Binance Launches Ethereum 2.0 Staking

Binance Staking finally launched support for Ethereum 2.0 at the end of 2020. Now the staking service allows users to get exposure to ETH 2.0’s newly launched Beacon Chain. Initially, Binance will provide customers with an annual percentage yield of 20%, which starts high and drops with staked ETH.

As you may know, the minimum requirement to become a validator on Ethereum 2.0 is 32 ETH, which is quite an amount. Binance Staking lowers this threshold, allowing users to get together in groups in order to build validators and consequently bear the risk of on-chain penalty together. The platform will redistribute on-chain profits to all users participating in the staking process. Binance has already proved that it can provide the best staking services with many other tokens, and it aims to achieve even more with ETH 2.0.

Why Stake Ethereum 2.0 on Binance?

You can stake ETH 2.0 directly on the upgraded Ethereum blockchain. However, the minimum deposit requirement to become a validator is very high, which is why Binance Staking can become the ideal staking platform for you. Besides the 20% APY, here are the main benefits of staking ETH 2.0, particularly on Binance:

  • Low Entry Requirement – You can start staking ETH 2.0 with only 0.0001 ETH. The platform made it possible for you to reap the benefits of ETH 2.0 staking with only a small fraction of the amount required by the Ethereum Foundation, which is 32 ETH. As of January 10, this amount is the equivalent of over $32,000.
  • Security – On Binance Staking, funds are SAFU (Secure Asset Fund for Users), meaning that there is an emergency reserve to protect your funds. This is especially relevant considering that it may take up to 18 months until reaching Phase 1 of ETH 2.0.
  • Convenience – You don’t have to be an Ethereum expert and understand all the intricacies of the upgrade in order to stake ETH 2.0. Binance Staking will do everything for you, including testing and validator maintenance.

Besides the launch of the staking service, Binance also introduced BETH, a new ERC-20 token that is pegged to ETH with a ratio of 1:1. The goal of BETH is to support users who trade or hold ETH on Binance during the period needed to lock in ETH, which can be up to 24 months. Users can use BETH to redeem ETH after the launch of ETH 2.0. The process goes like this – users who choose to lock ETH before Phase 1 of ETH 2.0 starts can turn these locked funds into BETH, which is a tradable asset that is flexible and brings liquidity to the Binance ecosystem. Users can trade their BETH while waiting for the expiration of the lock-in period. Once ETH is unlocked, they can easily redeem their BETH holdings for ETH.

What Stage is Ethereum 2.0 At Now?

On December 1, the first stage of Ethereum’s 2.0 Proof of Stake (PoS) network, called Beacon Chain, went live at 12:00 UTC.

The launch coincides with the start of phase 0 during which the consensus mechanism on Ethereum will be gradually updated to integrate Proof of Stake. Thus, the network, whose cryptocurrency is worth over $115 billion by market cap, will experience major changes affecting the way it settles transactions.

Ethereum Foundation researcher Danny Ryan told CoinDesk at the beginning of December:

“The launch of the Beacon Chain is a huge accomplishment and lays the foundation for Ethereum’s more scalable, secure, and sustainable home. There is still much work to do, but today we celebrate.”

The Beacon Chain is the fundamental part of the new Ethereum network. The new blockchain aims to compete with Visa and PayPal in terms of processing speed.

The next important phase comes with other technical challenges, such as the introduction of shards by breaking the Ethereum blockchain into multiple datasets, and the adoption of Rollups, a throughput solution aimed at dApps.

So far, the goal of setting phase 0 genesis by the end of 2020, as voiced by Ethereum Foundation researcher Justin Drake back in July 2020, has been met. After Drake’s tweet, the community has experienced several steps of preparation, including the Medalla testnet launched at the end of July, followed by Spadina and Zinken trials from September until October. The final test was conducted by the end of November under the Pyrmont project.

The long-awaited deposit contract for Ethereum 2.0 was finally unveiled on November 4 by the Ethereum Foundation, and the genesis date was set for December 1.

In order to launch the Beacon Chain, the deposit contract required 524,288 ETH one week before the genesis date. Even though large amounts of Ethereum were deposited into the contract, including co-founder Vitalik Buterin’s own $1.4 million, it took about two weeks to fill the contract. The conditions were met on November 23, and the network could go live on the first day of December as planned.

As of January 11, over 1.8 million ETH is now staked on the network, which is worth over $1.8 billion. There are 57,878 active validators and 15,870 pending validators.

Staked Ethereum 2.0 and Active Validators
Source: Beacon Chain – Open Source Ethereum 2.0 Explorer

Still, the functionality of Beacon Chain is quite limited at the moment. Like the testnets that preceded it, participants in Ethereum 2.0 help “store and manage the registry of validators” at the moment. As for the accounts and transfers, they remain locked until the launch of Phase 2, while the ETH 1.x blockchain, which uses Proof of Work, continues to run in parallel. Thus, Eth 2.0 won’t be usable until 2022 at least.

Ethereum 2.0 Roadmap

As you may know, Ethereum 2.0 is launched gradually, in phases, as it has to replace an entire infrastructure. Here is how the process looks like according to the roadmap:

  • Phase 0 – Scheduled for the end of 2020, and the deadline has been met. We’re currently at this stage, which involves the implementation of Beacon Chain. The new network brings the PoS consensus mechanism and stores and tracks the registry of all validators. Meanwhile, the PoW runs in parallel as well to ensure a smooth transition.
  • Phase 1 – This phase is scheduled for the current year and will culminate with the integration of so-called PoS shard chains. The Ethereum 2.0 network is planned to start with 64 shards. Still, at the first stage, they won’t support accounts and smart contracts. There will be a Phase 1.5 as well when the Ethereum mainnet will also become a shard and turn to PoS.
  • Phase 2 – The final phase is scheduled to go live by the end of this year or the beginning of 2022. During this period, the shards will become fully operational and will support smart contracts and Ether accounts, along with transfers, cross-shard transfers, withdrawals, and contract calls. The Ethereum Virtual Machine (EVM) will be replaced with Ethereum WebAssembly (EWASM) virtual machine.

This is the main roadmap promoted by the Ethereum Foundation, but there is more to this. Vitalik Buterin tweeted a while ago that more upgrades will come after Phase 2 in order to meet the demand of users for more efficient and scalable solutions. Here is a more extensive roadmap released by Buterin, which shows the long-term plans for a period of up to 10 years.

Become an Ethereum 2.0 Validator

Once Ethereum adopts Proof of Stake, there will be no miners. Instead, the new blocks are added by validators who stake their ETH tokens. A validator is simply an entity that takes part in the consensus of the Ethereum 2.0 protocol. It can be an individual, company or organization. Whoever is behind a validator, the important part is that he or she runs a computer process, which ensures that new blocks are added to the Ethereum network.

You can think about validators as voters of new blocks. The more votes a block obtains, the higher the chance that it will be added on Ethereum blockchain.

It’s important to mention that a validator’s vote is directly impacted by the amount it has at stake. Validators are required to hold funds at stake in order to keep them honest. In other words, if they behave dishonestly, they will endure financial consequences in the form of penalties.

As mentioned, any candidate planning to participate in Ethereum 2.0’s consensus mechanism has to stake 32 ETH to become a validator. This is what makes a validator’s initial balance. It’s important to highlight the fact that there is no advantage of having more than 32 ETH at stake per node. This is done in order to encourage decentralization of power. If a staker wants to put more than 32 ETH at stake, he can run multiple nodes to read more benefits. Since building a validator requires a generous amount of funds, Binance Staking allows stakers to get together in pools so that the entry requirement could be lowered to the minimum.

One can take a pause and stop running his validator for a few days, but he would lose an amount of ETH that is equal to the amount of ETH he would have gained during that period. Besides being penalized for being offline, validators can lose funds for behaving maliciously, such as endorsing invalid blocks. On the other hand, they are rewarded for attesting to blocks that are eventually included in the blockchain. On Binance, all participants in a validator will be required to share penalties, but you can rest sure that Binance won’t allow malicious behaviors.

Bear in mind that each validator has its own balance. The initial balance is displayed in the deposit contract. The balance is updated regularly based on the Ethereum network rules as the validator sticks to his responsibilities or fails to do this. The rewards/penalties are reflected in the balance every six and half minutes, which is the period of a so-called epoch. Every epoch, the network analyzes the activities of each validator and issues rewards or penalties accordingly. If the balance drops to 16 ETH, the validator has to make sure to deposit more ETH if he doesn’t want to be kicked out.

The size of rewards and penalties doesn’t depend on the validator alone, but also on how much ETH is staked in the network, which has to do with the total number of validators. Depending on these several factors, the annual return rate for a single validator can range between 2 and 20%.

Staking on Binance

Staking on Binance is much easier as the company takes all responsibility for the technical part. To stake ETH 2.0 on Binance, you have to log in to your Binance account and go to “Finance” on the top menu. The next step is to click “Binance Earn” and then select “ETH 2.0 Staking”. Alternatively, you can access the Ethereum 2.0 Staking page directly here.

Binance Earn - Ethereum 2.0 Staking
Source: Binance – ETH 2.0 Staking

That’s it! You’re about to start your staking journey. However, make sure to be confident in your action because there is no going back once you start the process.

On the Ethereum 2.0 staking page, you have to read the instructions carefully before the process begins. If you choose to stake your ETH, you won’t be able to access it until the start of Phase 1. In fact, the lock-up period may exceed two years in the case of delays. The good news is that if you choose to stake ETH 2.0 on Binance, the rewards will be distributed on a daily basis in the form of BETH, which is a tokenized version of Ethereum as explained above. When Phase 1 goes live, you can redeem your BETH for ETH at a 1:1 ratio. Note that you will be able to trade BETH on Binance during all this period.

If you are ready, you should click “Stake Now,” then enter the amount of ETH you want to stake, and hit “Confirm.”

Binance Earn - Stake Ethereum 2.0
Source: Binance – Stake ETH 2.0

There will be a second confirmation window with the terms and conditions. Once you click “Confirm,” you start the staking process.

Note that you won’t be able to “unstake” or withdraw your ETH until the mainnet goes live. When it happens, the redemption amount will depend on the current BETH holdings instead of your initial stake.

Once you stake your ETH, you can go to the Ethereum 2.0 Staking landing page to check the information about your locked-up assets and rewards.

Potential Risks

Ethereum 2.0 Staking can be lucrative, but there are some risks to consider. First of all, a validator’s initial deposit can suffer from penalties for being offline or can even be slashed for malicious behavior. For example, if the validator published contradictory information about the chain, his deposit is slashed by at least 1 ETH, and the validator is ejected from the system forever. Still, this risk is negligible if the validator doesn’t have bad intentions. The good news is that such risks are almost non-existent with Binance Staking, since the company won’t allow malicious behavior.

Another problem is that Ethereum 2.0 staking means to lock up Ethereum funds for months or years. However, Binance Staking addresses this issue with BETH. In fact, Binance is not the only entity that comes up with this idea. Coinbase chief product officer Surojit Chatterjee announced the intention to build a market for staked ether, called Beacon Chain ETH (BETH), so the ticker will be identical to that of Binance.

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