The current Ethereum (aka. Eth1) and Eth2 will run in parallel for a while, Eth1 will eventually become a part of Eth2 (Phase 1.5). Ethereum 2.0 is an upgraded version of Eth1. The main objective behind this upgrade is to enable Ethereum to scale while maintaining a high level of security, and decentralization. This is mainly achieve through two changes to the structure and design choices in Eth2 compared to Eth1. The two biggest ones being “Proof-of-Stake” as well as “Sharding”.
Proof-of-Stake (PoS): In a PoS system, validators take the role of miners (known from Eth1). Validators provide computing power, storage, and bandwidth to validate transactions, and they propose new blocks. For doing so, they receive periodic payouts denominated in ETH. Validators need to lock 32 ETH into a deposit contract, which functions as a sort of security deposit, that gets (fully or partially) forfeit in case of malpractice. This way of incentivizing honest behavior requires far less energy than the current Proof-of-Work mechanism, in which miners are incentivized through sunk costs in the form of hardware and electricity.
Sharding: Sharding is the process of splitting up a blockchain into multiple blockchains called shards. It is a way of partitioning the computational and storage workload across different nodes. Hence, the transactional load of the entire network does not have to be processed by each validator, but instead, they can focus on maintaining information related to “their” shard. In order to avoid collusion, the validators are shuffled between shards on a regular basis. In Ethereum 2.0, the shards communicate and coordinate through the Beacon Chain. They are linked through crosslinks, a reference in a beacon block to a shard block. The plan is to have 64 shards that compose the Eth2 network
Once you have staked ETH, you are contributing to the network's security. In return, you will receive rewards in the form of newly minted ETH. Conversely, if you do not participate in staking, your assets will get diluted over time.
In Eth2, validators are subject to punishment in case of malpractice. This is referred to as "slashing" and can occur in the wake of three events:
If you are using the services of a third party provider or a staking pool, you can be subject to a slash. Therefore, we advice you to carefully choose your validator. Please note, that the costs for running a secure and professional validator need to be covered by the commission rate. Hence, it is worthwhile to accept a certain amount of commission in order to secure your profits and minimize the risk of punishment. In addition, we have our own capital on the line in order to fully align our own interest with that of our customers.
When staking via Lido, you receive "staked ETH". Your deposited ETH are held and controlled by the LidoDAO, which is managed via a MultiSig. Please note that once you staked ETH, they remain locked and illiquid until token transfers and withdrawals are enabled. This will be the case in Phase 1.5 of Eth2s' rollout. No specific dates have been announced for the start of Phase 1.5. However, you can still freely use your "staked ETH" (lend, trade etc.).
Your annual revenue = block rewards + transaction fees - our commission fee
Use our Reward Calculator above to see how may ETH you can earn through your stake.
Block rewards are paid in newly minted ETH and are subject to the annual inflation rate. The change of the annual inflation rate is dependent on the total amount of staked ETH.
Each transfer on Eth2 comes with transactions fees. Fees are distributed to staked ETH holders in proportion to their stake. Since token-transfers and withdrawals are currently not enabled, the amount of accrued transactions fees will be fairly low.
Rewards automatically accrue on your account. However, they remain locked and illiquid until token transfers and withdrawals are enabled. This will be the case in Phase 1.5 of Eth2s' rollout. No specific dates have been announced for the start of Phase 1.5. Unfortunately, compounding your rewards is currently not possible on a protocol level.
Until token transfers and withdrawals are enabled in Phase 1.5 of Eth2s' rollout, your rewards and your principal stake remain locked and illiquid. You can however spend, trade, or use your "staked ETH" before the launch of phase 1.5.
When you stake your ETH via Lido, your funds will be distributed between the validators composing the Lido node operator registry. The distribution is optimized to maintain a uniform distribution of ETH between the validators. Hence, you cannot choose a specific validator that you want to delegate to.
The ETH you stake via Lido is represented through the "staked ETH" token. "staked ETH" are minted every time someone stakes via Lido and burned whenever "staked ETH" is redeemed for ETH (only possible once Phase 1.5 of Eth2 launches). The token balance of "staked ETH" is pegged 1:1 to the ETH staked via Lido and updated every time staking rewards accrue. "staked ETH" can be used in various DeFi applications such as Curve or Aave and can be traded on exchanges such as Uniswap.
LDOs are the governance token for the LidoDAO, which in turn governs a set of liquid staking protocols, decides on key parameters (e.g., fees), and executes protocol upgrades to ensure efficiency and stability. Holding LDO tokens grants voting rights within the LidoDAO.
Unfortunately we cannot answer this question in a general manner as tax regulation differs among legislations. Nevertheless, we advice you to always track your staking operations so you can provide a detailed history of your staking rewards.