What is Ethereum staking and how does it work?


In its effort to be faster and more energy efficient, the Ethereum blockchain (version 1.0), which is the second largest cryptocurrency network, has also set out to move to Ethereum 2.0 and a process called staking is one of the main changes. .
To understand what staking is, let’s take a look at what the original Ethereum looked like and what the transition to Ethereum 2.0 entails. The Ethereum blockchain was originally launched on the Proof of Work (PoW) consensus mechanism just like Bitcoin. This meant that miners native to its native Ether (ETH) currency would have to devote an astonishing amount of computing power to decrypt user transaction data and validate it. The decryption process involved intense calculations, which also engulfed massive gas costs on top of the hardware costs.

To make the network more energy efficient, the Ethereum blockchain has now planned to migrate to a proof of stake (PoS) mechanism, which will have a new native cryptocurrency – ETH2. This new consensus mechanism requires miners called validators to commit a certain amount of cryptocurrency to the blockchain, making them transaction authenticators.

Such a mechanism does not force miners to devote an enormous amount of computing power to scrutinizing transactions. This, in turn, reduces the money consumed in gas costs and material costs compared to the PoW mechanism. According to an Ethereum Foundation blog, the new structure will reduce these operating costs by up to 99.95%.

When miners increase the stake, i.e. promise greater amounts of ETH2, it proportionally increases their likelihood of becoming a validator.

How does the new Ethereum 2.0 blockchain work?

The new PoS consensus mechanism on the upgraded blockchain will allow it to process over 100,000 transactions per second (TPS). This is a huge leap from its current processing speed of 13 TPS. How is it going ?

The Ethereum 2.0 blockchain adds shards to the main chain called “Beacon Chain”. Each shard is a chain parallel to the tag chain and evaluates the transactions that the tag chain previously performed. This leads to main chain decongestion and contributes to faster speeds.

In addition, each shard appends the validated transaction data on the tag chain, which means that its robust security protocols are also maintained on the shards.

These fragments will be handled by “Zero-Knowledge Rollups” or “ZK Rollups” for batch processing. ZK protocols will only access transaction data without compromising personal data, hence the name “Zero-Knowledge”. As limited data will need to be accessible during a transaction, this execution will allow shards to consolidate data from multiple transactions into a single batch and further increase speed.

How does the staking process work on the ethereum 2.0 blockchain?

The PoS blockchain takes approximately 6.4 minutes to complete a validation cycle, during which it adds 32 blocks of data to the Beacon chain.

Each 32 block packet is called an “epoch”. When two of these epochs are added after an epoch on the blockchain, it becomes irreversible in nature, meaning it cannot be changed or altered – a concept called “finality.”

When the validation cycle takes place, the tag chain randomly selects 128 validators and forms a committee. Each commission is assigned a specific partition for data processing. Each epoch has 32 slots that require a committee each to process the data, that is, 32 committees are working on creating each epoch.

As soon as a committee is formed, a randomly selected member is granted the exclusive right to propose a new block while the other 127 work on the validation process. It is only when a majority of the 127 members have voted in favor of adding a new block (called an “attestation”) that the processed block is added to the tag chain. This is when ETH2 stakes receive their reward for the validation process.

The member who obtains the block proposal rights receives one-eighth of the base reward, while other validators receive seven-eighth of the base reward. The applicant must send his committee certificate to Beacon Chain as soon as possible to claim his entire eighth share.

If the certificates of other commissions take precedence over their own, the rewards are reduced by a fixed fraction per certificate passed. The base reward per validator decreases as more validators join the blockchain.

How can you get involved in staking?

In order to be able to participate in the staking process, the staking workers must set up a node. A node is a machine that runs a software client that communicates with the blockchain.

The computer must have a large memory because the two blockchains each hold 900 GB of data and grow at the rate of 1 GB / day. Since the validation process takes place 24/7, the node must always be connected to the internet.

Once the software clients are installed on your machine, you need to commit 32 ETH to the blockchain. This qualifies you to become a validator on the blockchain.

Is Ethereum Staking Profitable?

For starters, 32 ETH translates to Rs 0.89 crore at current exchange rates. Many aspiring loggers do not have access to such exorbitant sums and are therefore excluded from this process.

Some third-party platforms have now started to allow investors to pool their resources and jointly put their cryptocurrency on the blockchain. It is possible to earn rewards proportional to the amount you wagered in the pool.
Staking also helps the Ethereum blockchain by making it more environmentally friendly. Reducing resource requirements can also attract more investors to participate in the staking process.


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