Breaking down Ethereum staking rewards
Staking under the hood
Have you ever wondered how Ethereum staking rewards are earned and distributed? In this post, we'll explore the details, while keeping it as simple and straightforward as our previous guides. Let’s get into it.
Reward mechanics
In Ethereum, staking rewards consist primarily of two forms: consensus and execution rewards.
Consensus Rewards: These are given to stakers for their role in maintaining the network's security and verifying transactions. This comprises roughly 70-80% of the rewards earned by stakers.
Execution Rewards: These come from the transaction fees paid by users. When someone makes a transaction, a small fee is paid as a tip to stakers to process their transaction. All of these transactions and tips get included in a new block every 12 seconds. A staker gets chosen at random by the network to process a block and earn all of the tips associated with it. This makes up the other 20-30% of the rewards earned by stakers.
Analogy for understanding rewards
Think of Ethereum like a restaurant and stakers as the waiting staff. The consensus rewards are like a fixed salary paid to staff for taking everyone’s orders and serving food and drinks. Regardless of how busy the restaurant is, the salary remains fairly consistent as long as you show up to work.
The execution layer rewards, on the other hand, are like tips given by customers. If you get asked to work a shift when the restaurant is quiet, you’ll earn less tips. If your shift is when the restaurant is busy, you’ll earn more!
Timing of rewards
Depending on the type of reward, the timing of when you earn them is different. Consensus rewards currently get paid every 7-8 days. Execution rewards on the other hand, get paid out immediately once a staker gets chosen to process a block. If you’re lucky, the block will have a lot of tips in it!
Lantern follows the exact same schedule as the network to make sure you receive your rewards on time.
Summary
Understanding staking rewards is not just about recognizing how you can earn, it's also about appreciating your role in securing one of the world's most dynamic blockchain networks. Whether it's through the consistent earnings of consensus rewards or the dynamic opportunities of execution rewards, your participation makes a difference to the network’s overall health.
Still have questions? Get in touch with us at support@lantern.finance and we would be happy to answer any questions for you.