Ethereum staking is the method of earning more ethereum by merely depositing it into a staking wallet. On a surface level, Ethstaking can compare to storing money in a bank and gradually attaining interest over time.
The longer the deposit maintained in the bank, the more the interest amount that will accumulate for the deposit. In Ethereum staking, though, a deposit or a “stake” is maintained in a staking wallet for a fixed time anywhere between 3 to 12 months.
The staking wallet linked to a smart contract on the Ethereum blockchain whose primary purpose is to validate block transactions, much like Ethereum miners.
Under a proof-of-stake (PoS) network, such as the one Ethereum is gradually striving to transition to under Ethereum 2.0, a vote taken from the validator with a higher ether deposit.
This is the basis of the PoS consensus in general, as it relies on the network participants who have a lot more to lose, or who have a higher “stake” in the system, to validate transactions.
The Workings of And Ethereum Staking System
The core working behind Ethstaking works using the principles of smart contracts that function using a group of protocols on the ETH blockchain, also called “Casper.”
These smart contracts allow for Ethstakers to “stake” a deposit on a validator node of the blockchain that will work on validating transactions while being rewarded with a portion of the transaction fees for every validated transaction.
Casper also prevents the Ethstaker from damaging the network by keeping the staked Ether locked in the case of an invalid block.
The whole idea behind Ethstaking works behind the ideology that the Ether staked will serve as collateral that vouches for the genuine validity of new blocks on the chain and rewards a fraction of the transaction processing fees for the validation work.