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Why stake?

Reasons you might decide to (or not to) stake

This is Part 5 of a six part series called A Beginner’s Guide to Staking

Why would I want to stake?

I’ll approach this by telling you why I stake:

  • It decentralizes an extremely exciting piece of technology Being part of the validator set lessens the possibility that this tech will be captured by a single or a few entities. I have a lot of hope for Ethereum and the only way that Ethereum has a shot of succeeding at benefitting all kinds of humans rather than benefitting a very few is if we participate in its infancy. Systems are built to benefit the people who build those systems - maximally diversify the people who are engaged and invested Ethereum is maximally diversifying who Ethereum will benefit

  • It’s passive income Ethereum is young and it’s still kind of finicky to set up a validator. There are a ton of projects making it easier, but once you’re set up, it’s pretty hands-off. I personally have done maybe an hour of updating / maintenance / curious-poking-around on my validator in the past six months. And the EthStaker community is more than enthusiastic about helping you climb over any stumbling blocks that you might encounter.

  • It’s low-risk I’m a risk-averse person. Crypto, in general, is a high-risk industry. The price of bitcoin and ether fluctuate wildly and you constantly hear about people getting liquidated, losing their money, or getting hacked. A lot of these stories you hear are about degens, a colloquial term embraced by this group of people. It’s short for ‘degenerates’ and refers to people taking high-risk bets for high yields. It’s gambling. Staking is the opposite of gambling - you’re still exposed to the asset price of ether, but you’re gaining a stable, low-yield, low-risk APR on that investment. It’s not the sexiest thing to be doing and it’s not going to make you a millionaire overnight. But it is going to keep your investment safe and put it work generating passive income. The only way staking falls apart is if Ethereum itself falls apart - and if Ethereum falls apart, I can guarantee you that the entire crypto industry will be devastated for years.

  • It keeps me engaged When I was a kid in the early 2000s, I remember a year where my family did a competition on the virtual stock exchange. It was my dad’s way of trying to get us a leg up - once you’re invested, you started doing research and learn more about that thing. Because I have a validator, I like to keep up with what’s going on in Ethereum. And I’m now realized how much of an advantage I have in this world because I took the time to figure out how a wallet works, what ‘onchain’ means, and what kinds of new, unexpected tech is being built on top of Ethereum

How much work is involved?

It depends on how you stake.

Decentralized staking

If you’re using a decentralized staking protocol, it’s as easy as trading your ETH for another token, and then you hold onto the token that got traded. rETH is an example of one of these tokens, and the steps would be:

  1. Trading your dollars / euros / pesos / lyra for ETH

    • This can either be done on a CEX like Coinbase, or on a mobile wallet app like Argent, Metamask, Rainbow, Guarda, or Coinbase Wallet (which is different from Coinbase, the CEX!)

  2. Trade ETH for rETH

    • If you did this on a CEX, you’ll first have to move your ETH onchain into a wallet (yay self-custody!).

    • If you did it on a mobile wallet like the ones mentioned above, you’re already self-custodying and can trade it directly

Running your own validator

This is a bit more work, but is absolutely the better option if you have at least 17.6 ETH. There are very detailed guides and communities to get you through the process

  1. Research and buy hardware. You’ll need a computer with at least 2 TB NVMe hard drive & 16 GB RAM. Then you wait a couple days for this to arrive.

  2. Using your guide of choice (Someresat, CoinCashew, Rocket Pool, DAppNode, etc), you set it up. I’d allocate at least a full day for this if you’re tech-savvy and maybe 2-3 days if you’re unfamiliar with command line.

  3. Use the mobile app or desktop app and tell it which validator is yours - it’ll monitor for you and notify you if anything’s wrong with it. There are also other, more involved, and self-hosted options to monitor your validator.

All in all, this could be 2-5 days of work, and then it’ll be maybe one hour every 3ish months unless a piece of your hardware starts failing and you have to replace it.

I’m not a technical person, I’ve never built a computer, and I’m able to run a validator. My hard drive failed last year and I just bought a new mini computer (~$600) and loaded my seed phrase in and re-setup my validator. It would have been cheaper (~$100) for me to replace the hard drive, but I’m lazy and taking apart a computer intimidates me. If it happened again, I’d probably make the smarter choice and figure out how to replace the hard drive.

I’ve heard I can get ‘slashed’?

There are generally two types of people who get slashed:

  1. Super shadowy secret hacker coders trying to do something malicious

  2. Very tech-savvy people who are trying to achieve 100% uptime by setting up two duplicate machines, and they mess it up and accidentally run both at the same time, resulting in the validator double-attesting.

A validator won’t get slashed for normal behavior. You’re not going to get slashed if your internet goes down. You’re not going to slashed for accidentally messing up an update.

Even if you did manage to get slashed by double-attesting, which is having your validator keys on two machines at once, both trying to attest, you’d lose 1 ETH. The slashing penalty depends on how many other validators are also slashed in that incident - this ensures that, if someone managed to start up a ton of validators in order to attack the network all at once, they’d be penalized more heavily than someone who just made a mistake.

If you’ve pooled your ETH and are relying on someone else to run the validator that stakes your ETH, you should be aware of how they handle slashing risks. If they try to get fancy and create a failover (a duplicate computer that is supposed to run if the first goes down) that gets their validators slashed, will they reimburse you? This is specific to the staking service you choose and you should ask them how they’d handle this.

How much will I make?

If you plan on running a validator, you don’t need a calculator or a tool to see this. You can see how much each validator earns on - you can look at random validators (e.g. validator/222222) or use beaconscan’s Daily Validator Income page.

At the time of writing this, the official APR on the launchpad is 4.65% and each validator earns about $6/day, which doesn’t take into account the appreciation of the price of ETH. As ETH grows, the income will too, as rewards are denominated in ETH.

Anecdotally, we can look at one of the first validators to come online in December of 2020:

Value at start: $18,880 Value now: $69,700 - including rewards & appreciation of the value of ether

You can never guarantee an increase in the price of ether, so this should be understood anecdotally, but I personally believe that anything denominated in ether is a good long-term investment. I think a lot of the financial system we know now will be running on rails that are built with Ethereum in the next decade and we won’t even know because it’s all under the hood.

How long can a validator be offline?

Basically… a decade. If your validator earns you $6/day while it’s online, it will lose you $6/day while you’re offline. If it’s offline for week, you’ll see your balance decrease by $6 x 7 days = $42 (based on current prices and APR). If it’s offline for a month, $6 x 30 days = $180. You’ll never be slashed for being offline. If you leak long enough for your balance to get down to 16 ETH, you’ll be kicked off the network (not slashed) but that would literally take nearly a decade of having an offline validator. And we’d hope, if you were offline for that long, you’d just come to the EthStaker discord and ask for help to exit your validator. You can exit your validator any time if you no longer want to take care of it. An exited validator doesn’t lose any money at all, and post-Shanghai, they can withdraw their entire balance at any point.

Offline penalities are not slashing. Slashing is a serious penalty and kicks you off the network. Offline penalties are minor and never kick you off the network.

The next post

The next post’s topic is “Finding your best way to stake”. It will cover the different categories of staking, where they lie on a spectrum of decentralization, the options within those categories, and what to consider when evaluating different services.


Ben Edgington: “Slashing” (highly technical article)

As always, if you find any inaccuracies in these blog posts, please contact nixo and let her know so she can hastily correct them.