The launch of the Beacon Chain network in December introduced the first iteration of protocol-level staking for Ethereum investors.
How Does Ethereum Staking Work?
Put simply, Ethereum staking is the process of locking up an amount of ETH (-3.16%) – the native cryptocurrency of the Ethereum blockchain – for a specified period of time to contribute to the security of the blockchain and earn network rewards.
People who do this are known as “validators” or “stalkers,” and are tasked with processing transactions, storing information, and adding blocks to the Beacon Chain – the new consensus model of Ethereum. As a reward for their active involvement in the network, validators receive interest on their staked coins, denominated in ether.
Passive Income Opportunity
This method of staking not only serves as a passive income opportunity for contributors but also helps to secure the next iteration of the Ethereum network, dubbed Ethereum 2.0. It is the next phase of Ethereum that runs on the Beacon Chain, Ethereum’s proof-of-stake (PoS) consensus model.
As part of plans to enable a faster and environmentally friendly transaction validation process, Ethereum protocol developers are expected to execute a switch from a consensus model known as proof-of-work (PoW) to PoS.
Proof-of-stake is the name of the consensus mechanism that requires users to stake an amount of cryptocurrency to become validators, as described above, as opposed to something like proof-of-work that requires users to purchase and run mining equipment or proof-of-authority where users have to provide evidence of their identities.
Oftentimes, a validator in a PoS system will increase their chances of earning rewards on the network by staking more coins. Depending on the PoS system, users may also be able to delegate their stake to another user who can perform the responsibilities of being a validator on their behalf.
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