What’s the Ethereum Merge? The merge is an upgrade of the Ethereum validation mechanism for transactions method from a proof-of-work to proof-of-stake. “Proof of work” and “proof of stake” are the two major consensus mechanisms used by cryptocurrencies to verify new transactions, add them to the blockchain.
What is a proof-of-work?
Proof of work is the older consensus mechanisms, used by Bitcoin, Ethereum 1.0, and many others. The best example of Proof-of-Work (PoW) is mining.
Mining is the process where miners use their computing power to solve mathematical problems in the transactions and write into the blockchain. A Proof-of-work blockchain such as Bitcoin is secured and verified by virtual miners around the world racing to be the winner to solve a math puzzle. The winner gets to update the blockchain and get rewarded by the network with a predetermined amount of crypto.
The limitation of proof-of-work
Proof-of-Work is an energy-intensive process that can have trouble scaling to accommodate the vast number of transactions. And so alternatives have been developed, the most popular of which is called proof-of-stake.
What is a proof-of-stake?
In a proof-of-stake system, staking serves a similar function to proof-of-work’s mining, in that it’s the process by which a network participant gets selected to write the latest batch of transactions to the blockchain and earn some crypto in exchange.
In general proof of stake blockchains employ a network of “validators” who “stake” their own coins in exchange for a chance of getting to validate new transaction, update the blockchain, and earn a reward.
How to Stake Ethereum?
Becoming a validator requires a fairly high level of technical knowledge. The minimum amount of crypto that validators are required to stake is relatively high. For staking on Ethereum, you a dedicated computer and 32 ETH per node and you might need many nodes to increase the chances of winning.
Even if you made it to be a validator, you can lose some of your stake via a process called slashing if your node goes offline or if you validate a “bad” block of transactions. Follow the link if you want to know more about Ethereum 2.0 staking rewards.
The risks of Staking Ethereum
From investors’ perspective, staking Ethereum may sounds great by looking at the rewards, but it does come with risks that may push one back.
Some of the risks are:
- Setting up your own validator requires faitly high level of technical knowledge.
- You need a dedicated computer, and 32 ETH, which is not something everyone is able to do it.
- If you mess up with the setting up process, or if it goes offline or is harmful to the network, you may be subjected to slashing where a portion of your stakes will be removed, or worse, you can be kicked out from the network.
- Only 900 new validators will be accepted each day, the rest will have to wait in a queue. At the time this post is written, there are around 1300 validators pending and waiting to join. See the latest validator updates here.
Alternative ways for Ethereum Staking
Want to take part in the game without taking the risks mentioned above? Well, there are some alternative ways to stake Ethereum and earn rewards without having to run your own nodes, or staking your 32 ETH.
1. Staking Ethereum on Exchanges
Crypto exchanges are the easiest way for non-tech-savvy person to stake Ethereum. Some of the exchanges allow you to stake a small amount through their validators (there is a fee) to participate in staking Ethereum.
Some of the exchanges that support Ethereum staking:
2. Staking Ethereum on Staking Pools
Similar to mining pools, you can join a staking pool for better computing power to gain an edge over winning a contest. To go with this approach, it is also important to do your due diligence on the particular pool.
The things you need to concern before joining a staking pool:
- The reliability of the pool’s validators
- The pool fees
- The pool customer support
- The pool size
- The security of the pool
Here are some of the better Ethereum staking pools out there:
3. Staking Ethereum via Validator-as-a-service
Validator-as-a-service is a third-party validator that allows you to stake Ethereum. You can run your own validator on their servers, without worrying about the technical setup and maintenance.
However, since you are running a personal validator, this means you are required to stake the 32 ETH for the node plus a fee for using the service.
Lastly, I hope you find this article useful and get a better understand of the merge, Proof-of-Work and Proof-of-Stake. If you have any questions or comments do mention them in the comment section below.