A Beginner's Guide to Ethereum Staking

Ethereum’s migration from Proof-of-Work to Proof-of-Stake offers an exciting opportunity for people to participate in the network and earn rewards.

In this beginner's guide to Ethereum staking, we’ll explore what staking is, how Ethereum staking works, and how you can withdraw staked ETH.

A Background on the Ethereum Network

Ethereum is an open-source blockchain network that introduced smart contract-powered decentralized applications (dApps) into the crypto ecosystem.

dApps are a new generation of applications that don’t require centralized authorities to operate. Instead, smart contracts, which are code-bound agreements, execute automatically based on predefined conditions set by the parties taking part in the contract. Smart contracts are critical in many products and services that make up Ethereum's web3 ecosystem. They essentially replace trusted centralized entities in overseeing transactions.

Ethereum was launched in 2014, after a successful token sale. Participants in the campaign bought ether (ETH), the network's native currency, raising over $18 million for the blockchain venture. The platform has since expanded rapidly.

Ethereum Founders

Vitalik Buterin, a Russian-Canadian programmer, initially proposed Ethereum in 2013. He released a whitepaper describing an alternative blockchain network that would surpass Bitcoin's proposed financial use cases.

Ethereum's earliest co-founders include several other talented developers who reached out to Buterin to help bring his vision to life. These include:

• Charles Hoskinson, an American entrepreneur who later founded Cardano;

• Anthony Di Iorio, an early Bitcoin proponent who contributed to Ethereum's success in branding and marketing;

• Mihai Alisie, a Swiss tech and media entrepreneur who served as the Editor-in-Chief of Bitcoin Magazine, which he created with Buterin;

• Joseph Lubin, a computer scientist who previously worked for Goldman Sachs before joining the Ethereum team;

• Gavin Wood, an English computer scientist who created the first Ethereum testnet, and eventually created Polkadot and Kusama.

As of April 2022, over 200,000 independent developers and organizations were working to advance the Ethereum project. Many of these developers were involved in preparing the Ethereum network for its long-awaited Proof-of-Stake (PoS) upgrade to the Ethereum Consensus Layer (formerly known as Ethereum 2.0).

The upgrade was completed successfully in September 2022 and effectively changed Ethereum from a Proof-of-Work (PoW) to a Proof-of-stake (PoS) blockchain.

Staking Explained

Staking in the world of cryptocurrency refers to the act of “locking up” digital assets to take part in a network’s consensus protocol in exchange for rewards paid out in the network’s native asset.

In most cases, you can stake your coins directly from your crypto wallet or through staking services offered by exchanges.

To understand staking, it is vital to know how the Proof of Stake (PoS) consensus mechanism works.

PoS is an energy-efficient alternative to the Proof of Work (PoW) mechanism used by some blockchains such as Bitcoin. In PoW, miners have to compete to repeatedly solve mathematical puzzles, which can be resource-intensive, to find the next block and earn the block reward. In contrast, PoS allows participants to stake coins and assigns the right to validate the next block to one of them at particular intervals. The probability of being chosen is proportional to the number of coins staked.

Some of the reasons for the migration of the Ethereum network from PoW to PoS is the fact that staking enables a higher degree of scalability, less resource-intensive, and more environmentally-friendly. Some popular projects that use the PoS mechanism include Cardano, Polkadot, and Cosmos.

What Is Trust Wallet

Trust Wallet is a self-custody crypto wallet designed to make it easy for anyone to buy, sell, send, receive, swap, and store cryptocurrencies, as well as safely explore Web3.

One of the standout features of Trust Wallet is that it supports a over 10M digital currencies and tokens across 70+ blockchain networks. Plus, it offers direct access to decentralized applications (dApps) for safe interaction with supported blockchains.

With Trust Wallet, you can buy cryptocurrencies from various third-party platforms such as Mercuryo, MoonPay, Ramp Network, Simplex, Transak, and Wyre. In addition, you can stake numerous crypto assets, including BNB, ATOM, and XTZ, to earn rewards directly within the mobile app.

Overall, Trust Wallet is an accessible and versatile wallet that offers a range of features. Its support for numerous tokens and blockchains, as well as its ability to interact with dApps and NFTs make it a popular choice for many cryptocurrency users.

What Is Ethereum Staking?

Ethereum staking is the process of actively participating in the Ethereum network by locking up a designated amount of ether (ETH), the native token that powers the Ethereum network.

Staking involves becoming a validator, responsible for verifying and processing transactions, storing data, and adding new blocks to the blockchain.

Validators are chosen randomly to create new blocks, and they receive rewards in the form of interest on their staked ether. To become an independent validator, you must invest at least 32 ETH, which acts as a security deposit. Validators are also incentivized to maintain positive behavior and stay online. Otherwise, they risk losing their rewards or their entire deposit for not fulfilling their duties or when caught engaging in malicious activity.

Staking on Ethereum was made possible by the switch from a proof-of-work consensus mechanism to a proof-of-stake mechanism. This occurred through an upgrade to the network known as the Merge. This transition eliminated the need for miners, who use vast amounts of energy to solve complex mathematical problems in exchange for rewards. Instead, network validators are now chosen randomly from a pool of stakers who have locked up their ether.

Ethereum staking provides a passive income stream for contributors and helps to secure the network's consensus layer upgrade, previously known as Ethereum 2.0. By participating in staking, you can help ensure the integrity and stability of the Ethereum network while earning rewards for their efforts.

How Does the Shanghai Upgrade Affect Staking Withdrawals?

The Ethereum network recently underwent a major update called the Shanghai Upgrade, which was completed on April 12, 2023. This hard fork of the Ethereum protocol is the first major upgrade since the Merge in September 2022.

The Shanghai Upgrade was aimed mainly at enabling withdrawals of ether (ETH) from the deposit contract. It was accompanied by the Capella Upgrade, which applied changes to the Consensus Layer. Together, these upgrades are known as ‘Shapella’.

Ever since the launch of the PoS-based Beacon Chain back in December 2020, those who wanted to become validators on the new Ethereum 2.0 network had to stake 32 ETH or more. However, the assets were locked for an indefinite period of time. After the Shanghai and Capella Upgrades, users can now withdraw staked ETH.

Withdrawals are possible either via a partial withdrawal or a full withdrawal. This new implementation of withdrawals is set to provide more liquidity for stakers and the broader market.

Note that after the hard fork, non-upgraded nodes are no longer able to participate in the staking and validation process, as the upgraded nodes became incompatible with the non-upgraded versions.

Common Questions About Staking Withdrawals

Can I withdraw my staked Ethereum at any time?

If you are an independent staker or run your own validator, you can withdraw your staked Ethereum through partial or full withdrawals.

However, if you have staked your ETH through a staking service or decentralized staking pool, you will need to check with them to find out when you can withdraw your staked ETH.

What are the risks of staking Ethereum?

Staking Ethereum involves some risks that stakers should be aware of before deciding to participate. It’s important to conduct your own research to understand the related risks before staking your ETH. These include:

• Slashing risk: One significant risk of staking Ethereum is the possibility of getting slashed. This is a penalty enforced by the network to ensure validators operate within the protocol's rules. The Ethereum community can penalize validators for being offline or for validating incorrect transactions, which may affect staking returns.

• Custodial staking risks: If you stake with a crypto exchange or a staking service, then your ETH is not in your private wallet but held by the exchange or the service you use. These types of services could be susceptible to hacks, counterparty failure, or government actions.

• Risk for all stakers: The Proof of Stake Ethereum network has not been tested, and there is a chance that it may not work as expected due to undiscovered smart contract complications. This could mean loss of funds for stakers.

What is the average earning potential for staking Ethereum?

Validators who stake ETH can expect an average annual percentage yield (APY) of around 4%. Although this is subject to change, so we encourage you to always do your own research.

How to Withdraw Staked Ethereum

If you have staked ETH, you might wonder how to withdraw it. The process for withdrawing staked ETH depends on whether you are an independent staker or if you have staked your ETH through a staking service or decentralized staking pool.

Independent Stakers

If you are an independent staker or run your own validator, there are two ways to withdraw your staked ETH: partial withdrawals and full withdrawals.

Partial withdrawals are available for the excess profits you have made after staking the required 32 ETH and earning rewards. You can withdraw these immediately, but you will need to migrate your validator to include a 0x01 withdrawal credential. If you don't do this, partial withdrawals won't happen automatically. Note that the queue could take hours to process if there are many requests.

Full withdrawals, on the other hand, involve removing your entire balance from the blockchain, including all rewards and the 32 ETH. After full withdrawal, your validator will no longer participate in the block validation process.

Staking Service or Pool

If you are using a staking service or pool, you will need to check with them to find out when you can withdraw your staked ETH.

Lido is the largest liquid staking protocol that announced that its users who hold staked Eth (stETH) will not be able to retrieve their ETH until the protocol goes through an upgrade in mid-May.

Lido is a non-custodial, decentralized protocol that allows you to stake their ETH without having to worry about running their own validator. Instead, Lido runs validators on behalf of its users, who receive a tokenized representation of their staked ETH called stETH. Users can trade stETH on various decentralized exchanges and can also redeem their stETH for ETH at any time by burning their stETH tokens.

Independent staking brings the most decentralization and security benefits to the Ethereum network. However, it can be challenging for most retail stakers due to the associated technical and operational demands.

Moreover, not many retail investors can afford to stake the entire 32 ETH necessary to run their own validator. For this reason, many stakers use different offerings, ranging from fully-custodial and centralized providers such as Binance to non-custodial, decentralized protocols such as Lido. You can access Lido directly using Trust Wallet.

Bottom Line

As the Ethereum network continues to evolve and expand, it’s important to stay informed about the latest developments and opportunities in Web3.

Ethereum staking offers an exciting way for users to participate in the network and earn rewards while also contributing to its security and scalability. Trust Wallet is a great option for staking Ethereum, and many other cryptocurrencies as it has auser-friendly interface and supports a wide range of tokens, dApps and blockchains.

Download Trust Wallet here to start staking ETH using Lido.

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Note: Any cited numbers, figures, or illustrations are reported at the time of writing, and are subject to change.