With Ethereum’s transition from proof-of-work (PoW) to proof-of-stake (PoS) in September 2022, staking has become the primary way to secure the Ethereum blockchain. This major shift, known as The Merge, drastically reduced Ethereum’s energy consumption and opened up new opportunities for users to earn passive income by staking their ETH.
Ethereum’s Shift to Proof-of-Stake
Ethereum previously operated under a PoW model, where miners competed using powerful hardware to validate transactions. This method consumed immense energy and created bottlenecks in scalability. The Merge replaced miners with validators—participants who stake ETH to help validate transactions and maintain the network’s security and decentralization.
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How Ethereum Staking Works
Ethereum staking involves locking up ETH to become a validator. Validators are selected to propose and verify new blocks based on how much ETH they have staked and for how long. To become a solo validator, one must stake a minimum of 32 ETH (worth over $45,000 as of mid-2025). Validators earn rewards paid in ETH, but may lose part of their stake if they act dishonestly or fail to stay online—a penalty known as slashing.
Staking Pools and Liquid Staking Solutions
Due to the high entry requirement, most ETH holders stake via staking pools or centralized exchanges like Coinbase or Binance. In these setups, users pool their ETH to meet the 32 ETH minimum and share staking rewards. However, platforms charge fees and often hold custody of your ETH, introducing risks tied to regulation, security breaches, or exchange failures—like the infamous FTX collapse.
Liquid staking providers like Lido Finance offer added flexibility. Users receive a tokenized version of their staked ETH (e.g., stETH), which can be traded or used in DeFi protocols. Lido alone accounts for nearly one-third of all staked ETH.
Pros of Ethereum Staking
- Earn Passive Income: ETH stakers currently earn around 4% APY, with potential increases due to Ethereum’s Shanghai upgrade enabling staking withdrawals.
- Environmentally Friendly: Unlike PoW mining, PoS staking consumes minimal energy.
- Increased Network Participation: Staking helps secure the network and support decentralization.
Cons of Ethereum Staking
- High Entry Barrier: Solo staking requires 32 ETH. Alternatives come with trade-offs like fees and custodial risk.
- Liquidity Lock-Up: Staked ETH is illiquid until withdrawals are enabled—though this has improved post-Shanghai upgrade.
- Platform Risks: Centralized exchanges may face regulatory scrutiny, cyberattacks, or even bankruptcy.
Key Takeaways
- Ethereum staking allows users to earn ETH rewards while supporting the network, but it involves locking up funds and some risks.
- Staking pools and liquid staking platforms like Lido offer more accessible options for average users.
- While Ethereum staking is a promising passive income strategy, security, liquidity, and platform choice remain critical considerations.