WORK: “Ethereum 2.0: Is “staking” a risk-free, guaranteed investment?”

Image by Peter Patel from Pixabay

I’ve been so busy that I forgot to tell you all that a new crypto article by yours truly was published. This time I tackle Ethereum, the world’s second-biggest cryptocurrency by market capitalization. I explain what “staking” is, how the proof-of-stake mechanism works, and try to determine if it’s a sound investment to participate in the new ecosystem. It’s a pretty didactic article, you don’t need to know much about the subject to understand it.

I’m so busy that this time I can’t even craft lame jokes for the introduction. It has come to this.

But anyway, Is “staking” a risk-free, guaranteed investment? Find out in the real article, or get a taste after the jump:

It starts with definitions, what is “proof-of-work” exactly? and what about “proof-of-stake”?:

In the already classic proof-of-work mechanism, miners compete in solving cryptographic puzzles, which are complex mathematical equations. The winner of this race gets to validate a block of transactions, thus being rewarded with the coveted “block rewards”.

We go to the source, Ethhub, for a definition of proof-of-stake. “A class of consensus algorithms in which validators vote on the next block, and the weight of the vote depends upon the size of its stake.” But, what are “validators” anyway? Bitrates explains that in the proof-of-stake model: “miners are replaced with validators. These “validators” are a set of nodes that “stake” a predetermined amount of ETH on the network in order to earn the right to vote in the consensus process.

Then it clearly states the cost and rewards of becoming a validator, the risks and responsibilities, the variables and possible penalties.

Since the system wants independent validators to increase decentralization, the penalties for not being online are low. But there are penalties. Status informs: “Inactivity leaks happen if your validator node goes offline for 18 days, and the beacon chain is not finalizing, then your balance will be reduced by up to 60.8% slash in 18 days.” Still, according to Vitalik: “as long as you are online more than ~50-67% of the time” your operation should be profitable.

And then, there’s a very important timeline. When does all of this begin?:

In the roadmap to “Serenity”, they state: “It’s important to understand that this upgrade will not take place at a single point in time – instead, it will be rolled out in phases”. And that: “Justin Drake strongly believes that the sharding phases 1 and 2 will come in 2020 and 2021, respectively (assuming that the Beacon Chain launches in 2019)”, which hasn’t occurred yet. The “Beacon chain” is the new blockchain that uses proof-of-stake model.

So, you still have time to get into this if so you choose.

Of course, you should read the whole thing to get all of the information before making a decision. These bits and pieces are just an appetizer.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s