Ethereum 2.0 Staking — The Risk and Rewards
The crypto world is waiting for the balls to begin rolling for the Ethereum upgrade for quite a while. As discussed earlier, the transition of this public blockchain from classic Ethereum to Ethereum 2.0 will be done in phases and will happen over the course of two years. One of the major changes that the crypto investors are most enthusiastic about in Ethereum 2 is the change in consensus — from Proof of Work (PoW) Ethereum 2 will work on Proof of Stake (PoS) consensus.
Wondering what is the difference between Proof of Work and Proof of Stake?
Read it here — Proof of Work vs Proof of Stake
Proof of Stake replaces the two primary components of PoW (miners & electricity) with validators and stake on Ethereum 2.0. Largely speaking, validators replace miners as the individuals who maintain the agreed-upon state of the network and receive rewards for randomly selecting the next block of data. Unlike in PoW, in which miners expend physical energy (called hash power) by burning electricity to confirm blocks, validators in a PoS system commit 32 ETH to be in the game.
On Ethereum 2.0, validators will have to stake at least 32 ETH by depositing the funds into the official deposit contract that has been developed by the Ethereum Foundation. Validators will download and run Ethereum 2.0 client software. While running client software, they will be randomly selected to propose and attest to blocks on the Ethereum 2.0 blockchain. Validators who correctly propose and attest to blocks will receive a reward of ETH as a percentage of their stake.
Ethereum Foundation Eth2 deposit contract: https://github.com/ethereum/eth2.0-specs/tree/dev/deposit_contract
On Ethereum 2.0, if a validator fails to stay online and execute their share of computational responsibilities, their block reward will moderately decrease in order to incentivize validators to stay online as consistently as possible. Should a validator maliciously attempt to compromise the network (i.e. validate incorrect data history), all or some of their 32 staked ETH will be slashed.
Ethereum 2.0 — Stake or not to stake?
Whenever it comes to investing, people at large take the decision on the age-old calculus of risks and rewards. The public blockchain may not currently promise “moon” like returns but it surely does promise steady ones.
If one chooses to join the staking Ethereum 2.0 around the Beacon chain, do they run their own nodes or are looking forward to subordinating this difficult, demanding task to a 24/7 staking-as-a-service provider?
Stakers at this point of time have to measure the complexity of not only running nodes on a major chain but also bear the risk of their investment being slashed down if they don’t stay up persistently. It can easily be said that Ethereum 2.0 stakers have to make a commitment and bear the hassle of maintaining a node for years.
Stakers who are inclined towards supporting the network security and earn a steady return may still rethink their decision. Why? Who wants to be under the obligation of tending to their servers for years. One of the answers to this pertinent question has been found with the staking-as-a-service providers.
Just like Cardano, the decision is whether you wish to give your ether to a staking-as-a-service provider or opt for a non-custodial one. Whatever the decision the stakers make at this point, it is a monumental moment for not only Ethereum but the blockchain community overall.
With the launch of Ethereum, the network should be way more scalable than it is currently. With a snail transaction speed of 14 transactions per second, with Ethereum 2.0 it is said that the network can achieve 100,000 transactions per second.
