Are you looking to earn dividends on your assets with little to no effort? Here’s how you can put your cryptocurrency holdings to work and passively earn rewards in the process!
Whether you’re new to the crypto asset class or have been around for several years, the chances are that you’ve heard of ‘staking’—especially in recent discussions related to Ethereum and a handful of other digital currencies.
So, what exactly does it mean to ‘stake’ a cryptocurrency, and why is it necessary in the first place?
A Primer on Cryptocurrency Transactions and Staking
Bitcoin, the world’s first cryptocurrency, pioneered the concept of decentralized currency when it was released back in 2009. Simply put, Bitcoin doesn’t require the oversight of central banks, governments, or other authorities. Instead, it relies on a global, peer-to-peer network of participants reaching consensus on the validity of new transactions.
Bitcoin’s transaction validation process, known as Proof of Work or ‘mining,’ is universally regarded as the gold standard in security and decentralization. The downside, however, is that the network is not infinitely scalable. This is because Bitcoin utilizes a computer’s processing cycles to validate transactions. Adding more computers to the network doesn’t improve its performance, just the security.
Over a decade later, we now have hundreds, if not thousands, of decentralized cryptocurrencies, each with its own advantages and niches. Ethereum is one such digital currency that focuses primarily on developing blockchain-based smart contracts and applications.
Since its inception back in 2014, Ethereum used a similar transaction validation and security approach as Bitcoin. However, with the network witnessing massive surges in use, transactions became increasingly expensive and slow.
Ethereum developers proposed a number of sweeping changes to the network to combat this problem, including moving away from Proof of Work.
The alternative, known as Proof of Stake, is expected to improve transaction throughput, efficiency, and reduce overall network congestion. The Ethereum upgrade is set to launch at some point in 2021, switching the network to the Casper Proof of Stake algorithm.
Check out the following video for an explainer on Proof of Stake algorithms.
Now that you’re familiar with the basics of staking, it’s time to find out how you can participate in this process yourself. There are several reasons why you should stake your favorite cryptocurrencies—with dividends and coin rewards often being the biggest motivators.
Staking on a Raspberry Pi: The Good News
Making money from the cryptocurrency market has been possible ever since Bitcoin introduced the concept of mining.
However, high upfront costs and resource requirements make mining suboptimal for the vast majority of cryptocurrency users. The hardware used for large-scale cryptocurrency mining operations can be incredibly expensive to own, operate, maintain, and even dispose of properly.
Ethereum, the second-largest cryptocurrency, will soon be adopting the Proof of Stake consensus mechanism. This means that as long as you hold a certain amount of Ethereum in your wallet, you can participate in the process of validating new transactions in exchange for rewards.
So then, is it possible to stake Ethereum and other digital currencies on hardware as lightweight as a Raspberry Pi?
The answer is Yes, but with one important caveat: Memory.
To stake cryptocurrency on a Raspberry Pi, you need the newest model of the tiny computer in its highest memory variant. The Raspberry Pi 4 8GB is the only device that can comfortably cope with the Ethereum Proof of Stake algorithm because of the validation software’s high RAM requirements.
Another non-optional piece of hardware you’ll need is an external 1TB Solid State Drive (SSD). The Ethereum blockchain spans approximately 200GB and is growing every day. A terabyte of storage should keep you going for several years.
Besides those two considerations, the process of staking cryptocurrency is not extremely power or resource-intensive. Besides, the Pi by itself is quite sufficient for general computing tasks these days.
So, if you hold a decent amount of Ethereum, earning passive income is possible for the low price of a Raspberry Pi and an external drive. On the other hand, you need a minimum of 32 ETH to participate in the staking process. At the time of writing, 32 ETH will set you back a cool $ 40,000, so it isn’t exactly a low-bar for entry.
The only other hurdle you may run into is keeping your staking node online at all times. This is because every minute your hardware goes offline, it cannot process new transactions on the cryptocurrency’s network. An uninterrupted power supply (UPS) may come in handy to keep your Pi and internet connection running even in the event of an unscheduled power outage.
Staking Ethereum on a Raspberry Pi
There are two approaches to getting started with staking Ethereum on a Raspberry Pi. The first is an automated script that will automatically fetch and install the requisite software for you, while the second approach involves setting everything up manually.
If you’re not familiar with the Raspberry Pi or how the Linux operating system works, you’ll appreciate the simplicity of the former.
Once you’ve got your Raspberry Pi up and running, simply visit Prysm’s documentation website for the latest instructions. Be sure to follow the commands from the ARM64 tab, as that’s the hardware architecture your Pi is based on.
Next, you have to choose between running your staking node on the Ethereum testnet or mainnet. As its name suggests, the Ethereum testnet is used for experimenting with new changes and, consequently, does not involve money or real ETH tokens.
Ethereum’s testnet, called Pyrmont, is perfect for testing out your hardware and configuration if you’re not completely confident with staking 32 ETH just yet. Since tokens on the Ethereum testnet have no real-world value, the cost of entry is zero. Furthermore, any mistakes will not result in you losing real money.
If you’ve decided that the Ethereum testnet is the right choice for you, this guide explains how to configure the aforementioned Prysm client. After you’re done practicing, simply start over with this guide for the mainnet instead.
At the end of either guide, your Pi should be up and running as a full-blown Ethereum validator node. From this point onwards, you can simply unplug all non-essential peripherals and leave the device running.
Beyond Ethereum: Staking Other Cryptocurrencies?
While staking on the Ethereum network is still relatively nascent, a handful of other cryptocurrencies have been using Proof of Stake algorithms for several years now. Major tokens, including NAV coin, VeChain, and NEO, can also be staked for rewards.
Given the high 32 ETH minimum requirement to stake Ethereum, you may find these smaller cryptocurrencies easier to get started with initially. Smaller tokens that have lower network activity than Ethereum may even require lower resources, allowing you to stake multiple currencies simultaneously.
Staking not only lets you squeeze out maximum returns on your cryptocurrency investment but also enables you to contribute to the network’s security. Looking for more ways to participate in the cryptocurrency ecosystem? Consider running a Bitcoin full node on your Raspberry Pi.