Staking is the act of depositing 32 ETH to activate a validator node. The Validators nodes will be responsible for storing data, processing transactions, and adding new blocks to the blockchain with the ETH2 upgrade. This keeps Ethereum secure for everyone and creates a passive income of new ETH in the process. This process, known as proof-of-stake, is being introduced by the Beacon Chain with the upcoming merge process.
Responding to many scalability issues and increased security and speed for mass adoption of the technology, the Ethereum blockchain have gone through a process known as The Merge, where the Beacon Chain, also known as the “consensus layer” merged with the execution layer, what we know as Ethereum mainnet. To upgrade the Proof of Work system to a new Proof of Stake consensus mechanism for the blockchain. The Merge represents the official switch to using the Beacon Chain as the engine of block production. GPU Mining no longer is the means of producing valid blocks. Instead, the proof-of-stake Validators assume this role and are responsible for processing the validity of all transactions and proposing blocks.
The Merge is one step on the roadmap to achieve the full upgrade of Ethereum 2.0, and that means the ETH tokens locked on the Validator nodes are not accessible until certain milestones are reached. Staked ETH, staking rewards to date, and newly issued ETH are still be locked on the Beacon Chain without the ability to withdraw. Withdrawals are planned for the Shanghai upgrade, the next major upgrade following The Merge. This means that newly issued ETH, though accumulating on the Beacon Chain, will remain locked and illiquid for at least 6-12 months following The Merge.
Although there are some ETH tokens for Validators that will be liquid after the merge, before the implementation of Shanghai. Fee tips/MEV will be credited to a Mainnet account controlled by the Validator, available immediately. ETH on the execution layer is accounted for in a separate way from the consensus layer. When users execute transactions on Ethereum Mainnet, ETH tokens must be paid to cover the gas fee, including a tip to the validator. These ETH tokens are already on the execution layer, are not being newly issued by the protocol, and are available to Validators immediately (given a proper fee recipient address is provided to the client software).
After the Shanghai upgrade the ability to extract funds from the Validator nodes will be accessible but organized by the protocol in a rate-controlled manner. Only 6 Full Validator exits are allowed per epoch (every 6.4 minutes). This rate-limit adjusts depending on the total ETH tokens that are staked and prevents a mass exodus of funds from the protocol. Furthermore, it prevents a potential attacker from using their stake to commit a slashable offense and exiting their entire staking balance in the same epoch before the protocol can enforce the slashing penalty.
With the introduction of Ethereum 2.0 complexities and new rules of consensus under proof-of-stake, many new technologies and code are being tested while implemented, which brings an inherent risk as we evolve as technology and industry. The pioneers of these new realms must think about the many risks which going to untested grounds might mean for the sake of their funds.
The new consensus mechanism has a couple of rules that are designed to prevent attacks on the network. Any Validator found to have broken these rules will be slashed and ejected from the network. Slashing means that if a Validator Node is behaving against the protocol rules or failing on its technical duties, the ETH tokens that are staked on it can be removed, up to a 100% of the funds. Validator software and staking management have built-in protection against getting slashed accidentally. Slashing should only affect Validators who misbehave deliberately.