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The idea of staking increases investment efficiency through the additional income that it generates. Staking is similar to fixing or locking up your ETH coins as collateral to support the processes on the network, and in return, you earn rewards in form of new ETH tokens. The amount of yield that you earn from staking your coins depends on certain factors, such as the number of coins staked; the duration involved in the staking, and, sometimes, even the health of the Ethereum network.
The Different ways of Staking your ETH
Here are some of the ways you can stake ETH on the Ethereum proof-of-stake blockchain. This method applies to every kind of investor: whether you are a crypto whale or a new investor.
Solo Staking (Validator Node)
This method involves running your validator node on the Ethereum platform. To be eligible to participate in solo staking, you need to have, at least, 32 ETH staked. This is the minimum requirement for a solo staking investor. That 32 ETH, for now, is roughly equivalent to $50,000. Solo staking is all about running your validator node on your own. To be an effective ETH Solo stakeholder, you need to be familiar with the software and hardware technicalities involved.
- You need a computer dedicated to the task.
- You need to set up and run the layer client on your computer so that you can be able to connect to the Ethereum network and execute smart contracts and process transactions.
- You also need to set up and run the consensus layer client with which you will be able to validate transactions on the network.
- You will need to generate and manage your keys.
- You need to maintain the hardware and software of your node on the network.
The Advantages of Solo Staking
You don’t need to pay any charges or fees to any middlemen as you earn more ETH.
You are in full control of your investment.
It is more secure.
This type of staking is beneficial to the Ethereum network in the long run.
The Disadvantages of Solo Staking
It is capital intensive: The investment requires high capital.
Investors need to have good knowledge of blockchain and the hardware needed for the venture.
Individuals are solely responsible for the security of their staked funds.
Staking as a Service
This requires a third party to provide the service for you. You will still need to provide the minimum 32 ETH staking capital to the company rendering the services. For this type of service, you will be required to pay a fixed fee. Under this method, you don’t need to have the technical knowledge that the solo staking method requires.
The Advantages
It is beginner-friendly; unlike the solo staking method, you don’t need to have technical knowledge of blockchain before you invest.
You don’t have to worry about securing your nodes since a third party is responsible for that.
You don’t have to keep acquiring hardware.
You are still in full control of your funds since you still have the validator keys.
The Disadvantage
You will have to pay a certain percentage out of your yield as service charges.
The security of your investment is in the hand of your service providers.
Pool Staking
In this method, investors, via a pool platform, put their funds together until they amount to 32 ETH, and then the funds are deployed to active validator nodes. The reward from this venture is then shared among the members of the pool. However, we should take note that most of the staking pools exist outside the Ethereum network and operate in a decentralized way. This makes the venture risky, and in the case of misconduct, it is hard for the regulator to shut them down.
The Advantage
The minimum deposit required is affordable.
It allows for liquidity of your staked tokens.
The disadvantage
They charge a flat fee for your rewards.
You have no control over the validator node.
Centralized Exchanges
You can also stake your token on Centralized Exchange platforms. The Centralized exchange platforms provide various services which also include staking your tokens for rewards. However, they always retain full control of your investment and you don’t have the validator keys; therefore you forfeit the benefits of running your nodes by yourself, just like the solo staking methods.
Advantages
Staking on the platform is very affordable. You can invest with as low as 0.001 ETH.
The platform manages and secures your funds for you.
Disadvantages
Staking on a Centralized exchange platform is risky.
You may be charged a service fee and a withdrawal fee.
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