5 Ways to Stake ETH
There are at least five different ways in which crypto investors can stake their ETH on the new Ethereum 2.0 blockchain. From billionaire crypto whales to first-time investors, there is an ETH staking option for everyone out there.
1. Solo Staking
In a Proof of Stake blockchain network like Ethereum, a validator is a computer that is dedicated to maintaining the security and integrity of the entire system. To run a validator node on Ethereum 2.0, you need to stake 32 ETH (roughly $50,000 at the time of this writing).
The process of staking 32 ETH and running a validator node on your own is called solo staking. Along with the ETH, you will also need a reasonably high level of knowledge about network software and hardware maintenance.
Solo staking involves:
- Setting up a dedicated computer system.
- Running and syncing an execution layer client.
- Running and syncing a consensus layer client.
- Generating and managing your keys.
- Maintaining both the hardware and software of your node.
Needless to say, solo staking is a major responsibility. But you are a full contributor to the Ethereum network, and you are rewarded a portion of the gas fees paid by those who use it.
Advantages of Solo Staking
- Earn more ETH without paying any fees to middlemen.
- Retain full control of your investment and keys.
- A more secure form of staking.
- Better for the long-term health of the Ethereum blockchain.
Disadvantages of Solo Staking
- Needs a high capital investment.
- Requires knowledge of blockchain and computer hardware.
- The burden of security (and uptime) rests on your shoulders alone.
2. Staking as a Service
This is a business model where a third-party company runs a validator node on your behalf. All you have to do is provide the 32 ETH staking capital. For a fixed fee, the firm will handle the installation, programming, and maintenance of your validator node.
Staking as a Service is an option if you have 32 ETH to spare, but lack the knowledge and experience in configuring and running a validator node on your own. You can delegate the technical tasks to the company while still retaining control of your validator keys.
With the rise of ETH 2.0, many firms have started offering Staking as a Service. Stake.Fish, featured on our shortlist, is one such firm that charges a flat commission of 0.1 ETH for its services.
If you want to find the best staking as a service firm, look for these features:
- Uses 100% open-source code.
- Provides formal auditing results of all essential code.
- Has a bug bounty system to reduce the risk of vulnerabilities.
- Service has undergone proper battle-testing.
- There are KYC, account signup, or special permission requirements.
- The company has a diverse array of independent validator clients.
- You get full custody of all validator keys.
The main advantage of this system is that you can enjoy the rewards of solo staking without technical knowledge or responsibilities. The downside is that you have to pay a fee and rely on a third party for security.
3. Pooled Staking
The vast majority of crypto enthusiasts do not have the resources to run a solo validator node. Pooled staking is the next best option: investors pool their money together via pooling platforms. Once the pool reaches 32 ETH, the platform deploys it to activate a validator node, and the members of the pool share in the rewards.
The important thing to keep in mind is that these staking pools exist outside the ETH 2.0 blockchain. The majority of staking pools operate in a decentralized manner, with trustless and permissionless processes.
Many of these platforms rely on smart contracts to operate the system. Some of them also provide native liquidity tokens to investors. These tokens act like shares, representing your stake in the pool.
Lido and Rocket Pool are two popular examples of decentralized pooled staking protocols for Ethereum.
Advantages of Pooled Staking:
- Most protocols have very low deposit limits.
- No need to worry about setting up a node.
- Liquidity tokens can provide added value and rewards.
- You can hold liquidity tokens in your wallets.
Disadvantages of Pooled Staking:
- You have to rely on third parties.
- You have no control over the validator nodes.
- Platforms often charge a flat fee out of your rewards.
4. Centralized Exchanges
At the opposite end of solo staking, you have staking via centralized exchanges. Major crypto exchanges like Binance, Coinbase, and Crypto.com operate large staking pools that attract tens of millions of dollars from small investors.
While centralized exchanges offer a range of convenient features, they also retain full control of your invested ETH. You don't have access to validator keys and enjoy none of the privileges of running a node on your own.
From a long-term perspective, however, having a few powerful exchanges take control of multiple validators is probably not good for the health of the Ethereum PoS system.
Advantages of Centralized Exchanges:
- Gives access to staking for as low as 0.001 ETH.
- Requires minimal oversight or effort.
- You don’t have to hold funds in your wallet.
Disadvantages of Centralized Exchanges:
- They may charge service fees and withdrawal fees.
- Centralized exchanges may have security risks.
- You have no power over the staking nodes.
- Giving exchanges more power over Ethereum may have negative long-term consequences.