Complete guide to Ethereum and ETH staking by the only non-custodial and independent staking services provider – Launchnodes. Ethereum validator and beacon nodes on AWS.
Introduction to Ethereum
Ethereum (or ETH) seems to be the hottest topic discussed among the blockchain community, and ETH’s release may well stand as the most anticipated event in the history of blockchain.
The network upgrades have been in the making for a while, and if Ethereum does set out to achieve its ambitious goals, it is worthy of quite a celebration in the DeFi space. The blockchain realms are continuously expanding, therefore, it seems only logical that as technology progresses, so should one of the world’s leading blockchain networks.
Regardless of the fame Ethereum has already garnered, there are issues that it has had to address. Remedying these is essential for Ethereum to move towards a more sustainable ecosystem model in light of the colossal leaps this industry is taking – the sooner the better! Launchnodes finds itself at the forefront of these developments, being the only enterprise grade validator and beacon nodes provider that offers independent, non-custodial Ethereum staking and 100% returns.
Ethereum Explained
The Ethereum network itself has amassed an immense amount of interest and 5.4 million of ETH has already been staked. That being said, despite its popularity, ETH1 has been faced with a number of concerns, including its scalability and centralization. To counter these Ethereum issues, a series of planned updates were introduced, referred to as Ethereum or ETH, with a focus on improving sustainability, security, and decentralization. The transfer to Ethereum is laid out in the following phases:
Phase 0 – Beacon Chain
The Beacon Chain marks the commencement of the Ethereum ecosystem, but nothing actually changes in how we make use of the Ethereum blockchain as it stands today. This Proof-of-Stake (PoS) blockchain runs alongside the current Proof-of-Work (PoW) Ethereum protocol, bringing staking possibilities to the network. Here, you can transfer Ether (ETH) to the Beacon Chain using a one-way deposit contract – and start earning interest on the staked volume! At this point, no other transactions are permissible aside from validating. The role of a validator is to run a software client that essentially confirms these transactions, and if validated and chosen, creates new blocks on the Ethereum blockchain.
During this Phase, and prior to Sharding (Phase 1), the PoW Ethereum blockchain will fully transition into the new Ethereum Proof-of-Stake system (ETH).
Phase 1 – Sharding (expected 2021)
Currently, there is only one canonical Ethereum blockchain, which significantly limits the number of transactions that can be processed – only 30 per second! Crypto nodes (think Proof of Work miners) must run all information relating to these, which occurs on one single Ethereum network. Now imagine if there were 64 identical Ethereum blockchains (Shard Chains, or Shards) handling them – because this is what ETH is impressively gearing towards.
This is what the Sharding Phase aims to achieve, splitting the Ethereum blockchain into separate Shard Chains, whereby nodes will only be required to process transactions on the Shard (blockchain) on which they feature (not on the entire Ethereum network). This will undoubtedly improve the volume of data ETH can handle, whilst reducing the need for energy and resource-draining equipment.
Phase 2 – Executioh
The final phase is when Ethereum will function in much the same way as it does now, with refined scalability, capacity, and having Smart Contracts and complete staking incentives enabled.
Essentially, the re-engineering of this platform into Ethereum is a multi-year network upgrade to present-day Ethereum, which involves a shift in its current model – from mining (PoW) to staking (PoS).
What is Ethereum Staking?/ How Ethereum Staking Works
The Ethereum blockchain allows users to earn extra ETH if they commit to the Ethereum network by staking their ETH cryptocurrency. In the simplest of terms, it involves dedicating a specified amount of crypto, 32 Ether (32ETH) in this case, in a secure wallet so as to become a ‘validator’ on the ETH blockchain. This allows you to participate in the Ethereum network and earn staking rewards in return.
“Staking’s popularity is the natural outcome of an asset class growing in maturity,” Jeremy Welch, Kraken’s Vice President of Product, said in an interview with CoinDesk. “Whereas three years ago holders were mainly interested in securing short-term gains, many are now confident locking up tokens to earn passive income. Why? Conviction is growing in the longevity of crypto assets as a respectable new asset class.”
Launchnodes is the only validator and beacon node provider on the market that offers investment grade, non-custodial and independent staking on AWS. Unlike staking with a third party, our clients get to enjoy 100% of staking returns, flexible staking architecture and cloud based infrastructure with zero downtime. We also help non-technical clients with an end-to-end setup of Ethereum validator and beacon nodes.
Ethereum Staking Rewards
Ethereum network’s upgrade to Ethereum provides participants with the opportunity to stake ETH, earn a passive income, and accumulate substantial staking rewards. Whilst doing so, users support the ETH network, so it’s potentially a win-win for both. The staking rewards will vary according to the ETH staking protocols, though they usually fall between the 5-7% mark each year.
Launchnodes’ takes Ethereum staking rewards a step further by providing clients with independent validator nodes. Therefore, 100% of the profits are yours to keep! With all rewards going directly to their clients, and no third-party fees, Launchnodes stands out as the only non-custodial Ethereum staking services provider in the DeFi industry. The current return on the staked ETH at 100% offers a 7.24% APY!
To understand what you can expect as a return on your staked ETH, you can use an ETH calculator to gauge what your ETH investment will give you.
Ethereum Staking Requirements / Ethereum Staking Minimum
If you’re keen to start staking Ethereum, it’s actually a relatively straightforward process:
- A minimum threshold of 32 ETH activates the ETH validator, but it is possible to stake less and participate in our soon to be launched Staking Club (pool) that will also offer 100% staking rewards but without the need for 32ETH (various stakeholders will combine their ETH to fulfill the 32ETH requirement)
- Validators must commit to running a validator node
- No special equipment is necessary (Launchnodes’ validator nodes run on AWS)
Staking ETH seems simple enough, but you have to bear in mind that your ETH can be burned if you decide to go against ETH network rules. There is a mechanism built into the PoS Ethereum blockchain that discourages threatening behaviour to the network’s security on the validator’s part. Downtime or attempting to submit two blocks into one slot will see your ETH balance decrease, sometimes significantly depending on the offense. This is referred to as ‘slashing’. Be aware of this, but otherwise, anyone can participate in staking ETH on the Ethereum blockchain if it operates a proof-of-stake consensus and earning the rewards.
Ethereum Staking vs Mining
Switching from Ethereum’s Proof-of-Work (PoW) consensus to Proof-of-Stake (PoS) may mean some profoundly positive changes:
Less Energy Consumption and Resources
Historically, Ethereum’s PoW mining process is well known to be far less energy efficient than PoS, meaning less electricity will be consumed when staking ETH on ETH proof of stake.
Aside from affecting the environment, the cost of the resources and hardware is substantial, so mining ETH at home makes little sense compared to having it set up on AWS. These all aim to lower the barrier to entry and contribute towards further decentralisation on Ethereum
Launchnodes’ validator and beacon nodes run on the latest version of the Prysmatic Client, which has proved to be the most effective and future-proof Ethereum client in the industry.
Improved Decentralisation
The above makes ETH stand a better chance of being more decentralised, by allowing validators to create and finalise blocks by simply devoting 32ETH with no extra costs for machinery.
This decentralisation is heavily supported by core developers at Ethereum, so the push for the transfer to PoS on ETH is seen as the way forward. Mining of cryptocurrencies (like ETH, BTC) has become restricted to small pools of miners who can afford to invest in advanced mining hardware that is way too expensive for your average person.
Currently, miners could still get their hands on some ETH, as the Ethereum network hasn’t yet switched to 100% PoS operation. When it does, though, it will mean that sophisticated, costly computing setups will no longer be required.
Coin Stability
The staking participant will get the most out of the benefits if they keep, rather than sell, their staked ETH, therefore providing stability in the long term ETH coin price.
Is Ethereum Staking worth it?
Staking Ethereum comes with pros that resemble those of ETH mining, tempting to anyone who has interest in the latest ETH blockchain upgrade:
- Generate a substantial passive income by staking ETH and benefitting from Ethereum staking rewards.
- You become an active participant in the ETH network.
- The above points result in a more decentralised Ethereum network, increasing the security of ETH and making it less prone to attack.
- By staking Ethereum, you take physical mining online. Therefore you eliminate the need for depreciating equipment and escape from high electricity bills and issues tied to equipment uptime.
The above being said, it isn’t all roses of course, and there are a few disadvantages to ETH staking. Still, the below risks are fully neutralised by staking Ethereum on AWS, with Launchnodes provided validator nodes.
- Your staked ETH will be locked until the ETH network is fully functional.
- Once you have committed to staking ETH, you will not be able to remove or sell any of it even if the crypto market takes a sudden downturn. This reduction in the value of ETH may not cover the value of the rewards.
- Incurring slashing fees for not acting in the best interests of the ETH network – sometimes unbeknownst to you! As a validator, you are responsible for storing data, processing transactions, and adding new blocks to the blockchain. So if your server lost connection, even for a short period of time, you could be penalized and see deductions to your principal funds (staked ETH). A point to be aware of here is that should your staked 32ETH drop below 16ETH, you’ll be removed from the entire ETH network.
- Similar to mining, it’s good to be aware of any tax implications that you may fall under on your earned income.
Conclusion
Ethereum is a giant within the crypto sphere and has stood the test of time throughout a tough crypto market this year, despite the backlash it received for some of its shortcomings. However, what lies ahead for Ethereum following the upcoming upgrades is so much more than just its Proof-of-Stake consensus. The future of Ethereum seems to be shining bright so far, and as the blockchain world evolves, we have no doubt that Ethereum will, too.
Jaydeep Korde
CEO, Launchnodes
