Ethereum 2.0 staking is a breakthrough in mining

07.10.2021 | asorokin

Ethereum 2.0 crossed 6 million staked coins under its deposit contract and this number is constantly growing. Ethereum 2.0 surpasses 200K validators, and many already cite the high degree of decentralization. Unlike the proof of work consensus protocol, the proof of stake promises superior performance. You can read about them in the corresponding articles.

Before getting started with mining cryptocurrency, we will describe the system requirements:

Getting a good UPS battery backup and a backup communication channel are mandatory in this field of work, or all of your mining progress might get lost because a sudden power surge, which also may lead to penalties. It’s better to be on the safe side. You can also use cloud hosting services with appropriate parameters, especially taking into account the constant drop in prices for this type of service and the increasing price of equipment and electricity, which may be even more profitable than building your own rig in the long term.

Step 1 - installing the client

Currently, there are four software clients available for validators, on which they can run their own nodes. Each client has its own development team which makes them unique in terms of maturity, technology, features, and support. All of them are released under free licenses, so the client you choose will depend on your personal preference.

Teku

ConsenSys decided to use the cross-platform Java programming language in its solution. According to the developers, the main potential clients should be large, institutional investors. Java has a long history with banks and financial institutions, and a majority of them use this language for developing web applications and providing web services. Teku is Apache 2 licensed.

Prysm

Prysmatic Labs created a client implementation for Ethereum 2.0 written in modern Go, called Prysm. The team is dedicated to improving its safety, efficiency, and experience for everyone participating in eth2. Prysm is released under a GPL-3.0 license and it was this client that gained the most popularity in the community.

Lighthouse

Sigma Prime is heavily focused on speed and security. The development team has an extensive background in information security, therefore, we can talk about a high degree of reliability of this product.

Nimbus

Status decided to make a research project and an open-source client implementation for Ethereum 2.0 designed to perform on embedded systems and personal mobile devices with resource-restricted hardware. Nimbus runs on Nim — an efficient, general-purpose systems programming language with a Python-like syntax that compiles to C.

Step 2 - installing an Ethereum full node

A full node is needed to track blocked deposits. You can run this node on both a local physical machine and a cloud server. The hardware requirements here are identical to those for ETH 2.0, only you will need a couple of terabytes of disk space. There are plenty of online instructions on installation process, but beginners can still have some difficulties. However, step by step guide rarely goes wrong, and the installation itself doesn’t take much time.

Step 3 - launching the Ethereum 2.0 validator

First you need to buy some coins of Ethereum 1.0. The easiest way to do this is on the exchange, by replenishing the balance in cash or in any other convenient way. You’ll need 32 ETH to become a full validator.

Attention: before taking further actions, it is worthwhile to realize once again that the staked funds of the new network will be completely frozen, you won’t be able to withdraw your stake until maybe the next few years.

Next, you need to generate a private validator key for Ethereum 2.0 and transfer all 32 eth to the official deposit contract. To do this, it is better to use the official application Eth2 Launchpad, which is designed to make life easier for future validators.

ЗThen you will need to generate a mnemonic phrase and a pair of keys, which will allow you to withdraw the ETH you stake once that’s allowed. The number of keys and phrases will depend on the number of validators created. If you have 64 or even 96 coins to stake, then you can create two or three validators, respectively, which will increase the overall profitability. You must use it as an ordinary wallet - write down your recovery phrase on paper, and keep it in a secure location, put the keys in an encrypted container and make a backup copy of the resulting file.

All that’s left to do is to upload your deposit file and connect the wallet. Then you will be asked to confirm the transaction, after which the funds will be locked, and the address in the Ethereum 2.0 network will become a validator.

Joint staking

The current cost of one Ethereum coin makes independent stacking quite expensive. At the current rate, you need to stake about $ 60,000, and if Ethereum price returns to its historic high, then you will spend $ 150,000, which is extremely expensive for an ordinary user, although RTX 3090 setting won’t cost any less.

Therefore, you can resort to joint staking. Several diverse services use this feature. In addition to the relatively low entry threshold, joint mining of ETH 2.0 allows to minimize the stake period, leaving the possibility of withdrawal at any time. Each of the platforms has its pros and cons, let’s take a closer look at them.

Staking pool

Here users with small amount of coins can join their forces with other stakers. Every aspect of the platform is built using public smart contracts which contain not only your stake, but also your yield. It is also recommended to keep an eye on liquidity, which depends on a token issuer.

Pros: high liquidity due to the possibility of selling the token in which the staked funds are issued.

Cons: vulnerability of smart contracts, storage of coins in one place with a pool operator.

Lending platforms

Thus, a new miner can free up funds by staking digital assets. In this case, coins are used as collateral for the received loan. Although this proposition sounds intriguing and has a major advantage — maintaining high liquidity of capital, but the disadvantages are also quite significant: risk of intermediary, risk of the validator’s liquidation or liquidation penalty.

Custodian clients and exchanges

It is not yet clear how the exchanges will deal with the indefinite lockout period. Exchanges may offer fixed income products in which coins are locked for a predetermined period without the possibility of withdrawal.

Pros: You can stake any amount of Ethereum for staking, even if it is less than 32 ETH.

Cons: Non-transparent reward structure, intermediary risk, loss of control over private keys, and crypto-assets.

Conclusion

It would be best if you kept in mind that the reward for validators’ will decrease as more and more Ethereum is deposited for staking. But after the full launch of Ethereum 2.0, you may get 2% annual returns or even less, which, taking into account the growth of the asset, is comparable to ordinary dividend yield investments.

It would be best if you kept in mind that each validator bears financial risks associated with possible fines and loss of access to blocked funds for an unspecified period. Joint staking partially avoids the latter, however, it also has its own risks. Everyone has to decide for themselves what works for them, but the sooner you start to mine new Ethereum, the more you will earn.