Over the last year, staking has become one of the most popular investment strategies in the eyes of long term investors. And in this case, I want to talk particularly about staking ETH into the ETH 2.0 deposit contract.
As we all know, the Ethereum network is currently gearing up for its much-anticipated move to a full-fledged ‘proof of stake’ network, rather than the current ‘proof of work’ mechanism. There is yet to be an announcement or a confirmed date for the long-awaited merge, however users can expect to see the merge most likely taking place in Q1 2022, a slight delay from Q4 2021 due to the ongoing rollout of the Ethereum Layer 2 ecosystem. This is not really a big deal at the end of the day, Ethereum users have been waiting a very long time for the merge, which means that most people will be happy to wait a little longer to ensure that everything runs as smoothly as possible.
Now normally, how the ETH 2.0 staking process works is that users need to deposit a minimum of 32 ETH into the ETH 2.0 deposit contract. In doing so, the user is able to run a validator, therefore gaining the ability needed in order to help secure the Ethereum network and take part in validating transactions (a process which is normally executed by miners). However, this is easier said than done nowadays because in order to acquire the 32 ETH that is required to run a validator, the user has to fork out approximately $112,000 USD (at the time of writing). Whereas if we take a look back at last September during 2020, this would only have costed the user around $11,000 USD. Still very expensive, but much cheaper nonetheless.
So up until recently, there has been a very significant financial barrier preventing a lot of people from being able to stake their ETH. And because of what we are trying to build, that being an equally accessible and transparent ecosystem, we must find a way to give people who are newer to the space, and who don’t hold the 32 ETH requirement, the same opportunity that is being offered to other investors.
Well, this brings us to Rocketpool, a fully decentralised Ethereum 2.0 staking protocol. This incredibly innovative protocol aims to offer the Ethereum community a solution to the current constraints that new users face when looking to stake their ETH. Using the Rocketpool protocol, users are able to easily stake as little as 0.01 ETH. Awesome, I know right! Gone are the days where you need to own 32 ETH in order to participate in ETH 2.0 staking. This is extremely important, and a very big win for our industry, as protocols are working extremely hard to ensure that Ethereum always remains secure, decentralised and most importantly, completely accessible to everyone, regardless of the users net worth.
How does it actually work? What happens with my ETH?
That is a great question, and luckily, Rocketpool has a great answer. To put it simply, what happens is that when a user stakes their ETH with Rocketpool, it is bundled together into a pool with other users who are also staking their ETH. Once bundled together the ETH is then deposited using someone else’s node, this person is able to run a validator. So essentially, all of the users who don’t meet the minimum 32 ETH requirement are actually working together in order to come up with enough ETH to stake to the 2.0 deposit contract. Thus, also sharing the rewards for doing so.
As I’m sure most people would know, staking 32 ETH and running your own node is certainly always the safest option. This is because if you are staking less than 32 ETH you basically have to trust that somebody else is going to run their validator correctly, and not execute any malicious transactions. In the instance that this happens, the nodes responsible will be penalised, resulting in a slashing. However, Rocketpool has taken measures to help make this experience as safe and secure as possible for its users. If a Rocketpool node is penalised or slashed, the penalty is spread across the entire network rather than just the bad node/s. This strategy is used as it will significantly reduce the financial penalty of the stakers who actually provided the ETH in the first place. Because the users who initially staked their ETH are not at fault in any way.
I think that this is quite a brilliant protocol overall. It gives users with less financial capacity the same opportunities that someone with a high financial capacity receives, and that’s what Ethereum is all about in the first place. So, if you’re a person who is newer to the space, and you only own a small amount of ETH, it’s really not a bad idea to consider a protocol like Rocketpool. Afterall, we don’t want to just have ETH simply sitting in our wallets collecting dust, we want our money working for us, and a protocol like this gives us an easy and convenient opportunity to do so.
Rocketpool will be launching live on mainnet on October 6th, so keep your eyes peeled for any updates in the future.
As always, this ecosystem finds a way to essentially tackle any barrier that presents to the end user. And that of course, is exactly why I love this industry as much as I do.
Thanks for reading everyone, have a great weekend!
This newsletter is for educational purposes only and should never be considered as financial or investment advice