Ethereum staking is picking up steam like never before and we see not only individuals, but large enterprises jumping on the bandwagon. To date, there is over $24 billion worth of ETH already staked, with over 54,000 validators patiently waiting for the merge to advance. Furthermore, Ethereum staking is set to turn into a financial tool that will be akin to everyone’s personal bank. One that delivers greater yield than conventional banking does, creates additional money flows to social impact, resolves the cost of capital crisis for developing countries and powers new financial innovation.
When it comes to enterprises and people staking at scale, independent staking is a preferable option. It is the safest and most profitable way to stake and so we wanted to explain exactly how to do it. How and which tools do you start with? What are the requirements? What is the best technical way to independently stake ETH? This article answers these questions to a useful level of detail.
Why is Ethereum moving from POW to POS
Deemed as one of the top 10 technological breakthroughs of 2022 by MIT, proof of stake sets out on a mission to remove the environmental and transaction capacity issues that Ethereum POW was known for. The merge of Ethereum and its shift to POS will cut the blockchain’s electricity consumption by over 99.95%. To some, it may seem irrelevant, but given the utility of the second-largest cryptocurrency in the world, it cements the blockchain’s sustainability and makes it environmentally future-proof.
Security is another factor that lies at the heart of the transition. Blockchains are usually governed by their participants. Whilst POW required one to run an extensive amount of hardware to make governing changes on the network, POS cancels that at its roots. Once Ethereum proof of stake starts processing transactions, validators will risk losing their funds (32ETH per node) for any “bad actor behaviour” on the blockchain. Ethereum Validator nodes are rewarded with ETH for validating transactions and securing the blockchain, these earnings act as an effective interest rate that is paid in ETH to each validator node. To earn the node needs to be on and available with correctly configured correctly client software.
Ways to stake Ethereum
There are a plethora of services out there that can get you staking. The main difference to take note of is whether the provider offers you a custodial or non-custodial way of staking. This in turn governs how much you earn and how well your staking nodes are set up. For the sake of this investigation, we won’t dive too deep into custodial providers, apart from giving you a quick rundown of the pros and cons.
Custodial Ethereum staking providers are for customers who do not have 32ETH to run their own validator node. The obvious benefit here is that users still get access to staking, but the price of it is the high commission that the aforementioned service providers charge. Usual suspects here are the cryptocurrency exchanges like Coinbase, Binance and so forth. These entities let you stake less than 32ETH but would typically keep over 30% of the staking rewards. Furthermore, if decentralization is a primary factor why one decides to stake, such entities act against this notion, by grouping customers in pools and typically managing all the nodes.
Non-custodial Ethereum staking offers higher returns and greater transparency. Regarded as the gold standard for staking independently, staking is secure, allows you to keep all of the rewards, and improves the decentralization of the network. Downsides? It is akin to rocket science for non-technical teams, individuals and companies. Still, entities like the UK-based Launchnodes, make it technically easy by setting up validator and beacon nodes for their clients in their clients’ own AWS account, providing them with more financial upside than custodial staking whilst removing the risk and technical complexity of doing it all on your own.
Before we deviate from Launchnodes, it is important to note that the company is a prime example of why Ethereum staking is set to take the centre stage. Launchnodes works with financial institutions and multilateral organisations, helping them to become participants in the Ethereum Consensus Layer. It is not news that institutions stake crypto, but using rewards for social impact, as the company does, puts staking under a very bright light. Such activity means that Ethereum may soon become an integral part of the global economy, creating additional income channels for those who need it the most. Not simply the stomping ground for crypto bros.
Independent staking with your own validator
If you or your team is capable of setting up validator nodes, then you can head directly to Ethereum Launchpad. Do note though, that validator node rollout is complex. Not so much at the launch stage, but the node upkeep, which implies ensuring that it is always on and runs with no disruptions. Once a validator node is ready, you need a beacon node to connect to and it is this that is not covered as much by the online literature and guides.
Unfortunately having a validator node doesn’t grant you access to a beacon by default. See, having a validator node ready is great, but you then need to connect it to a beacon node and the only way to do it, is to either connect to an existing node or set up your own.
Both of these options are made easy by Launchnodes. You can either connect to the company’s existing shared beacon node, or purchase a preconfigured and dedicated example on AWS. Alternatively setting up a beacon node is known to be much more technical than getting a validator node up and running, since beacon nodes are an integral part of the blockchain and they must never fail and take several days to sync.
Given the technical aspect of the installation and managing a beacon node (must be always on and synched), it makes little sense to do it yourself when running a single validator. According to CEO of Launchnodes Jaydeep Korde, beacon nodes become purposeful for people that are running over minimum 5 nodes. Then again, it is your safety and infrastructure requirements that govern such decisions, and with Launchnodes nothing stops you from operating a 1 validator and 1 beacon node architecture.
Validators, beacons and the future of Consensus Layer
Independent Ethereum staking is widely considered to be the most profitable and best way to stake. Not only does it deliver 100% of rewards without any hidden commissions, but also acts as the safest way to be the blockchain’s participant. It improves the network’s decentralization, and hence, indirectly makes your holdings more valuable.
Validator and beacon nodes can be launched on individual’s or organisation’s own hardware, or via public cloud providers like AWS, Azure, GCP and others. When it comes to nodes, these can be either launched individually or via a service provider that understands how to do it in a non-custodial manner. Only then does your staking become truly solo. Non-custodial means you should not have to log into someone else’s website or UI to access and see your nodes
Finally, Ethereum staking and Consensus Layer specifically, introduce us to a completely new set of environmentally friendly and socially driven financial tooling. And with further development, we will be witnessing not only the rise of staking providers, but also new products that are fuelled by staking itself. Think of a new kind of banking, enhanced quality of life through universal basic incomes, a lower borrowing cost for citizens in developing countries, social impact-driven through long term sustainable revenue. Is Ethereum ready to become the financial framework of the future? We certainly hope so, which makes becoming a participant by running a validator a true no-brainer.