by incentivizing validators to act responsibly and honestly.

It also lowers the barrier to entry for participating in the Ethereum network’s consensus process. Anyone can participate in staking with small amounts of ETH.

Note

The estimated rate of return for ETH staking, as of May 2024, is about 3.5%.

Risks of Ethereum Staking

Staking ETH comes with potential volatility and liquidity risks, maintenance and technical issues with equipment, and financial penalties. The price of ETH could drop or the validator could stop working as intended due to malfunctions, errors, or hacks, causing you to lose some of your investment. Your staked ETH will be locked up for the duration of the staking period, and you will not be able to access it during that time. Your staked ETH could be fined or slashed if you don’t vote, or behave maliciously.

Note

You are allowed downtime for equipment maintenance without penalty. The network is designed to catch you back up to where you should have been were your equipment not under maintenance. However, you won’t get rewards you may have received if your equipment had been operating.

In the Ethereum network, validators who miss source and target voting deadlines face penalties equal to the rewards they would have received had they submitted their votes. Source and target votes are crucial aspects of the PoS consensus mechanism and play a significant role in approving new blocks in the Ethereum blockchain:

• Source vote: A validator’s attestation of the most recent justified checkpoint of the chain. A checkpoint is a snapshot of the blockchain at a specific point in time. Justified checkpoints represent blocks that have been sufficiently finalized and are unlikely to be reverted. Source votes help establish that checkpoints are justified.
• Target vote: A validator’s attestation on the first block of the current epoch. An epoch is a fixed period in which validators are assigned to committees. Target votes help to ensure that all validators are on the same page regarding the start of the current epoch.

Important

Head votes, while important, do not cause penalties if missed.

Slashing is a rare severe penalty in which a validator is removed altogether from the Ethereum network and loses their staked ETH. Slashing can occur when a validator behaves maliciously by:

• Proposing and signing two different blocks for the same slot: The act of a validator submitting two conflicting block proposals for the same slot in the chain. This behavior creates a fork in the chain, jeopardizing the network’s consensus and potentially leading to double spending attacks.
• Attesting to a block that surrounds another block: The act of a validator attesting to a block that includes another block already finalized in the chain. This behavior violates the chain’s structure and could lead to inconsistencies in the block history.
• Double voting by attesting to two candidates for the same block: The act of a validator attesting to two different validators as the proposers of the same block. This behavior creates ambiguity regarding the block’s proposer and could undermine the network’s consensus mechanism.

When a validator is slashed, 1/32 of their staked ETH is immediately burned, permanently removing it from the Ethereum network, while a 36-day removal period gradually removes their remaining staked ETH. The dual penalty structure of slashing is designed to punish the validator for misbehavior, deter others from doing the same, and prevent the validator from immediately rejoining the network and continuing to cause problems.

Halfway through the removal period, an additional penalty, the “correlation penalty,” is applied. The correlation penalty is designed to discourage validators from colluding to slash each other. The magnitude of the correlation penalty scales upward with the total staked ETH of all slashed validators in the 36 days prior to the slashing event.

Factors to Consider When Choosing a Staking Method

Deposit requirements, staking fees, coding ability, service provider quality, hardware costs, and cybersecurity are important when choosing how and where to stake Ethereum. Here are some of these factors:

• Deposit Requirements: Minimum deposit requirements influence the flexibility of staking strategies. Higher minimum deposits may require longer staking periods to break even and take away capital from an investment portfolio. Lower minimum deposits may encourage shorter staking periods and free up capital allocations for other investment areas.
• Cybersecurity: Staking involves locking up a significant amount of cryptocurrency for an extended period of time. Selecting a platform with top-notch cybersecurity, digital safety, and technological resilience can mitigate the risk of loss and theft.
• Staking Fees: Staking fees vary widely between different wallets and exchanges and significantly impact overall returns. It is important to carefully calculate commission fees charged to your staking participation and choose a provider offering competitive fees.
• Quality Assurance: A high-quality wallet or exchange with a strong track record of software engineering and product development can provide added security and peace of mind when staking, especially if you’ve locked up the maximum amount of ETH per node. Larger companies tend to have stronger talent and standards than smaller startups that run staking services.
• Customer Service: If you run into any issues or have questions about staking, it is better to have access to responsive and helpful customer service. A wallet provider or an exchange with dependable customer support can make the process smoother and less stressful.
• Waiting Periods: Some third-party staking methods have long waiting periods before rewards are distributed. If you are delegating your staking, it is important to find a service that offers fast distribution times to minimize illiquidity and maximize returns, which can be reinvested.
• Coding Ability: Setting up and interacting with a validator node for solo Ethereum staking requires basic coding knowledge. While some aspects of the setup can be done through graphical user interfaces, some steps require command-line interactions and familiarity with coding concepts.
• Hardware Costs: For solo staking, you must purchase and maintain specialized hardware. The upfront hardware cost and ongoing maintenance can be significant, ranging into the thousands of dollars.

Staking Independently

Here’s a breakdown of the steps to run an Ethereum validator node on your own:

1. Purchase the hardware: Consistently reliable hardware for solo staking typically includes an up-to-date personal computer.For best performance, a higher-end CPU such as an Intel NUC, 7th gen or higher (x86 processor), 16GB to 32GB of RAM, sufficient storage of at least a 2TB SSD and a stable Internet connection with high bandwidth and low latency.
2. Install the necessary software: The software for Ethereum staking includes the execution client, a consensus client, a validator client, and any additional tools. It typically involves downloading and running the software, compiling the software from source code, or using package managers like apt or yum. This requires some familiarity with command-line environments and basic Linux/Unix commands.
3. Configure the validator node: Edit the node’s configuration files, set up its network settings, and generate its cryptographic keys. This requires understanding the structure of configuration files, syntax of specific commands, and the usage of tools like “geth” and “geth attach” for interacting with the Ethereum network.
4. Monitor and maintain the validator node: Check logs, update software, troubleshoot issues, and ensure consistent uptime. This requires familiarity with log analysis tools, understanding error messages, and applying software updates through command-line tools or package managers.

Staking Via Cryptocurrency Exchanges

Here are the steps to stake Ethereum via a crypto exchange:

1. Sign up for an account: The first step is to sign up for an account on the exchange. This typically involves providing personal information, verifying your identity, and setting up a payment method to purchase ETH.
2. Purchase ETH: Once your account is set up, you will need to purchase Ethereum. This can usually be done through a variety of payment methods available on the exchange, such as bank transfer, credit card, or debit card.
3. Transfer ETH to the exchange’s staking program: Once you have ETH in your exchange’s wallet, you should be able to find an option to stake ETH within the wallet itself. The specific steps may vary depending on the exchange, but typically you will need to navigate to the staking section of the wallet and follow the instructions to stake your ETH.
4. Choose your staking options: The next step is to choose your staking parameters, such as the amount of ETH you want to stake and the length of time you want to stake it for.
5. Stake your ETH: The rewards will typically be added to your account periodically, depending on the specific staking program and its payout schedule.

Warning

Unlike traditional brokerage firms, cryptocurrency exchanges are not members of the Securities Investor Protection Corporation (SIPC), a not-for-profit, member-funded corporation created by an act of Congress to protect the clients of brokerage firms that are forced into bankruptcy. Unless user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their funds as unsecured creditors.

Staking Via Cryptocurrency Wallets

Here are the steps to stake Ethereum via a crypto wallet:

1. Choose a compatible wallet: Select a wallet that is compatible with Ethereum staking. Some popular options include Ledger, Trezor, and MetaMask.
2. Transfer ETH to your wallet: Once you have selected a wallet, you will need to transfer ETH to it from an exchange or another wallet.
3. Navigate to the staking section: Once you have ETH in your wallet, navigate to the staking section of the wallet. This may involve clicking on a specific button or tab within the wallet’s interface.
4. Follow the instructions to stake: Once you have located the staking section, follow the instructions provided by the wallet to stake your ETH.

Is It a Good Idea to Stake Etherum?

It depends on how much ether you have and if you think you’ll generate enough returns from staking it. If you only want to participate in the network and are not concerned with returns, you don’t need to stake your ether. You can run a node without staking, you just won’t get any rewards.

How Much Do You Earn by Staking ETH?

In May 2024, validators were earning about 3.5% on their stakes.

Can I Stake ETH on Coinbase?

You can stake your ether on Coinbase. You’ll receive Coinbase Wrapped Staked Ether (cbETH) that represents it and receive ETH rewards.

The Bottom Line

Ethereum staking is the process of locking up ETH and joining the validation process as a full node or as part of a pool. You can create your own node and stake 32 ETH, join a staking service provider, or join a pool.

Whichever you choose, make sure you thoroughly research the method because there are no 100% fool-proof and secure ways to use cryptocurrency. Lastly, remember that your funds are not insured, and there is generally no recourse for lost or stolen cryptocurrency.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own cryptocurrency.

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