When Ethereum’s Beacon Chain upgrade was implemented in December 2020, there was huge excitement amongst its passionate community who have been patiently waiting for its transformation to Ethereum 2.0.
As Ethereum’s next iteration, ETH 2.0 promises to be a lucrative opportunity for both retail and institutional investors who are looking to earn passive income by staking their crypto as collateral for network rewards. All these factors have coalesced to increase the value of Ethereum from less than $100 a year ago to over $2,000 and February 2021, and while a current retrace is taking place, analysts expect the network’s growth to continue.
The Beacon Chain was the first step towards Proof-of-Stake (PoS) final form that would move the world’s number 2 cryptocurrency and blockchain network away from its current slow, expensive and energy-draining Proof-of-Work (PoW) consensus mechanism.
Let’s take a quick recap on Ethereum 2.0 staking essentials and learn more about how you as an institutional investor can stake your ETH safely with CYBAVO.
What is Ethereum 2.0?
Ethereum 2.0 is a long-term upgrade to the Ethereum network that will improve its security, scalability and speed of transaction whilst making it more suitable for a variety of next-generation crypto currencies and services.
Ethereum 2.0’s proof-of-stake (PoS) form presents a myriad of opportunities for crypto investors, as well as Ethereum use cases.
Much of Ethereum’s 2020 ascent could be attributed to the massive rise in the popularity of decentralized finance (DeFi) and non-fungible tokens (NFT), the biggest projects which all live on the Ethereum network as ERC20 smart contracts and ERC721 tokens.
Ethereum 2.0 will introduce two vital upgrades to Ethereum 1.0.
- proof-of-stake mechanism: network validators instead of expensive and power-hungry computers will be used to create new blocks and fix inherent flaws in the current proof-of-work mechanism which uses too much electricity and computing power.
- shard chains, a multi-phase upgrade to improve Ethereum’s scalability and capacity which will spread the Eth network’s load across 64 new chains.
ETH 2.0 will also provide a much more efficient platform for DeFi and ensure that Ethereum maintains its first mover advantage in this field.
Ethereum 2.0 Roadmap
The Ethereum 2.0 upgrade will take a number of years to implement and will most likely be completed by 2023. There are several milestones on the Ethereum 2.0 roadmap.
What are the different stages of the Ethereum 2.0 roadmap
- Phase 0 launched the Beacon Chain in December 2020 to implement the proof-of-stake mechanism on the Ethereum network.
- Phase 1 will implement shard chains to effect a sharding mechanism that will help to prove scalability on the network.
- Phase 1.5 will merge the original PoW blockchain with the PoS blockchain.
- Phase 2 will add improvements to Ether accounts, transactions and smart contract executions.
- Following these updates, and the reaching of Ethereum’s Serenity final form, Ethereum will increase its network functionality with more features and improvements geared to help scale and improve the assets that live on its network such as DeFi protocols.
What is the Beacon Chain?
The Beacon Chain, phase 0 on the ETH 2.0 roadmap, didn’t really change much about Ethereum and the way it currently operates, but serves mainly to help coordinate the network and gradually introduce the proof-of-stake validator mechanism for the Ethereum ecosystem.
What is Ethereum 2.0 Staking
Ethereum staking provides investors with the opportunity to earn free ETH rewards from transaction fees just by staking their existing Ethereum tokens themselves or through a staking pool.
Ethereum 2.0 staking is the act of making a deposit of a minimum of 32 Ether (ETH) in a staking wallet and connecting it to the Ethereum network to help activate validator software and maintain and secure the blockchain.
Validators are required to retain data, process Ethereum transactions and submit new blocks to the Ethereum blockchain thereby enhancing the overall security of the network with its collateralized assets. Validators reap the rewards for their service by receiving new ETH fees.
However, validators need to keep their staked ETH in an Ethereum wallet and connected to its blockchain where it is locked until the validator decides to remove his stake.
As Ethereum is an open and public blockchain, any person or organisation can in theory become a validator if they meet the right criteria, such as owning the minimum required cryptocurrency and network capacity.
Due to the rapid uptake of this crypto staking opportunity from the blockchain’s community, there is reason to believe that the available supply of Ethereum will go down, thereby increasing demand and allowing the asset class to climb further in both value and scale. Eth 2.0 should suffer none of the current version’s slow transaction speeds and exorbitant fees, thanks to the more efficient validation process used by proof-of-stake.
How easy is it to become an Ethereum 2.0 validator?
Unfortunately, Ethereum has been swamped by potential staking applicants and the current availability is dwarfed by demand. Currently, there are already over 90,000 active validators with 1000s more on a waiting list ready to join the Ethereum network, a mere 3 months after the launch of Beacon Chain. However, currently, only 900 validators are accepted each day to join the Ethereum staking program.
As a result, the blockchain can take their pick from an oversupply of validators, ensuring they only take on qualified investors
This is why it is therefore essential to move quickly and with the right backing. If you or your organisation want to join and stake your Ethereum without the hassle of setting up and maintaining your own Ethereum staking pool, there are excellent custodial options to consider.
Want to go it alone and run your own validator node? It’s not easy and may result in you losing ETH due to network penalties. You’ll need to consider options like the security of your staked assets, maintenance updates and day-to-day management, which can be quite tricky.
However, if you’re non-technical and would like to enjoy the “passive” bit in passive income, you can join staking pools.
What is an Ethereum staking pool?
An Ethereum staking pool is a joint investment by several staking participants, where they can enjoy the group benefits of better security, stability, management and maintenance, all taken care of for them by a specialist third-party.
This group of investors who come together to take part in a staking process functions as one single validator. However, instead of each participant trying to help to maintain that pool, it is actually managed by a skilled pool operator such as a large exchange, for example Binance, Coinbase, or Kraken. These might not be suitable for all institutions, who might be competitors or have qualms about high service fees. Investors should also consider award-winning custodial service providers like CYBAVO who specialize in FinTech security.
What is a staking pool operator?
The staking pool operator is the commercial service provider who ensures that everything in the staking process goes smoothly. It has several duties, such as to collect all the participants crypto to the right staking wallet address, then apply to Ethereum as a validator, and if accepted, helping to lock the funds away as a stake. The Pool operator is also responsible for the 24/7 running of the validator node.
A benefit of using a staking pool is that bigger pools often have a better chance of being selected by Ethereum as a validator due to its deeper pockets and better stability, with a smaller chance that they might withdraw their funds.
However, by investing in a grouped pool of assets, this also means that the results will be diluted as it needs to be shared amongst all participants in the staking pool. The pool operator will also take a percentage for their efforts. Therefore it is important to ensure you get a combination of trusted service with low fees.
For individuals and enterprises who have large investments in Ethereum, and other proof-of-stake currencies, ETH 2.0 staking provides an ideal opportunity to earn passive income without the need to run expensive mining operations, such as the case with proof-of-work blockchains like Bitcoin, which require a massive investment in both hardware and overheads.
Instead, PoS investors only need to work with a staking pool and do not need to understand or have any technical knowledge.
Another advantage of the Ethereum staking program is that tokens do not have to be locked up for a long amount of time, which is often the case with many other proof of staking programmes.
How do Ethereum staking rewards work?
Ethereum’s staking participants are rewarded for their pooled assets by receiving new Ethereum as transaction rewards. Because they help to secure the network and help it to reach consensus and to process transactions, they get rewards for batching transactions into new blocks or for verifying the work of other validators. This is essential in order to keep the network secure and running up to opt optimally.
Are there any risks to staking Ethereum?
As with anything in the crypto sphere, and in fact the traditional financial sector as well (see the 2008 banking crisis), there are always inherent risks involved due to the technological nature of staking and the opportunities for bad actors like hackers and scammers to exploit smart contract vulnerabilities. In most cases, though, if you stake Ethereum, any penalties or loss of funds you incur will most likely be of your own doing.
Ethereum 2.0 will punish staking pools who elicit certain bad behaviour such as malicious actions (e.g. double signing), being offline, failing to validate certain transactions and not meeting their validator duties.
Can I use my funds while I’m staking Ethereum?
During the initial launch of Ethereum, staking parties will be temporarily unable to trade, send or sell their staked amount. However, later in 2021, an update will allow them to sell, trade and send their staked ETH assets.
How to stake Ethereum with CYBAVO
CYBAVO is a trusted digital assets service provider composed of a team of cybersecurity experts providing essential custodial and security services to a number of high-profile blockchain clients.
The good news is that the company will be offering Ethereum 2.0 staking services for its customers it will for many of the industry’s leading virtual asset service providers (VASPs).
CYBAVO is the perfect staking pool operator to entrust your Ethereum with. Here’s why.
Benefits of staking with CYBAVO
CYBAVO will remove the need for complex, expensive and tedious node maintenance and does all the heavy lifting for you.
The company will help you avoid the confiscation of your principal investment due to improper node maintenance. Let CYBAVO take care of it for you.
Enhanced private key security
Eliminate the risk of managing and storing your staking private key and allowing it to fall into the wrong hands, which can lead to the loss of all your assets.
Underscoring the high pedigree of CYBAVO Vault security, Munich Reinsurance Company, a global insurance provider, has agreed to provide blockchain theft insurance for CYBAVO, thereby providing added peace of mind for Vault users.
With CYBAVO, stakers do not need to have any sleepless nights over node and administrative duties. The company will handle everything, including rewards payouts.
How to start staking ETH with CYBAVO
Step 1: contact firstname.lastname@example.org to start your staking process
Step 2: Sign the staking service contract agreement as well as a payment address for your rewards.
Step 3: Deposit your Ethereum to the specified contract address.
Step 4: Open a customer account to complete the staking verification process.
Step 5: Start earning your CYBAVO rewards your Ethereum rewards.
Congratulations you have now started earning passive income from your Ethereum staking investment.
What ETH staking rewards can I earn with CYBAVO?
Here’s what you should know about staking Ethereum with CYBAVO.
- CYBAVO requires a minimum of 32 ETH as mandated by the Ethereum blockchain network.
- Our staking clients will receive 90% of the profit of the total staking reward, and will also be protected with a slash loss guarantee.
- Investors will be able to see and check the status of the staked Ethereum
- Investors will be treated with 100% transparency, knowing the exact rewards receive real time status updates.
Staking rewards are calculated on a sliding scale based on a total network stake. According to the ETHhub, there was an estimated reward of 18.1% annual returns on December 3 2020 for staking participants.
Please note that our staking customers will have certain rights and obligations. CYBAVO only provides staking services and does not guarantee a staking yield.
CYBAVO’s Services Scope
The company commits to the following:
- receiving the amount of Ethereum agreed by the customer
- operating the Ethereum 2.0 staking smart contract,
- keeping the staking private key safe
- Maintaining the operation and effectiveness of the verification node.
CYBAVO will only use the Ethereum deposited by the customer for the purposes of Ethereum 2.0 staking and will not use these assets for any other purpose.
Responsible customer behavior
The customer must also abide by the Ethereum 2.0 staking rules. For example, if the staking pool is penalised due to the early withdrawal of a customer staking the customer will be responsible for the losses.
Please note that Ethereum 2.0 staking participants may be penalised for certain behaviour. For example, validating nodes with low activity who are failing to produce blocks or verify fast enough may face penalties in the form of deductions of their ETH balance. Also, malicious actors who use illicit actions such as double signing will be slashed from the verification note and severely penalized.
Unlocking ETH stake and rewards
When Ethereum 2.0 begins to unlock the staked assets, customers can choose to terminate their service with CYBAVO and receive the amount of Ethereum originally invested as well as the rewards accumulated during the staking periods.
CYBAVO will first deduct the service fee from the accrued income of the staking period after which it will transfer the original Ethereum staking amount and the rewards back to the address that was specified by the CYBAVO customer.
Discontinuation of services
Please note that CYBAVO may be unable to continue to provide staking services for the following reasons.
- A restriction by relevant government laws and policies (see Nigeria’s recent crypto ban as a case in point)
- issues caused by Ethereum mainnet mechanisms such as smart contract failures or modified rules,
- unavoidable force majeure events that are not under the control of CYBAVO
Please note that CYBAVO that will not does not guarantee the final yield of Ethereum to or any losses or any acid losses caused by non CYBAVO business activities such as the occurrence of security accidents.
Investing in Ethereum staking is a high risk investment. Please pay attention to the portion of your portfolio that you’re allocating and diversify your risk where possible.