It's a new century, and staking is now the way to make money from existing crypto assets. In fact, staking Ether is more challenging than just depositing cryptocurrencies, sitting back, and watching them increase - at least not without third-party solutions.
Rocket Pool allows anyone to contribute to the Ethereum network without setting up or managing a node. In addition to helping onboard new users to Ethereum 2.0, this also gives less technically-minded users access to staking.
Due to Ethereum's slashing mechanism, staking may not be suitable for everyone, especially if one is intent on behaving maliciously, even if they do not know it. The only real alternative is to use a staking pool, and Rocket Pool seems to be the most reliable.
So, what is Rocket Pool and why is it the best staking pool for Eth2.0? But first, let’s briefly talk about Ethereum 2.0
What is Ethereum 2.0?
The Ethereum blockchain was updated with Ethereum 2.0, which is also known as Eth2 or "Serenity.". By upgrading, the Ethereum network will be faster, more efficient, and more scalable in order to handle more transactions.
Ethereum 2.0 will launch in phases, and the first upgrade dubbed the Beacon Chain, has been launched on December 1, 2020. As the network transitions to a PoS consensus mechanism, the Beacon Chain introduces native staking to the Ethereum blockchain. Named after its separation from the Ethereum mainnet, this blockchain is an independent blockchain.
The Merge, the second phase, is expected in the first quarter or second quarter of 2022 and will combine the Beacon Chain with the Ethereum mainnet.
The last phase of the Ethereum network will be Shard Chains, which will play a major role in scaling the network. Shard chains distribute all operations across 64 chains, rather than settling all operations on one blockchain.
Additionally, this means that an Ethereum node can be run with much less hardware because far less data is needed on the machine. It is unclear when Shard Chains will be ready, but they are expected to arrive in 2022.
What are the differences between Ethereum 2.0 and Ethereum?
Ethereum 1.0 uses the proof-of-work (PoW) consensus mechanism, whereas Ethereum 2.0 uses the proof-of-stake (PoS) consensus mechanism.
What is Rocket Pool?
Rocket Pool is a decentralized network of nodes that provides validation services for Ethereum 2.0. By providing validation services for Ethereum 2.0, Rocket Pool is assisting users who do not possess the necessary amount of ETH tokens to stake or have the technical skills needed to run a node.
By staking only 16 ETH rather than 32 ETH, investors can stake with the minimum amount of 32 ETH. Further, Rocket Pool automates the entire process, and the platform manages all validators without the user having to interact with them.
Nevertheless, those who want to stake Ethereum tokens are still subject to long-term commitments of locking them up, even if they use Rocket Pool. Assets that have been staked are locked until the second phase of Ethereum's Proof-of-Stake implementation.
The tokenized staking process can't override this lockup, but it makes a decent effort to balance the risks.
The rETH token, which represents two main things: your stake and your yield, is what the user receives every time he stakes 16 or 32 ETH. RETH can be used like any other ERC-20 token while locked up, such as being sold, used on DeFi platforms, or stored in cold storage.
How Rocket Pool works
In brief, Rocket Pool is a network of nodes that run on Ethereum 2.0 to verify transactions. The Rocket Pool platform allows investors to stake ETH by registering as node operators and depositing ETH. If only 16 ETH are staked, the deposit matches the deposit of another user.
In addition to performing standard Ethereum node tasks, the node performs all other duties as well. ETH deposited by a user will earn a commission in return, which is assigned to the user-deposited APY.
The supply and demand dynamics of Ethereum 2.0 determine the amount of commission earned by the user. It is extremely hard to maintain a node when there are large ETH pools and limited minipool capacities. In the case of abundant capacity, however, there are not enough ETH to meet demand.
As soon as a user stakes and creates a minipool, both the node demand and commission rate are calculated. During the deposit process, the user can specify the minimum commission rate he is willing to accept for the previously created one.
Nodes of the watchtower
Rocket Pool hosts other nodes in addition to the standard ones, such as watchtower nodes, which are owned by RP itself and its clients. As part of their mission, these nodes communicate the state of the Beacon Chain back to the Ethereum PoW network. In order for the reported data to be effective, more than half of the nodes must reach a consensus.
They are responsible for updating Rocket Pool's RP smart contracts at regular intervals with the sum of all the value of Rocket Pool's network, which is based on the earned rewards.
It is also their duty to notify validated assets when they are ready to withdraw them. As a result of the update, the Rocket Pool network mints nETH tokens for the validator based on his final mini-pool balance.
In order for a validator to exchange his newly gained tokens for ETH, he will have to wait a certain amount of time. Staker will be able to burn tokens for ETH through the nETH smart contract as soon as Phase 2 of ETH2 launches, says the Rocket Pool team.
RPL and Rocket Pool
RPL represents the protocol's primary cryptocurrency through its ERC-20 token. Those who wish to increase the security of the project can stake it on Rocket Pool nodes. However, running a node is not necessary.
Users who stake Rocket Pool with a validator and at least one mini-pool receive an additional commission according to the deposit size. The user's RPL deposit will be wiped out in proportion to the ETH losses suffered if he fails to comply with his node duties and ends up with less than 32 ETH after slashing.
There are 18 million tokens in the RPL circulating supply, 16 million of which are already in circulation. Tokens are currently valued at $15.65 each, bringing the market capitalization of the asset to $283 million.
There is the speculative value behind the cryptocurrency as well since investors are betting the project will succeed in becoming the leader in ETH2 staking in the future. In 2020, RPL rose from $0.4 to $2.81. By 2021, its price reached an all-time high of $17.45.
What to consider when buying Rocket Pool
Investing in a cryptocurrency should be preceded by an analysis of its platform and token:
- Staking. Since the RPL token has such a streamlined use case, users would have to weigh the risks and benefits associated with staking their tokens. In addition to staking being a way to earn interest on otherwise idle assets, there are also rules that should be followed so that tokens do not get "slashed" (lost).
- Competition. As RPL becomes more popular, it will have a significant effect on its price. ETH 2.0 stake solutions have expanded along with the DeFi ecosystem. In order for Rocket Pool to become a less speculative investment, the company must add a majority share of these applications that let users delegate their crypto assets for rewards.
- Governance. Since Rocket Pool is a decentralized network, it is governed by the community and not a single entity. Although the DAO (decentralized autonomous organization) has not yet been operational, control over the platform's development currently belongs to its creator.
Is Rocket Pool secure?
For beginners, using a third-party platform like Rocket Pool is better than setting up a node of your own. As well as not having to worry about your staked assets being slashed, you also won't need to monitor your node.
However, how safe are staking platforms like Rocket Pool? Is it still possible to lose ETH, and if so, how? Also, are they even trustworthy?
To begin with, all Rocket Pool smart contracts can be analyzed by anyone because they are open-source. Each of them is thoroughly vetted by reputable blockchain security companies before deployment, which gives them an extra layer of security. Additionally, a bug bounty program encourages users to report exploits in an effort to combat exploits.
Due to the project's decentralized nature, they cannot allow someone to manipulate your assets in any way that is not required by the smart contract. It is node operators that use all deposits to validate transactions - and even they have skin in the game since they must stake their own ETH as well.
The number of ETH tokens assigned to the node operator must be staked at the same amount. The network may punish them and force them to forfeit their assets if they fail to fulfill their Proof of Stake duties diligently.
The socialized risk management feature of Rocket Pool adds another layer of security. It is the entire network that bears all losses associated with ETH slashing. In the past, a maliciously behaved user alone would lose his asset. But now, it is the intention of this system to ensure the continuity of the original user that all losses will be distributed to the community.
This year, Ethereum is experiencing a revival as institutions have stopped accumulating Bitcoin and are turning their attention to the blockchain industry's most popular smart contract ecosystem. We know that Grayscale and other large investments are purchasing ETH en-masse, and while that may be happening for speculative reasons, we are certain that some holders may be considering staking to improve their portfolio. There aren't many banks offering equal or greater rates of return than Ethereum's 5% APY, after all.
There is no real alternative for those without any computer or blockchain technology skills, other than staking pools. It is, fortunately, possible to add support for the Ethereum 2.0 network with solutions like Rocket Pool, after merely funding them and leaving them in a node operator's hands. The best part? The minimum requirement for joining a minipool is 16 ETH; 32 ETH isn't even necessary!