How to Stake Ethereum: Beginner’s Guide
Table of contents
What is Ethereum staking?
Ethereum is a popular decentralised blockchain network commonly referred to as the “King of DeFi”. The protocol is renowned for automatically executing programs called “smart contracts”. These allow developers to create unique applications with various exciting possibilities, including blockchain gaming, decentralised finance and staking.
Ethereum is a Proof of Stake (PoS) network. This means its consensus mechanism – how a blockchain decides if a transaction is valid – is through staking. The PoS method of assessing data on a network is typically more efficient and environmentally friendly than older systems.
The Ethereum blockchain originally ran via a Proof of Work (PoW) consensus mechanism before transitioning in 2022. This method, synonymous with mining, was popular in the early days of cryptocurrency as it was the only means of generating new Bitcoin. PoW requires miners to solve complex mathematical equations on their computers, which demands extremely high power output levels. The advantage of mining is decentralisation and security. Still, its poor outcome on the climate has made it less popular for newer crypto projects.
Related: Checkout relevant Ethereum news
What is Ethereum staking?
Staking ETH on the Ethereum network is vital to the blockchain’s economic security. Without it, transactions made on the protocol would never be finalised, and bad actors could “double-spend” and commit other types of fraud.
Conceptually, staking is rather simple. Validators must lock up a certain amount of ETH in a smart contract. Then, each time a new block of transactions must be confirmed, a validator with locked-up tokens is chosen pseudo-randomly. In exchange for their work securing the network, validators receive a reward (ETH).
To run a “full node” on Ethereum, validators must stake 32 ETH. This is a high barrier to entry for most investors. However, those with less ETH can participate in the network by delegating a certain amount of Ether to a “full node operator” and receive a proportional amount of their reward.
How to stake Ethereum
Becoming a full node staker on Ethereum can be tricky. It requires a constantly running computer connected to the internet that doesn’t experience dropouts. The validator must lock up at least 32 ETH and set up an application with fine-tuned technical details.
Those who don’t want the hassle of running a full node have many options, though.
Custodial staking has become a popular alternative thanks to its ease and flexibility. Investors can use a decentralised liquid staking platform (e.g., Rocket Pool) and simply delegate an amount of Ethereum into the application.
Step 1: Buy Ethereum
In order to stake Ethereum, you first need to buy it. You can buy Ethereum on an Australian exchange like Swyftx. Simply sign up, deposit AUD and then make your purchase for ETH.
Click here to sign up to Swyftx.
Step 2: Set up a wallet
First, investors must set up a non-custodial wallet that supports Ethereum. Options include Metamask, Trust Wallet and Exodus Wallet. Fill the wallet with the amount of Ethereum to be staked – and remember to account for potential gas fees.
You can send your ETH from your exchange account to your wallet via the withdrawal option.
Step 3: Launch liquid staking pool
For this example, we will use Rocket Pool, and liquid staking platform that was founded in Australia. Launch RocketPool (or another liquid staking service) and link your wallet.
Step 4: Add ETH to pool
Now, add the amount of ETH to be staked in the “Stake ETH” box. In exchange, you will receive “rETH”. This token essentially represents how much Ether you have locked up and can be redeemed for your original ETH at any time. Press “Stake” and confirm the transaction through your wallet.
Step 5: Check your balance
That’s it! Your ETH balance will now steadily receive staking rewards. To get your ETH back, simply select the middle button with two arrows and repeat steps 2-3.
The same process exists on centralised platforms too, such as crypto trading exchanges.
It’s worth noting that not all staking platforms will give investors a redeemable token, however, the outcome is essentially the same.
Ethereum staking rewards
Validators are randomly selected to confirm the chain’s next block (batch of transactions). Upon successfully finalising this block, the validator will receive an algorithmic reward based on the amount of ETH they’ve staked.
Ethereum staking rewards are proportional to the amount of Ethereum locked in a smart contract. For example, let’s say there are two validators – one with 5 ETH staked, and one with 10 ETH. If Ethereum’s annual percentage yield (APY) is 4%, the first staker would earn 0.2 ETH in their first 365 days, while the second would earn 0.2 ETH.
Typically, Ethereum’s reward rate hovers between 3.5-4.5%, however, several factors can influence this number:
- The number of stakers participating in the network (the more overall ETH locked in, the lower the reward rate).
- The number of transactions pending on the ETH blockchain
Investors can see up-to-date ETH staking reward rates on platforms like StakingRewards.
Where to stake Ethereum
Ethereum can be staked on-chain by setting up a full node. This requires software such as Stereum, Vouch + Dirk or Rocket Pool CLI. This staking method is only recommended for advanced users.
Decentralised liquid pool staking is the most recommended method of staking Ethereum and the most effective for beginner-intermediate investors. Platforms that support this feature include:
- Rocket Pool
- Ankr Staking
Investors can also consider using centralised exchanges for their staking requirements. This method is the most convenient but means you aren’t in total control of your assets.
View the price of Ethereum in AUD.