As crypto becomes more and more popular, the major crypto ecosystems are taking pride in advancing their functionality and as they do this, the more opportunities they get to give back to the world. One such technological advancement in the history of blockchain is the shift to the proof-of-stake system from proof-of-work and Ethereum is making this happen with its Ethereum 2.0 protocols.
Ethereum staking is a process in which some amount of ETH is locked up for a particular period. This is to contribute to the security of the blockchain and earn greater rewards. Ethereum, the native cryptocurrency of the Ethereum blockchain is a great example to understand how crypto staking works and to study how crypto staking has been affecting the Ethereum price and Bitcoin price all along.
Those who stake crypto are called validators or stakers. They are users tasked with processing transactions, storing information, and adding additional blocks to the chain. The Beacon Chain is the latest consensus prototype of Ethereum. The validators or stakers are actively involved in the process of staking and thus they are rewarded for their work with interest and staked coins in the form of Ether.
This process of crypto staking will serve passive income ways for those who stake. It also helps bind and secure the next continuation of the Ethereum network called Ethereum 2.0. Ethereum 2.0 is the advanced and next level of Ethereum that runs the Beacon Chain, the new proof-of-stake (PoS) consensus model.
How does crypto staking affect ethereum price?
The more the number of stakers, the more the annual interest rate drops. Last year, the APR was above 20% when 500,000 ETH were staked. Today more than 6,800,000 ETH have been staked on the blockchain and the APR has dropped to about 6%. Stakers cannot withdraw staked funds and rewards presently and are expected to do so when Ethereum 2.0 and 1.0 merge.
What is proof-of-stake?
Intending to have faster, more efficient and environment-friendly transactions, trades and validation processes, Ethereum protocol developers are now switching from a consensus model known to a model called proof-of-stake.
A process that requires the users to stake a certain amount of cryptocurrency so that they can become validators as mentioned before. This is completely contrasting from the concept of proof-of-work which requires users to buy and run a piece of mining equipment. Proof-of-work is also known as exerting proof-of-authority that requires users to provide verification of their identities. The chances of earning more rewards on the Ethereum network is increased by a validator in a proof-of-stake. A user can also delegate their stake work to another user who can then take over the responsibilities. Although this is dependent on the proof-of-stake system.
Why is PoS better than mining?
One of the main reasons why PoS is being adapted by Ethereum is because, mainly, this conserves a ton of energy. The amount of energy is dramatically reduced in validating transactions and making new ETH.
According to a source from the core team of Ethereum, the team is expecting that the new PoS system will help in reducing the energy consumption during the validation procedure by almost 99.95%. The hardware required to run a PoS validator node is more accessible and cheaper by a large margin than the advanced and huge crypto miners.
Staking can be done on the most common types of computers or laptops. It only takes the amount of energy needed for a computer to run, unlike mining machinery which consumes units and units of the same. Since PoS is more accessible to everyone, the 2.0 system will also attract more operators and thus more decentralisation.
The PoS on Ethereum is also set to encourage sharding. Sharding is a data-sharing technique that allows multiple chains that run parallel to share data and transaction load. The shard chains, when run along with secondary scaling products called rollups, can allow Ethereum to process more than 100,000 transactions in a second. The efficiency of this is understood when it is compared with the current 10 to 15 transactions per second. Ethereum will need this to stay ahead of competitors like Cardano (ADA) in the long run. ADA has been gaining popularity lately, as witnessed by the strongly rising Cardano price.
What is the process of crypto staking?
People who want to be validators or stakers on the new Ethereum network should set up a staking node with the use of Ethereum 1.0 and Ethereum 2.0 supported staking software.
Some of the compatible ones include Prysm (News - Alert), Nimbus, Teku, Lighthouse and Lodestar. The minimum requirements are that the computer should have enough memory space to download both the Ethereum blockchains. Ethereum 1.0 is around 900 GB and it expands at a rate of 1 GB per day. Validators must also be connected to their blockchains 24/7 and this demands good internet security. After the software is installed, the next step is to lock a minimum of 32 ETH with the correct staking address.
Thus staking uncovers new opportunities and will also help Ethereum to become more environment friendly. It will help in engaging more people with the network and the more validators, the more rewarding it is.
