Blockchain technology is the foundation of many innovative systems aimed at promoting trust, security, and transparency. One of the best-known applications of this technology is Ethereum, a decentralized platform that allows developers to create smart contracts and decentralized applications (DApps). Ethereum has introduced a Proof of Stake (PoS) mechanism where users who own Ether (ETH) can become validators by staking their coins. This allows for a more efficient and less energy consuming system compared to Proof-of-Work (PoW).
As the Ethereum community grows, new technologies are emerging that make it easier for users to interact with Ethereum nodes and participate in the network. One of these solutions is Stereum. It is a software that aims to simplify the process of staking Ethereum and operating a full Ethereum node.
development of stereo
Stereum was founded in 2020 by Stefan Cobri. The main goal of the project was to allow anyone, regardless of their technical knowledge, to stake Ethereum and operate a full Ethereum node. Until the introduction of Stereum, operating an Ethereum node was a complex task for many users, requiring in-depth knowledge of network technology and how to use various software clients. Installing, configuring, and synchronizing nodes was time-consuming and error-prone.
Stereum was developed in response to these challenges. It provides a user-friendly interface and automates many of the processes required to operate an Ethereum node securely and efficiently. The goal was to lower the hurdles for more people to participate in the Ethereum network, both as validators and developers.
How does stereo work?
Stereum’s architecture is based on a launcher that runs on the Ubuntu operating system and connects to the server via a secure connection (SSH). This architecture provides additional security by avoiding direct access over the web and preventing sensitive data from being exchanged unprotected over the Internet.
Users can choose from a variety of networks and configurations, such as Ethereum mainnet and testnet, and choose specific staking options. Node installation is largely automated, allowing users to set up a complete environment with just a few clicks. Advanced users also have the option to make certain adjustments, such as configuring additional clients and validators.
Security and privacy
One of Stereum’s main concerns is user security. Ethereum nodes can be vulnerable to attacks, so various measures are taken to make the system robust and secure. One of the most important security features is the use of the SSH protocol. The SSH protocol is one of the most secure and widely used protocols for remote access to servers. Additionally, Stereum supports two-factor authentication (2FA) and SSH keys to further enhance access security.
Stereum does not store user data or collect information about which nodes users are interacting with. This ensures data protection. This is extremely important in the decentralized and data-sensitive world of blockchain.
Possible uses of stereoms
Stereum is aimed at individual stakeholders who want to operate Ethereum nodes, as well as developers and institutions that rely on the Ethereum network. For developers creating decentralized applications (DApps), Stereum provides stable access to Ethereum nodes without relying on external services such as Infura. Additionally, educational institutions are using Stereum to teach students the basics of blockchain technology and how to operate Ethereum nodes.
Another interesting application area for Stereum is public institutions. In Austria, government agencies are already using Stereum to build their own private Ethereum network and test projects in the area of asset tokenization.
Related article: Vitalik Buterin calls for Ethereum reform to promote staking
Future developments and challenges
Although Stereum already provides a solid foundation for operating Ethereum nodes, there is still room for improvement and expansion. One of the next developments will be the integration of layer 2 solutions that will allow users to perform transactions more efficiently and at lower cost. Additionally, the Stereum team is working on further improving the user interface and making the software even more intuitive to use.
Another goal is to further simplify access to decentralized financial products (DeFi). The team is looking at ways in which users who own less than 32 ETH can also participate in staking by connecting to a staking pool.
Staking on Ethereum – Basics and Challenges
Staking has been a core part of the Ethereum network since moving from Proof-of-Work (PoW) to Proof-of-Stake (PoS) in 2022. Staking allows Ether (ETH) owners to become validators and secure the network in the following ways: Betting their coins. Unlike PoW, where miners have to perform complex calculations to validate new blocks, PoS is an economic incentive system where validators are selected to validate new blocks based on the amount of ETH staked. Based on.
Total amount of Ethereum staked (Image: CryptoQuant)
How staking works
Staking involves a user contributing a certain amount of ETH (usually 32 ETH) to become a validator. Validators are responsible for validating transactions and adding new blocks to the blockchain network. In return, they receive rewards in the form of newly generated ETH. This method does not require high energy consumption as in the case of PoW, thus promoting a more sustainable network.
The staking process involves several steps.
1. Stake ETH: User deposits 32 ETH into a special staking contract. This amount acts as collateral and proves the validator’s commitment to the network.
2. Validator Role: Once ETH is deposited, a user can register as a validator and participate in validating blocks and securing the network.
3. Rewards and Penalties: Validators receive rewards for successfully validating blocks. However, there are also penalties if a validator acts maliciously or goes offline for an extended period of time. This is known as a slash and can result in the loss of some of the ETH staked.
Types of staking
Ethereum staking can be divided into different categories depending on the options available and the amount of ETH that users can stake.
1. Solo staking: This is a classic staking method where the user owns the entire 32 ETH and operates their own validator. This approach requires technical knowledge, as you must operate and maintain the validator nodes yourself. Solo staking is usually the most profitable option because no third party is involved, but it also requires the most responsibility and capital.
2. Staking Pools: For users who own less than 32 ETH or who do not have the technical knowledge or resources to work with validators, staking pools are an attractive alternative. A staking pool allows multiple users to pool their ETH and jointly earn the required 32 ETH. The rewards are then distributed pro rata to all participants in the pool. This method is especially interesting for small investors who want to benefit from staking rewards.
3. Decentralized staking solutions: Platforms like Rocket Pool and Lido offer a decentralized way to provide staking services. These solutions allow users to stake smaller amounts of ETH while benefiting from the security of a decentralized network. These platforms ensure that ETH is secured with smart contracts and validation is decentralized to improve reliability and security.
4. Staking with third-party providers: There are also centralized providers that handle staking on your behalf. These services are usually easier to use because the provider manages the entire process for you. However, users lose some control over their staked ETH and often incur fees that reduce some of their staking rewards.
Related article: Traditional staking vs. liquid staking: a comprehensive comparison
staking challenge
Although there are many benefits to staking on Ethereum, there are also challenges to be aware of.
1. Technical complexity: For solo stakers, operating Ethereum nodes can be technically difficult. Setting up, maintaining, and securing validator nodes requires technical knowledge and care to ensure that the nodes are always online and up and running. If a validator fails for an extended period of time, it can result in financial losses.
2. Capital requirements: Traditional solo staking requires 32 ETH, which is a large investment for many users. Although staking pools and other solutions have eased this requirement, staking remains difficult for small investors.
3. Significant risk: Validators who violate network rules or go offline for long periods of time risk losing their staked ETH. This so-called “slash” is designed to ensure that validators follow network guidelines. However, if validators are not properly configured or maintained, this can lead to significant losses.
4. Liquidity: One of the biggest challenges with staking is the lack of liquidity of staked ETH. When a user deposits ETH into a staking contract, they will not be able to withdraw or trade it for a certain period of time. This can be a risk, especially during periods of high market volatility and users may not be able to access their funds. Liquid staking solutions such as Lido offer a way to increase liquidity through tokenization by issuing “stETH” tokens that represent the value of staked ETH.
Related article: Fidelity files for Spot Ethereum ETF with staking feature
conclusion
Ethereum staking offers different opportunities for different types of investors and users. From solo staking to staking pools, decentralized and centralized staking solutions, each option has its pros and cons. Choosing the right staking strategy depends on your personal needs, technical knowledge, and amount of available capital.
Staking on the Ethereum network is an attractive way to earn rewards, but it also requires careful planning and maintenance. This will continue to be a core part of the Ethereum blockchain, and technological developments over the next few years will make it even more optimized and more accessible.
Stereum has the potential to forever change the way Ethereum nodes operate. Stereum combines ease of use, security, and flexibility to make it easy for both experienced developers and beginners to join the Ethereum network. The platform’s continued development and focus on security and privacy make Stereum a valuable tool in the Ethereum ecosystem.
If you liked this article, you might also like: Vitalik Buterin’s Vision: The Future of Ethereum in the Next 10 Years or Is Base Rollup the Solution for Ethereum’s Long-Term Value Growth?
author
Ed Prinz is the Chairman of https://dltaustria.com, Austria’s most famous non-profit organization specializing in blockchain technology. DLT Austria is actively engaged in educating and promoting the added value and application potential of distributed ledger technology. This will be done through educational events, meet-ups, workshops and open discussions, all in voluntary collaboration with key industry players.
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Disclaimer
This is my personal opinion and is not financial advice. Therefore, we cannot guarantee the accuracy of the information in this article. If you have any questions, please consult a trusted and qualified advisor. This article is not a guarantee or promise of profit. All statements in this and other articles are my personal opinions.
