Blockchain technology is the basis for many innovative systems that aim to promote trust, security and transparency. One of the most well-known applications of this technology is Ethereum, a decentralized platform that allows developers to create smart contracts and decentralized applications (DApps). Ethereum introduced the Proof-of-Stake (PoS) mechanism, in which users who own Ether (ETH) can become validators by staking their coins. This enables a more efficient and less energy-intensive system compared to Proof-of-Work (PoW).
As the Ethereum community grows, new technologies are emerging that make it easier for users to operate Ethereum nodes and participate in the network. One of these solutions is Stereum, a software that aims to simplify the process of staking Ethereum and operating a full Ethereum node.
The Development of Stereum
Stereum was founded in 2020 by Stefan Cobri. The main goal of the project was to make staking Ethereum and operating a full Ethereum node accessible to everyone, regardless of their technical knowledge. Before Stereum was introduced, 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 a node was time-consuming and prone to error.
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 aim was to lower the hurdles so that more people are able to participate in the Ethereum network, whether as validators or developers.
How Stereum Works?
Stereum’s architecture is based on a launcher that runs on the Ubuntu operating system and connects to a server via a secure connection (SSH). This architecture provides additional security by avoiding direct access via the web and preventing sensitive data from being exchanged unprotected on the internet.
Users can choose between different networks and configurations, such as the Ethereum mainnet or testnet, and select specific staking options. The installation of a node is largely automated, enabling users to set up a complete environment with just a few clicks. Advanced users also have the option of making specific adjustments, for example to configure additional clients or validators.
Security and Privacy
One of Stereum’s main concerns is user security. Since an Ethereum node can be vulnerable to attacks, various measures have been taken to make the system robust and secure. One of the most important security features is the use of the SSH protocol, which is one of the most secure and widely used protocols for remote access to servers. In addition, Stereum supports two-factor authentication (2FA) and SSH keys to further increase access security.
Stereum does not store any user data and does not collect any information about which nodes are operated by users. This ensures data protection, which is of great importance in the decentralized and often data-sensitive blockchain world.
Possible Uses of Stereum
Stereum is aimed not only at individual stakers who want to operate an Ethereum node, but also at developers and institutions that depend on the Ethereum network. Developers who create decentralized applications (DApps) can use Stereum to have stable access to an Ethereum node without having to resort to external services such as Infura. In addition, educational institutions use Stereum to teach students the basics of blockchain technology and how to operate an Ethereum node.
Another interesting area of application for Stereum is in public institutions. In Austria, government agencies are already using Stereum to set up their own private Ethereum networks to test projects in the area of asset tokenization, for example.
Relevant article: Vitalik Buterin calls for Ethereum reforms 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 is the integration of layer-2 solutions that enable users to execute transactions more efficiently and at a lower cost. In addition, 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 instruments (DeFi). The team is considering how users who own less than 32 ETH can also participate in staking by connecting them to staking pools.
Staking on Ethereum – Basics and Challenges
Staking has been a central part of the Ethereum network since its transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) in 2022. It allows owners of Ether (ETH) to become validators and secure the network by staking their coins. Unlike PoW, where miners have to perform complicated calculations to validate new blocks, PoS is based on an economic incentive system in which validators are selected to validate new blocks based on the amount of ETH staked.
Ethereum Total Value Staked (Image: CryptoQuant)
How Staking Works
Staking involves users providing a certain amount of ETH (usually 32 ETH) to become validators. Validators are responsible for verifying transactions and adding new blocks to the blockchain network. In return, they receive rewards in the form of newly generated ETH. This method promotes a more sustainable network because it does not require high energy consumption, as was the case with PoW.
The staking process involves several steps:
1. Stake ETH: Users deposit 32 ETH in a special staking contract. This amount serves as collateral and demonstrates the validator’s commitment to the network.
2. Validator role: Once the ETH is deposited, the user is registered as a validator and can 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 is offline for a long time. This is known as slashing 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 a user can stake:
1. Solo staking: This is the classic method of staking, where a user owns the full 32 ETH and operates their own validator. This approach requires technical knowledge, as the validator node must be operated and maintained by the user themselves. Solo staking is usually the most profitable option, as no third parties are involved, but it requires the greatest responsibility and capital.
2. Staking pools: For users who own less than 32 ETH or do not have the technical knowledge or resources to operate a validator, staking pools offer an attractive alternative. In a staking pool, several users can pool their ETH to collectively reach the required 32 ETH. The rewards are then distributed among all participants in the pool on a pro-rata basis. This method is particularly interesting for smaller investors who still want to benefit from the staking rewards.
3. decentralized staking solutions: platforms such as 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 the ETH is secured in a smart contract and that the validation is decentralized to increase trust and security.
4. Staking with third-party providers: There are also centralized providers that do the staking for users. These services are usually easier to use because the provider manages the entire process. However, users lose some control over their staked ETH and there are often fees that reduce part of the staking rewards.
Relevant article: Traditional Staking vs. Liquid Staking: A Comprehensive Comparison
Staking challenges
While there are many benefits to staking on Ethereum, there are also challenges to be aware of:
1. Technical complexity: For solo stakers, operating an Ethereum node can be technically demanding. Setting up, maintaining and securing a validator node requires technical knowledge and attention to ensure that the node is always online and operational. If a validator fails for an extended period of time, this can result in financial losses.
2. Capital requirements: Traditional solo staking requires 32 ETH, which is a significant investment for many users. Although staking pools and other solutions are lowering this requirement, staking remains challenging for smaller investors.
3. Slashing risks: Validators who violate the network’s rules or are offline for long periods of time risk losing their staked ETH. This so-called “slashing” is designed to ensure that validators adhere to network guidelines. However, this can lead to significant losses if a validator is not properly configured or maintained.
4. Liquidity: One of the biggest challenges of staking is the lack of liquidity of the staked ETH. When a user deposits their ETH into a staking contract, they cannot withdraw or trade it for a certain period of time. This can be a risk, especially during periods of high market volatility when the user 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 the staked ETH.
Relevant article: Fidelity applies for spot Ethereum ETF with staking features
Conclusion
Ethereum staking offers a variety of opportunities for different types of investors and users. From solo staking to staking pools and decentralized and centralized staking solutions, each option has its advantages and disadvantages. Choosing the right staking strategy depends on individual needs, technical knowledge, and the amount of capital available.
While staking on the Ethereum network is an attractive way to earn rewards, it also requires careful planning and maintenance. It remains a core part of the Ethereum blockchain and will be further optimized and made more accessible by technological developments in the coming years.
Stereum has the potential to permanently change the way Ethereum nodes are operated. By combining ease of use, security and flexibility, Stereum enables both experienced developers and newcomers to easily participate in the Ethereum network. The continuous development of the platform and the focus on security and privacy make Stereum a valuable tool in the Ethereum ecosystem.
If you liked this article, you might also like the following: Vitalik Buterin’s Vision: The Future of Ethereum in the Next 10 Years or Are Based Rollups the Solution for Ethereum’s Long-Term Value Growth?
Author
Ed Prinz serves as Chairman of https://dltaustria.com, the most renowned non-profit organization in Austria specializing in blockchain technology. DLT Austria is actively involved in the education and promotion of the added value and application possibilities of distributed ledger technology. This is done through educational events, meetups, workshops and open discussions, all in voluntary collaboration with leading industry players.
Disclaimer
This is my personal opinion and not financial advice. For this reason, I cannot guarantee the accuracy of the information in this article. If you are unsure, you should consult a qualified advisor you trust. No guarantees or promises regarding profits are made in this article. All statements in this and other articles are my personal opinion.