Ready to venture into the world of Ethereum staking? Discover how it works, the factors influencing staking rewards, and how long to stake ETH in order to maximise earnings.
Key Takeaways:
- Ethereum staking involves locking ETH in a smart contract to help secure the network and earn rewards.
- Validators play a crucial role in the Proof of Stake (PoS) consensus mechanism, validating transactions and creating new blocks.
- The activation and exit queues, as well as the churn limit, affect the time it takes to become an active validator.
- Staking rewards are influenced by factors like the amount of ETH staked, slashing penalties, and market volatility.
What Is Staking?
Proof of Stake (PoS) is a consensus mechanism used by Ethereum to achieve distributed consensus. Unlike Proof of Work (PoW), where miners expend energy to prove their commitment to the network, PoS validators stake their capital in the form of ETH. This staked ETH serves as collateral and can be slashed if validators act dishonestly or negligently.
Validators are responsible for confirming transactions, checking the validity of new blocks, and occasionally creating and propagating new blocks. PoS brings several improvements compared to PoW, including improved energy efficiency and reduced hardware requirements.
Learn all about the differences between PoS and PoW.
How Does Ethereum Staking Work?
To become a validator on Ethereum, one needs to deposit a minimum of 32 ETH into the deposit contract and run a validator client. Once the ETH is deposited, candidates join an activation queue (managed by the protocol/chain itself), where they wait their turn to become active validators.
Ethereum operates in ‘epochs’, which last approximately 6.4 minutes. During each epoch, a limited number of validators can join or leave the network due to the churn limit, which ensures the stability of the PoS consensus mechanism. If the number of validators exceeds a certain threshold, a queue system is implemented.
How Long Does It Take to Become a Validator?
The time it takes to activate as a validator on Ethereum and start earning rewards depends on various factors, including the number of validators in the queue and the demand for staking. Validators need to wait for at least four epochs before activation to prevent the manipulation of the random beacon that selects validators.
If demand exceeds the churn limit, validators enter a first-come-first-served activation queue, potentially causing delays. Demand for ETH staking has skyrocketed since the Shanghai Upgrade, so candidates should expect longer wait times.
During the activation queue, validators are unable to attest to and propose blocks, and they do not earn any rewards since they’re not yet active. Validators in the activation queue also are unable to request an exit from the network and perform a full voluntary withdrawal.
A long activation queue shows an increase in staking demand; in contrast, a shorter wait time for the full exit voluntary queue correlates to fewer validators unstaking their ETH. These activation and exit queues play a vital role in the Ethereum network’s stability.
How to Stake ETH With Crypto.com
When staking with Crypto.com, users can circumvent the steep minimum deposit of 32 ETH and stake from as little as 0.00000001 ETH.
To stake ETH on-chain with Crypto.com, users need to make a request either via the Crypto.com App or Exchange. Prior to the staking request, users can view the estimated activation period, which can range from a few hours to a few weeks depending on the queue length. This correlates with Ethereum’s own validator queue, which has become increasingly longer since the Shanghai Upgrade.
Once the staking request status has passed the activation period and changes to ‘Staked’, users can start receiving rewards for their participation. Crypto.com provides an estimate on the first reward date when users enter into staking. When unstaking, Crypto.com processes the request as quickly as possible; however, most protocols impose an unbonding period when users unstake.
Read more about on-chain staking with Crypto.com and how it works here.
Receiving Rewards
Rewards include newly minted ETH; they are earned through block proposals and attestations. The amount of rewards earned depends on the amount of ETH staked. After passing the activation period, these become eligible for rewards, which are deposited into the user’s Ethereum wallet and can be withdrawn or restaked.
When users stake through Crypto.com, the rewards — received from validators after the deduction of service fees charged by Crypto.com — are distributed when they are generated (or unbonded, as applicable) by Ethereum.
Factors Influencing ETH Staking Rewards
Several key factors influence Ethereum staking rewards:
1. ETH Staked
The larger number of validators (e.g., the amount of staked ETH) in a staking pool, the higher chance of selection to propose new blocks and receive rewards compared to solo home staking.
2. Slashing and Validator Penalties
Validators need to adhere to the network’s rules and act honestly. Any malicious or uncooperative behaviour can result in slashing penalties, where a portion of the validator’s staked ETH is burned. Validators are incentivised to act honestly to avoid penalties and maintain their rewards.
3. Market Volatility/ETH Price
The price of ETH can impact the value of a user’s staked assets. For example, if the price of ETH decreases significantly, the US dollar value of users’ rewards may be affected. Considering these factors, it’s essential to carefully assess the risks and rewards before staking on Ethereum.
Monitor ETH price on the Crypto.com Price page.
Start Staking ETH With Crypto.com
Staking in the Crypto.com App allows users to put idle assets to work in a few taps. Users can receive rewards as often as daily while circumventing the 32-ETH minimum stake. By staking ETH, users contribute to the security and decentralisation of the Ethereum network, but it’s important to consider the factors that influence staking rewards and understand the potential risks involved.
Stake Ethereum in the Crypto.com App.
Due Diligence and Do Your Own Research
All examples listed in this article are for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, cybersecurity, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction. Any descriptions of Crypto.com products or features are merely for illustrative purposes and do not constitute an endorsement, invitation, or solicitation.
Past performance is not a guarantee or predictor of future performance. The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price. When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility.
