Staking in Ethereum 2.0 is a bizarre place right now. On the one hand, a lot of investors think it’s too early to commit to the upgrade. Their concerns are reasonable – what if the timeline gets pushed, a major incident disrupts the security of the ecosystem, or the entire market takes a regulatory blow?
On the other hand, there are those who feel like they already missed a chance to become early ETH 2.0 adopters. Finally, some don’t have 32 tokens to stake and are reluctant about joining staking pools only get fractions of ETH in rewards.
In this post, we’ll take a look at whether it makes sense to stake ETH 2.0 in 2021 (short answer: it does).
How Does ETH Staking Work?
Since the platform’s founding days, Vitalik Buterin envisioned the shift from proof-of-work (an energy-based consensus algorithm adopted by Bitcoin and most networks) to Proof of Stake – a consensus algorithm that distributes rewards among validators based on the number of tokens they hold).
The benefits of PoS compared to PoW deserve an overview of their own; the most impactful ones are energy savings, security (with PoS dishonest validators have less incentive to attack the network since, by the time they can do it, they will heavily invest in the ecosystem), and ease of adoption (there’s no need to invest in extra hardware; in fact, validators can run nodes on a laptop or a smartphone).
The biggest ETH staking turn-off for the crypto community is the lock-up period. Until the 1.5 Phase is live, validators will not be able to withdraw or trade their stake, as well as accumulated rewards.
If someone wants to become a validator and stake ETH, there are two ways to go about it: going solo and joining staking pools.
|Becoming a solo validator||Joining staking pools|
|Entry threshold||32+ ETH||As little as 0.01 ETH|
|Access to rewards||Full||Spilt with other stakes (some pools charge fees as well)|
|Responsibility for the node||Full, a validator is responsible for staying online 24/7||None, the infrastructure is maintained by the staking-as-a-service provider|
There are, of course, external risks associated with the delays of the Ethereum 2.0 release or the failure of the development team to prove that the shift to PoS and other updates (sharding, eWASM, etc.) bring forth positive impact.
Finally, if central governments decide to tighten their grip on crypto, the entire market will suffer a blow.
Breakdown of ETH Staking Rewards
Understanding the mechanics behind staking rewards helps future validators make an informed decision about joining the network. Let’s lay out the basics:
- Validators get rewards once per epoch (1 epoch = 384 s = 6.5 minutes).
- Rewards are calculated based on the real-time state of the network (thus, the reward a validator receives can be different from that one expects to receive when selected).
- ETH2 rewards are highly variable: the rule of thumb is that they get higher when there are fewer validators and decrease as more participants join the network.
- Validators need to be active during the previous epoch to receive rewards.
At the time of writing, the APR (annual percentage rate) listed on the Ethereum Launchpad is 6.5%. To estimate rewards, you can use the calculator created by the development team.
All Things Considered: Is Staking ETH 2.0 Worth It?
Whether you should stake ETH is a controversial decision. On the one hand, staking ETH is a long-haul move since you are committing your money to the network for an undefined period. Once you deposit ETH to the network, there’s no turning back.
On the other hand, joining the network as an early validator culminates in higher returns and node authority. Over time, as more people get on board, validator rewards will decrease – thus, it makes financial sense to stake ETH before the update is live.
Also, if you are passionate about smart contract adoption and the crypto ecosystem, staking Ethereum is a way to support one of the innovation drivers proactively, contributing, in the long run, to the public good.
All things considered, the benefits of ETH2 staking are clear. As for the risks – some of them (e.g. downtime-induced penalties, security concerns) are mitigated by choosing a reliable staking-as-a-service provider.
On Redot, you can stake as little as 0.01 ETH and access validator rewards. The platform supports validators with a reliable infrastructure and protects all funds in a cold wallet.