Ethereum is the most innovative contract platform and the blockchain that powers Ether, the second-largest digital currency by market cap after Bitcoin. In the past, Ethereum operated on a Proof-of-Work (PoW) consensus mechanism, which involved massive electric consumption. Because of this issue, users from all around the world have become concerned about the impact they have on the environment. This is why Ethereum changed to a Proof-of-Stake (PoS) consensus mechanism, which provides a more sustainable alternative. This happens because individuals don’t need to spend hours trying to solve complex mathematical problems; they just need to stake their virtual tokens to secure the Ethereum blockchain. Ethereum staking also opens the door to earning a passive income, as the individuals who choose to stake their coins will receive rewards in return. Luckily, with all the innovations Ethereum will become a more important cryptocurrency, considered by a lot of investors. This can also push the ETH coin price upwards. 

Let’s discover more about Ethereum staking.

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Understanding Ethereum Staking

Ethereum staking became possible after the blockchain transitioned from the PoW to a PoS consensus mechanism in September 2022. Before this, Ethereum functioned similarly to Bitcoin, where participants needed to be the first to solve complex puzzles to validate the transaction and receive digital coins as rewards. However, the PoW consensus mechanism had numerous downsides, as it required specialized hardware and was an energy-intensive process.

But after the transition, known generally as “The Merge,” the platform opted for a social consensus to add new blocks to the blockchain and validate transactions. Ethereum staking requires participants to deposit a number of virtual coins, which later would be locked for a specific time to make the consensus network function. The staked ETH is held as collateral in a smart contract and helps with the participation in the network, as well as with the validation and block production. 

Can you earn passive income with Ethereum?

Yes, you can if you consider staking. Ethereum rewards those who participate in block production and validation. These rewards come in the form of freshly minted ETH coins, which could be traded and sold, thus generating a passive income. The minimum amount to be able to participate in Ethereum staking is around 32 ETH. The good news is that you don’t need to have specific tools like in mining. To be able to stake Ethereum, you just need to download the Ethereum blockchain and have a stable and fast internet connection. After downloading the blockchain, you need to send the 32 ETH to the staking contract address.

How can you stake Ethereum?

Users who are interested in Ethereum staking can choose between many options, including solo staking, pooled staking and staking-as-a-service. Usually, pooled stalking and staking-as-a-service are great alternatives for users with smaller amounts of ETH, as they don’t really need a minimum deposit requirement. However, the one that offers the highest potential rewards is solo staking. Still, this option also requires a minimum deposit requirement of 32 ETH. 

Solo staking

In solo staking, you are the one who will run the software on the hardware, set up the staking node and hold the node’s cryptographic keys. This will offer you great control and independence. However, solo staking comes with some downsides, more specifically, with technical expertise and constant uptime. You also need to have a good knowledge of this process; otherwise, you might lose your funds. You can propose a block every 45 minutes, and the probability of being chosen to do so is divided by the amount of ETH that is staked on the platform by all validators. This is why a user with 32 ETH has the chance of 0.0001024 to be chosen to propose a block.

Staking pools

Staking pools are the best alternative for users who own smaller amounts of ETH, as they can consider a collaborative approach to obtain the 32 ETH required to be able to stake. These alternatives have gained a lot of popularity in the last few years, as they offer a more viable and affordable solution.

Staking-as-a-service

In staking-as-a-service, you delegate your staking rights to another service provider, who will manage the staking process on your behalf. Both pooled staking and staking-as-a-service are less technical alternatives where the validator does not need to manage keys. Still, these options introduce counterparty risks, involve surrendering some of the control, and might require sharing personally identifying information (PII).