Ethereum staking is still foreign to a lot of people out there. A lack of knowledge and experience can lead people down an Ethereum staking path that is suboptimal in terms of returns and security. With more and more companies starting to offer Ethereum staking, we’re going to run you through 10 things that you need to ask your Ethereum staking provider.
Why? To help you understand the important facts about Ethereum staking and to ensure that you are making as much money from staking as possible, in the safest way possible. By asking these 10 questions, you’ll be able to refine your Ethereum staking plans and increase your earning potential.
Let’s put your Ethereum to work properly and dive into these questions!
How non-custodial is the staking provider?
Let’s say you’re going for a non-custodial staking provider — great! The next thing you need to ask is just how non-custodial the staking provider is. It’s great that you get to hold the keys to your crypto, but if they don’t share logs or your specific node number with you, or have a web portal interface, then it’s not really your node. In this case, it would be semi non-custodial as the staking provider is keeping everything but the crypto to themselves.
In the ideal world, a fully non-custodial staking provider will give you all of this access, insight and more. Plus, if you have a constant reliance on the staking provider’s website to be up and running to access the portal, then you’re stuck if they have an outage. As with any crypto, the less information you share and the less access you give, the safer your holdings will be!
Who manages the servers and where are they located?
When you start staking Ethereum, you’ll need to run your node on a server. As a result, you’ll want to know everything possible about this server if you’re going to feel secure. Ownership of the server is of paramount importance from a security and availability standpoint. If your Ethereum staking provider owns and controls the servers, they hold all the power. Also, if something goes wrong, you have to wait for them to get their act together and fix it.
With Ethereum staking services providers like the non-custodial Launchnodes, you will control your own servers through the Amazon Web Services (AWS) platform and soon on Microsoft Azure. This does not stipulate that you need to have blockchain level expertise to go near such services, as they are typically offered in both technical and non-technical variants. In the end, though, you end up staking Ethereum on AWS, which is always a benefit.
The same goes for server location. You want your servers to be located in a jurisdiction that’s going to have speedy internet connections, few power outages and no geopolitical issues. For example, let’s say you’re going to use an Ethereum staking provider located in Guatemala. If Guatemala gets bulldozed by a hurricane, it will take months to get your servers back up and running. Pick a server location that’s in a safe location, managed by a blue-chip operator and is in a stable region. The last thing you want is your server going offline or being unable to talk to the Ethereum network thanks to a poor internet connection.
What client is being used?
There are 7 Ethereum staking clients available at the moment. Unfortunately, not all clients are built the same and this leads to lacking functionality. When you’re using an Ethereum staking provider, you’ll want the client to be as simple and easy to use as possible, with the fewest issues and preferably a proven track record.
Prysmatic has been around the longest and is arguably the best Ethereum staking client available. It has a raft of advanced features and the simplest user interface. To top it off, it’s tried and tested. On the other hand, you’ve got the likes of Teku. Teku is still fantastic, but it lacks certain features and abilities that Prysmatic offers up. There are plenty of others out there, and many have less support and fewer developers working on them.
The best Ethereum staking clients are regularly updated and deliver cutting edge performance. They don’t use too much CPU time on your server, meaning that it can focus on doing its core job — validating blocks. You don’t want to run into performance issues, so using a client that’s tried, tested, and verified is critical if you’re going to be successful.
What is the average Ethereum staking node performance like?
Before you part with your money and Ethereum, you’ll want to see what you’re getting yourself into. If the node you’re going to spin up is constantly crashing or down, then you’re missing out on potential earnings. Missed attestations are a nightmare for Ethereum stakers, as it brings down your earnings.
Uptime also plays a big factor here as well. You want a node that has solid and reputable uptime. If your Ethereum staking provider only uses a single beacon node and it goes down, there’s no failover solution to keep your Ethereum staked and the rewards rolling in.
By asking this question, you can see what systems are in place to protect your reputation as a node and keep ETH2 rolling into your wallet. If your Ethereum staking provider has a poor reputation for uptime and missed attestations, it might be wise to consider taking matters into your own hands and moving to an Ethereum staking provider with a robust and clear infrastructure in place.
Are beacon nodes run in-house or outsourced?
Beacon nodes are critical to staking on Ethereum, but not many Ethereum staking providers have the ability to run these in-house. As a result, most will stick all validators on the same beacon node (this is technically possible and keeps their costs down). This in turn can cause trouble and security issues. Very few Ethereum staking providers offer optimized dedicated beacon nodes for their clients. When this service is offered, it increases levels of performance and security. When done in-house, this can be optimized and refined continuously, providing a more complete solution.
How safe is my Ethereum?
When you’re dealing with institutional amounts of money or as an individual piling what could very well be your life savings into running an Ethereum node, you want to make sure that it’s as safe as can be. A lot of Ethereum staking providers will use a full custodial solution, meaning that they have the keys to the wallet with your Ethereum in it. This is the same situation that you’re in when you use a crypto exchange. As the saying goes, not your keys, not your crypto.
You’ll want to make sure that the keys are stored securely and that there’s some sort of protection in place should the Ethereum staking provider have some trouble with hackers. Sounds risky? It always is! Opt to use a non-custodial solution, which is far more secure, and you don’t have to rely on someone else to keep your Ethereum safe! Your keys stay with you and no one can ever get their hands on them.
What are the Ethereum staking rewards and commission rate?
It costs you more than $100,000 to stake Ethereum, unless you’re using a pooled staking provider. That’s a lot of money, but in return, you have the potential to earn over 7% APY on it. A lot of Ethereum staking providers won’t charge you a setup fee. Instead, they opt to take a percentage of any rewards you earn. This can quickly add up, especially if you opt to stake a significant amount of Ethereum. For example, Kraken charges 20% of all rewards achieved, which works out at around just over $1,500 per year.
It’s important to know the true cost of staking, then weigh up whether that cost is worth the level of service and security the Ethereum staking provider is giving you. Non-custodial validator nodes providers like Launchnodes charge a low fixed annual fee for your node, which makes it literally the best offering on the market, given the added security and node performance perks.
Where is the ETH stored?
When you use a cryptocurrency exchange, you’re leaving your cryptocurrency with the exchange. It’s in their hands, they have the keys, and they can make a mistake that causes all of that to go poof. In staking, this is known as custodial staking. This is problematic if you are staking at scale because institutions need ownership of the funds and as an individual if the provider gets hacked, loses access to the wallet, or potentially goes out of business, you could lose your Ethereum.
On the other hand, if you opt for a non-custodial staking provider, then you’re in control of your Ethereum. This means that you own the keys, you have control and you’re in charge of security. It is the safest way, and it reduces the chances of your Ethereum getting stolen.
Are validator nodes sharing a beacon or do they have dedicated beacon nodes?
A beacon node is an important node that validator nodes all connect to. Many validators can connect to a single beacon node, but how many should connect before it impacts the performance, quality and reliability of that beacon node. If validators are sharing a beacon node, what happens if that beacon node fails? All the validators connected to it can drop. This will result in you landing fewer blocks and seeing reduced rewards. Ideally, you find an Ethereum staking provider that makes it possible to have dedicated beacon nodes or a low ratio of validators per beacon node. Why? Because you get a better level of service and uptime, meaning it’s harder for you to miss attestations or if you are down for a long time get slashed.
If you are sharing a beacon node, how many other validators are you sharing it with? Are those ratios public? Can you choose to change those ratios with your staking provider?
If you are looking at using an Ethereum staking provider that uses shared beacon nodes, then you’ve got a bunch of follow-up questions that you MUST ask. It’s critical to find out how many other validators you’re sharing it with, as beacons do have their limits based on hardware. Ideally the fewer the better, so if you see a large number as the response, then it’s time to look elsewhere.
You’ll also want to find out whether these ratios are public. This lets you validate the claims of just how many validators are using that beacon node, which is critical, especially when you can be paying up to 20% in fees on your rewards. The final part of this question is whether you can opt to pay more fees in order to reduce the number of validator nodes on your beacon or pay less and share with more validators. Most of the time this is fixed and there’s nothing you can do about it, but if you can pay a little more for more freedom or pay less and earn more rewards then it’s always nice to have the option.
Take back control of your Ethereum staking
Why risk 32 ETH and then pay hefty fees for a semi non-custodial staking provider when you can secure first-class staking where you’re in total control for a fraction of the price? When it comes to making your Ethereum work harder for you, you deserve only the best. To find out more about how Launchnodes can put you back in the driving seat and take your Ethereum staking to the next level, reach out to our team today and we’ll help you spin up your very own Ethereum staking node!