The world of cryptos and web3 could be a wacky one, for many of us. For there is a lot on ‘stake’ that keeps one dubious about cryptos in general. Additionally, this novel space is a combination of several ‘operational processes’ that adds to its complexity. One such process being – solo staking.
One of the simplest methods to profit from your cryptocurrency holdings is by staking. By staking, you allow the blockchain to borrow your assets, which it then uses for network expansion. The blockchain will reward you with freshly formed coins in exchange. It resembles securing money in a fixed deposit to accrue interest over time.
Since Ethereum opted to switch from Proof of Work to Proof of Stake for the upcoming Ethereum 2.0, solo staking has been navigated multiple times by the community members. Let’s understand how one can get their heads around solo staking and take part in the process.
What is Solo Staking?
‘Solo staking’ refers to running an Ethereum node connected to the internet by depositing 32 ETH which in turn activates a validator. Solo staking allows the staker to participate directly in the network consensus.
An Ethereum 2.0 node comprises an execution layer (EL) client and a consensus layer (CL) client. Both these clients are software that works together with a valid set of signing keys, for validating transactions and blocks, certifying to the correct head of the chain, aggregate attestations, and also to propose blocks.
Solo stakers take care of operating the hardware required to run these clients. It is highly recommended for a staker to use a particular machine for operating the hardware from their home. This is extremely beneficial for a better Ethereum network.
Notably, solo stakers win rewards directly from the protocol for keeping their validator properly working and online.
Also read: All About Ethereum Staking
Why Should You Consider Solo Staking?
Solo staking implies more responsibility, however, it empowers one with complete control over their funds and staking setup.
- Earning direct ETH
While your validator is online, you can earn ETH-denominated rewards directly from the protocol, with no go-between/middlemen taking a share of the money.
Well, then solo stake and keep your wallets clinking with freshly minted ETH!!
- Complete Control
With solo stake you get to keep your own keys. Choose the client and hardware combination that enables you to curb your risk while also keeping the network healthy and secured.
It is imperative to note that when you resort to third-party staking services, decisions are made for you by them. Unfortunately, they do not always make the best choices.
- Network Security
Solo staking is the most effective way to stake. Running a validator on one’s own hardware at home can boost Ethereum Protocol’s robustness, decentralization, and security.
How does Solo ETH Stake work?
- Through hardware: You need to run a node to stake.
- By syncing an execution layer client.
- By syncing a consensus layer client.
- By generating your keys and loading them into one’s validator client.
- Supervising and maintaining your node.
If you ever wish to discontinue from being a validator, you can simply exit. If you exit, you won’t be required to be online. However, note that you would not receive any further rewards after doing so.
Also, one has to be aware that withdrawing those rewards is now possible as the Shanghai upgrade (an upgrade of Ethereum) is completed.
Things to know before Staking Ethereum
Call it one of the inherent drawbacks of technology, but solo staking can be difficult to access and can come with certain risks like most technological procedures!
Therefore, before solo staking your ETH, it is imperative that you take into account some significant and practical details.
Do your Own Research
We can’t stress enough on this one!! While you are running your own node, you must first and foremost learn how to use the software you’ve opted for.
This includes reading relevant documentation and coordinating the communication channels of those developer teams.
It all boils down to one thing, the more you know about the software you’re running and how proof-of-stake operates, the less risky it will be as a staker, and the easier it will be to troubleshoot any issues cropping up for a node operator.
Usability of Computers
Node setup can be a knotty thing to do!! One does need a comfortable level of usability when working with computers, although new tools are making this easier over time. The understanding of the command-line interface is a good thing but no longer strictly required. It also requires a very basic hardware setup, and some understanding of minimum recommended specifications.
Securing Key Management
Just like the manner in which private keys keep your Ethereum address safe, you will similarly need to generate keys, particularly for the security of your validator. You must know how to keep any seed phrases / private keys safe and secure.
No Withdrawals
Ethereum Foundation has clarified that withdrawing staked ETH or rewards from a validator balance is not yet supported. The support for withdrawals will be expected for the Shanghai upgrade after ‘The Merge’ goes live.
Moreover, you must expect your ETH locked for at least one-to-two years. As the Shanghai upgrade is up and running now, you can freely withdraw portions or all of your stake if you want.
Maintenance
Random failures of hardware and network issues are just a matter of bad luck. Hence, client software needs upgrading frequently. It is also mandatory to maintain nodes to cut the chances of any misfortune!
You must stay informed of any latest network upgrades or other significant client upgrades.
Trustworthy/Reliable uptime
You should be aware that your incentives depend on how long your validator is online and correctly performs the verification. The number of other validators that are offline at the same moment determines the amount of “fines” that are charged for downtime.
Nevertheless, it does not lead to slashing. One important element is the bandwidth because rewards are reduced for timely verifications. Although there may be some variations in needs, a minimum of 10 Mb/s up and down is advised.
Slashing
There is already a penalty called ‘inactivity penalty’ for being offline. On top of that, comes ‘slashing’ which is a far more serious penalty for committing malicious offenses.
Nevertheless, the risk of being slashed can be reduced by simply running a minority client with your keys loaded on only one device at a time. But again, stakers ought to know the risks of slashing.
Frequently Asked Questions on Solo Staking
- Is ETH solo staking profitable?
The primary advantage of staking is that one can earn more ETH, with lucrative interest rates. Sometimes, you can earn more than 10% or 20% per annum. It’s potentially a very profitable way to invest your money.
- How much can you earn with solo staking?
As of now, the estimated annual yield for staking is 2%-20% of the value of your Ether, which staker must lend in the denominations of 32 Ether.
- Can we deposit more than 32 ETH?
Each key-pair linked with a validator needs exactly 32 ETH to be activated. Note that depositing more ETH to a single set of keys would not increase your rewards. This is because validators are limited to an effective balance of 32 ETH.
