What Is Staking in Crypto? $14 Billion Sent to Ethereum 2.0 Network

Ethereum cryptocurrency owners have now staked more than $14 billion worth of their tokens on the Ethereum 2.0 network, Etherscan data shows.

It marks a rise from around $13.5 billion staked on Monday, as reported by Markets Insider, which highlights the pace of the shift towards Ethereum 2.0.

Ethereum 2.0 represents a fundamental change in how the Ethereum blockchain works.

Staking explained

In order to remain decentralized—that is, operating without a central authority—cryptocurrency networks work by incorporating a consensus mechanism, which means all computers on that network can agree on what’s going on at any given time without a central bank intermediary.

This means everyone’s computer can agree on which transactions have taken place, for example, instead of a bank keeping track of it.

Ethereum, like Bitcoin, uses a consensus mechanism known as proof of work (PoW), in which people use computing power to keep the network up to date in return for new tokens. This process is better known as mining.

But proof of work has issues, such as high energy consumption and prohibitively strict hardware requirements. It sees network users compete for the chance to update the network by updating it with all the new transactions that have taken place.

Another consensus mechanism, called proof of stake (PoS), may eliminate some of the problems associated with proof of work.

A proof of stake mechanism sees cryptocurrency users contribute to network validation by depositing a certain amount of cryptocurrency into that network as a stake.

They are potentially rewarded for this by being given new tokens in return for their stake, if they are the user that is chosen to update the network. A bigger stake means they are more likely to be chosen.

Conversely, they will be punished by losing part of their stake if they attempt to attack the network, go offline, or fail to validate the network. Once a stake is made, it is essentially locked.

A users’ staked tokens act as a guarantee of the legitimacy of any new transactions they update the network with.

The new version of Ethereum that is using PoS is called Ethereum 2.0. Users can stake their tokens in the Ethereum 2.0 network by sending their Ether to a deposit contract, which they must do by following instructions on Ethereum’s Launchpad product.

Generally, Ethereum users are required to stake 32 Ether—worth roughly $73,600 as of 10:45 a.m. EDT on Tuesday—if they want to become validators on the new network.

The Ethereum 2.0 beacon chain was launched by network developers in December 2020.

A photo of a visual representation of an Ethereum token amongst regular currency coins, taken in April 2018 in London, England. Ethereum is undergoing a major shift in the way it works.
Jack Taylor/Getty