Ethereum is upgrading to 2.0, and with it comes a process called Staking. This improvement will not only make Ethereum more secure, but it will allow investors to partake in earn rewards, e.g. earn interest, by helping secure the network. With staking, early adopters will be able to earn nearly 20% APY on their ETH.
What is Staking?
Ethereum currently runs with a consensus algorithm called proof-of-work. This uses computer power to validate transactions on the blockchain. This method is relatively slow, is typically dominated by corporate businesses running large mining farms, and requires an enormous amount of computing power.
Conversely, Ethereum’s 2.0 upgrade to a proof-of-stake consensus algorithm will allow transactions to be validated much faster, require significantly less electricity, and it will allow more casual investors with their home PCs or laptop to simply run a node to help secure the network.
Basically, proof-of-stake asks network participants to invest their Ether (ETH) back into the network. By doing so, these users are increasing their literal stake in Ethereum. However, staking also means becoming responsible for the network. Those who stake become validators, meaning the more you stake, the more responsibility you’re given and the more rewards you can earn. It’s like an interest-earning savings account, but you earn interest on your crypto.
How Do I Stake Ethereum?
While anyone can stake, there are some prerequisites: a user must have at least 32 ETH and a computer to run a validator node. As a validator, your computer must be connected to the network as often as possible, and act in its best interest by properly validating blocks. The more stake you have in the network, the more often you’ll be chosen to validate blocks, earning interest in the process.
If you’re not comfortable with running your own node, you can simply use a popular third-party service such as Binance, Coinbase, RocketPool or BitGo for a small fee, which are all widely expected to enable staking for their users soon after it launches. Our company, Bitcoin IRA, will also enable staking for our clients shortly after launch.
When the proof-of-stake update goes live, you will send your existing ETH into a deposit address to begin staking. Once completed, that stake becomes locked into the network for you to earn interest. Then, you become a validator. Full details on this process will be announced soon at Ethereum.org.
How Much Interest Can I Earn By Staking ETH?
Early on, users staking on Ethereum 2.0 are projected to earn an annual interest rate of over 18% (see chart below). As more users stake their ETH on the network, the rewards will drop for everyone, but those getting in on staking earlier will see the greatest rewards. While the rewards may get smaller as the network grows, the rates will still far exceed those found in traditional finance.
You can calculate how much money you can earn with staking ETH by using this popular Ethereum 2.0 rewards calculator.
Ethereum 2.0 is a long time coming but well worth the wait. The proof-of-stake upgrade should make the network more accessible, secure, and profitable to all. When it comes to keeping your profits, read CryptoTrader.Tax’s Guide To Cryptocurrency Taxes to learn about your tax implications.
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