Unless you’ve been hiding under a rock for the last few months, you’re probably well aware of the Merge. Ethereum’s upcoming switch to a proof of stake consensus model is one of the most anticipated upgrades in crypto ever. According to developers, the switch signals a drastic decrease in power consumption, about 99.95%. But how does staking crypto work? And what do you get in return for staking your ETH?
How does staking crypto work?
In the case of Ethereum, you can only stake your ETH on the Beacon Chain. After the Merge, the Beacon Chain and Ethereum’s mainnet will be the same. Staking crypto is almost like volunteering to be a class monitor. In this case, You put up your cold hard cash as collateral for that power. Your everyday DeFi exchanges usually offer a staking option: Coinbase, Binance, Kraken, etc.
Stakers, also known as validators, or more specifically, validator nodes, verify transactions on the blockchain. For Ethereum specifically, 32 blocks on the chain are grouped into epochs. (Epochs are just groups of blocks on the blockchain, crypto bros love their fancy names for the mundane.) Groups of validator nodes then verify each block. Of course, there are more complicated processes on the backend, but that’s the essential process. Then, after new blocks are validated, the owners of the validator nodes receive some ETH as a reward.
Why you’d want to stake ETH
Well, there are philosophical, practical, and monetary reasons. Blockchain tech’s decentralization is part of the attraction—the more people who stake ETH and participate as validator nodes, the more decentralized the blockchain. Practically, the more validator nodes, the more theoretically secure Ethereum becomes. More validator nodes equal more watchful eyes. Monetarily, staking your crypto is generally a safe long-term investment.
As CoinDesk put it, staking crypto is like putting your money in a high-yield savings account. However, it’s important to note that you won’t be able to withdraw your staked ETH until the Shanghai update. Meaning your crypto is locked for anywhere from six months to a year.
