The Ethereum Merge|The Merge is Coming Soon: The Current State of Staking on Ethereum & Impacts of the Merge

Since Ethereum announced that it would shift to PoS, the crypto community has kept close eyes on how the different stages of the transition progressed. According to the official roadmap, the Merge is undoubtedly a key event for Ethereum in 2022. Although it has been delayed multiple times, the Merge is soon here and will very likely take place in September.

For the time being, founder Vitalik Buterin, Ethereum developers, community members, and most Ethereum enthusiasts are confident that the Merge will be implemented according to the schedule, and a big reason is that Ethereum recorded excellent overall performance during the current Beacon Chain stage. Let’s take a look at the current state of Eth2 staking, which was introduced by the Beacon Chain in December 2021.

During the past eight months since December 26, 2021, the number of validators on the Beacon Chain has kept growing. To date, the total number of validators has exceeded 417,000, and Eth2 staking has exceeded 13.3 million ETH (about $22.3 billion)

According to BeaconScan, the total income of Beacon Chain validators in the past six months has reached approximately 270,000 ETH, and their average daily total income stands at about 1,621.89 ETH. The figure peaked at 2,681.77 ETH on August 23 last year and is now on a steady rise.

Beacon Chain differs from regular blockchains in terms of operation. Instead of “blocks”, it uses slots and epochs as the basic time unit. Ideally, the system could generate a slot every 12 seconds, and every 32 slots constitute an epoch. In other words, an epoch is generated every 6.4 minutes. In each slot, a validator is randomly selected to propose blocks. The selected validator would be able to propose a new block and earn rewards if it is online; however, if it is offline, then no block could be generated during the slot, and a “skipped” slot will be created. Also, in the latter scenario, the selected validator would not get any rewards.

As of August 24, the Beacon Chain has generated about 4.547 million slots and 142,000 epochs. On a daily average, validators produced 7,200 blocks, of which approximately 7,128 normal blocks accounted for 99%, and about 67 “skipped” blocks accounted for 0.93%. The figures indicate that most validators are now running stably.

Of course, the annualized rate of return (APR) of staking on Ethereum is a top concern for validators. In fact, the staking APR is not fixed, and the rate changes according to the total amount of ETH staked on the network. The higher the total amount, the lower the APR, and the specific APR can be predicted via Staking Calculate on BeaconScan. As of August 24, the APR of staking on the Beacon Chain stands at 4.2%.

It is noteworthy that each validator must stake at least 32 ETH. Moreover, validators will not be able to withdraw their stake/returns now for a long period, which will be true even after the Merge is completed. This is the case because ETH deposits/returns can only be withdrawn after an upgrade that will take place roughly 6 months after the Merge. As such, users also do not have to worry about the dumping of staked ETH after the mainnet goes through the Merge.

That said, there are certain risks associated with staking, which include:

  1. Penalty mechanisms: Malicious actions by validators, such as submitting invalid proofs or generating two contradictory blocks, will be punished, and a portion of the staking reward will be burned. However, it is also fairly easy to avoid such penalties, and validators who followed the regular validation process will not be deemed malicious;
  2. Offline penalties: A validator node going offline while most (more than two-thirds) validators remain online will face a relatively small penalty. Meanwhile, a validator who remained offline when just over one-third of all validators are online will lose 50% of its stake (16 ETH) over 21 days. Moreover, it will be kicked out of the staking pool after 21 days;
  3. Other risks that are hard to avoid (e.g. system errors): For example, a critical client loophole or a bug in the Eth2 rules could result in a system error.

Except for the third risk, most staking risks are easily avoidable.

Having gone through multiple delays, the Merge has finally shown us what Ethereum has achieved in 2022, and the network has started the final run towards the Merge. We hope and are confident that Ethereum will successfully complete the upgrade and become a role model for other public chains, thereby enabling better user experiences.

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