How Ethereum2.0 is different than Ethereum

Ethereum is powered by a Proof-of-Work (PoW) mechanism. To earn validate blockchain transactions and earn rewards, participants have to have powerful hardware and keep it running 24/7. Because the ‘work’ they put into the system is directly translated into the rewards, they could receive. Bitcoin is powered by a PoW mechanism too. Therefore headlines about how much bitcoin is consuming energy are not uncommon. The miner has to pay for large electricity bills as it is required to power the hardware. It means that countries with low electricity costs have more mining pools than countries with high electricity costs. This leads to the concentration of mining in the mining pools.

In contrast, Ethereum is moving to a PoS mechanism. A poS mechanism has many advantages:

• more energy-efficient

• more scalable with the shard chains

• more inclusive. Ether token holders can participate in validation.

• More decentralized. The entry barrier is lowered which allows more parties to participate in the network.

How To stake Ethereum 2.0

With Ethereum2.0, people do not need to pay for large electricity bills nor purchase expensive hardware to earn ETH. Anyone can earn rewards by staking their ether tokens on the blockchain. With Ethereum 2.0 the minimal amount required to be a validator is 32 ETH. With the currency price of $2657 at the point of writing this article, 32 ETH means an $85,000 upfront investment. It is not a small amount. However, with staking pools and exchanges offering staking possibilities with no minimum requirement, everyone can participate in Ethereum 2.0 staking, in exchange for a 15% reward fee paid.

Staking with a third-party service provider

To stake Ethereum 2.0, you first need to convert your ETH to ETH 2.0. You can do this if you stake with crypto changes and staking pools. There are few advantages of staking Ethereum 2.0 with a pool or a crypto exchange.

• No entry barrier. No requirement of 32 ETH

• No requirement of technical know-how

• No obligation to keeping the validator online 24/7

• Reduced or no risks of getting slashed. If it happens. many crypto exchanges don’t penalize you.

The biggest disadvantage of it is to sacrifice 15% of your reward as payment for the convenience and service of those crypto exchanges and staking pools.

Staking with your own device

If you are running a validator yourself, you need to install both ETH1 and ETH2 clients to your device. For a detailed setup process, you can check out the Ethereum Launchpad website. For less technical people, it is pretty challenging. You first need to understand the process’s ins and outs so that you don’t make mistakes. Those mistakes could result in losing tokens, receiving penalities, slashing, or even losing private keys. You have to keep your machine running all the time and bear any risks that result in heavy slashing due to malicious actions.

On the other hand, if you do this all right, you can earn the total amount of reward. No fee is paid to a third party.

Pros and Cons of Staking Ethereum2.0

Staking is a great way to earn passive income. Not only that your ETH can appreciate, but you can also earn more ETH through staking.

The current APR is 6.9%, given the huge appreciation of ETH in prices. If the project is successfully deployed, the net annual return will be much higher.

Undoubtedly, the incentive of staking is attractive, but it does not come without any risks. As Ethereum 2.0 is not yet deployed, there are many factors to consider before staking.

• Converting to ETH2.0 is one-way. You can not convert it back.

• No withdrawal of ETH2.0 until the project is deployed which is expected to be 2 more years

• Receiving rewards and token holdings subject to the success of Ethereum 2.0

• The more validator joining the network, the less the APR will be.

• You have to be in it for the long run. Until the mainnet and beacon chain is merged, ETH is locked in and you can not do anything about it.

Passive income with Ethereum 2.0

Given all the factors, one can not conclude the definitive decision on stake Ethereum2.0 or not. It depends on how much do you believe in the success of Ethereum 2.0. What are your technical capabilities? How long are you willing to put a large number of assets locked in for a couple of years. Is the current APR attractive to you compared to other investment possibilities? How much value will Ethereum be in the following years?

Staking does provide an excellent way to earn passive income. As a retail investor, you need to evaluate all the pros and cons before rushing into the ‘making passive income’ decision.

I hope this easy-to-read article gave you an overview of the risks and rewards of Ethereum2.0 staking.

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