These deposits, which are parceled into batches of 32 ETH at a time, are now validators on the Ethereum Beacon Chain, the first step in the transition to the upgrade called Consensus Layer (formerly known as Ethereum 2.0).
The most notable change following the upgrade will be Ethereum’s switch from a proof of work (PoW) consensus algorithm, like Bitcoin’s current mechanism, to a proof of stake (PoS) mechanism.
And that 10 million Ethereum now locked up in the deposit contract will play a key role in this next iteration.
That’s because instead of relying on heavy computing and extreme energy loads to process transactions, the PoS design swaps miners for validators. These validators and their “staked” Ethereum create an economic incentive to only process legitimate transactions. If they attempt to process a fraudulent transaction, such as saying the same ETH has been spent twice, for example, they will be “slashed” or suffer a monetary penalty.
Though the hardware requirements of running a validator are still steep for the layperson, they’re certainly less demanding than building a mining farm in Kazakhstan, for instance.
Validators are also rewarded for being good citizens in the ecosystem. According to Staking Rewards, the current reward for Ethereum 2.0 stakers is 4.81%. For comparison, staking on Terra and Solana earns users 6.07% and 5.72%, respectively.
Who is staking on Ethereum?
Taking a closer look at the deposit contract, the entities involved are varied. One of Kraken’s Ethereum wallets is, for example, listed.
That’s because many crypto exchanges like Kraken offer staking services for their users. Instead of setting up a validator at home, you can stake with exchanges like Binance, Gemini, Coinbase, and others to earn a similar yield, but without the hassle.
More crypto-native solutions also exist including Lido Finance and Rocket Pool.
No matter how they’re staking, though, users appear to be more bullish than ever on the launch of Ethereum’s upcoming transition.