Ethereum staking is an integral part of Ethereum’s transition to proof-of-stake. Let’s see why staking Ethereum is important and how you can start earning interest on your cryptocurrency by staking Ether on Coinbase.
The Ethereum network is upgrading its blockchain. If you want to trade Ethereum today, it will cost you between $10 and $100, depending on the type of trade you want to make. Due to Ethereum’s proof-of-work consensus model, the network can only process around 15 transactions per second. The Eth 2.0 upgrade will improve both Ethereum’s blockchain transaction cost and throughput, improving the network’s scalability and long-term sustainability.
This upgrade to Ethereum will replace crypto miners with staked Ethereum, a model known as proof-of-stake (POS), ultimately reducing network power consumption by at least 99.95%. Anyone who owns Ether tokens can stake their tokens on the Eth 2.0 chain, and you can earn rewards for doing so. Currently, the interest rate equivalent to these rewards is approximately 7.5% per annum.
To run your own validator node, you will need 32 Ethereum tokens. However, cryptocurrency exchanges like Coinbase make it easy for anyone to stake their Ethereum tokens with no minimum amount required.
Step 1: Create a Coinbase account.
If you don’t already have a Coinbase account, you’ll need to create one through the Coinbase mobile app. Signing up for Coinbase is a simple process – all you need to do is enter your name, email address, and location, then create a secure password.
Once you have created an account, you will need to verify your identity for tax purposes. Some documents you will need are your driver’s license, the last 4 digits of your social security number, and your date of birth. Once you are verified, you can buy any supported cryptocurrency on the Coinbase exchange.
Step 2: Buy Ethereum tokens.
Staking Ethereum requires you to buy Ether tokens. You can buy Ethereum tokens directly from Coinbase, making it easy to buy and stake your Ethereum tokens in one place. You can buy Ether tokens in the same way as stocks: as a market order or a limit order. Market orders will buy Ether tokens at the market price, while limit orders only buy Ether tokens if they reach a predefined price that you set when placing your limit order.
Step 3: Join the waiting list.
Unfortunately, you cannot place Ethereum tokens on Coinbase right away. Due to the high demand for staking Ethereum, Coinbase has created a waiting list that puts you in line to stake your Ether tokens. The wait time can vary, but the sooner you join the waitlist, the sooner you can earn interest on your Ethereum tokens. If you want to start staking right away, Kraken offers Ethereum staking with no waiting list.
Step 4: Stake your Ethereum tokens.
Since Coinbase runs the validator nodes, all you have to do is deposit any amount of Ether tokens to stake and the exchange will do the rest. Once you’ve staked your Ethereum tokens on the Eth 2.0 network, you can sit back, relax, and watch your cryptocurrency wallet earn interest without doing anything.
Proof of Stake (PoS) vs Proof of Work (PoW)
Bitcoin, the 1st public blockchain, uses a proof-of-work (PoW) validation model to verify transactions on the blockchain. Many other blockchains have followed suit – Litecoin, Ethereum, and Dash are all PoW blockchains. This validation model relies on a network of cryptocurrency miners who use powerful computers to secure the blockchain. However, PoW uses immense amounts of electricity, and these blockchains cannot handle as many transactions as proof-of-stake chains.
Proof of Stake (PoS) was first used in Peercoin, an altcoin launched in 2013. Crypto engineer Sunny King envisioned this proof-of-stake blockchain as a solution to many of the inefficiencies of the PoW model. Instead of using power-hungry cryptocurrency miners, users can stake their tokens to act as validators on the blockchain. If the validator tries to cheat the system in any way, their funds may be seized.
Staking cryptocurrency in this way secures the network against fraudulent transactions. The more cryptocurrency you stake, the more influence you have on the blockchain; however, the more crypto you bet, the more you risk losing if you try to cheat the system. When you stake your Ether tokens, a computer program will accurately validate transactions on your behalf, so you don’t have to do anything else to earn interest once your tokens are staked.
Advantages and disadvantages of Ethereum staking
You should assess your goals as an investor before deciding whether or not to stake your Ethereum tokens. Cryptocurrencies are one of the most volatile asset classes you can invest in, so you should have a high risk tolerance if you decide to stake Ethereum.
Staking Ethereum will earn you interest on your primary investment. This interest, which should be around 4% to 8% per year, is paid in Ether tokens. This is fine if you think Ethereum will go up in value, because if that happens your interest will also increase.
The greatest risk of staking your Ether tokens is associated with the volatility of Ethereum. If the value of Ethereum tokens goes down, you will not be able to sell your tokens if Eth 2.0 has not yet launched. Staking Ethereum is only for investors who view Ethereum as a long-term investment.
Staking rewards on Coinbase
The rewards for staking your Ethereum tokens on Coinbase are around 7% per year. This rate fluctuates with the number of Ethereum staked on Eth 2.0, so expect this interest to decrease until the launch of Eth 2.0. Once Eth 2.0 replaces the current Ethereum network, validators will earn rewards for transactions on the Ethereum blockchain.
Additionally, staking your Ethereum on Coinbase will earn you 25% less interest than independent staking. You need 32 Ether tokens to stake your crypto as an independent node, and you can do that on Ethereum software wallets like Argent. If you don’t have 32 Ethereum tokens to stake but still want to earn interest, you can stake any amount of Ether on Coinbase.
How does staking work?
When you stake your Ethereum, you will not be able to withdraw your cryptocurrency until Ethereum migrates to Eth2. A launch date has not been set, but the Ethereum Foundation is working hard to release the update as soon as possible. According to the Ethereum Foundation developers, it is likely that Eth2 will launch in March 2022, but could release sooner or later depending on the state of the Ethereum 2.0 testnet.
This testnet has been publicly available since December 2020. Since its inception, thousands of nodes have staked more than 5% of the total Ethereum supply on the testnet. This is where you will stake your Ether, and once Eth2 launches, the testnet will become the main Ethereum network.
Token staking is a way to validate transactions on a proof-of-stake blockchain. While Bitcoin and Ethereum currently use proof-of-work to validate transactions through cryptocurrency miners, this process is highly inefficient and energy-intensive. By staking your Ethereum tokens on Eth 2.0, you are directly supporting the upgrade to the Ethereum ecosystem. This upgrade will give Ethereum’s network much more utility, as transactions will be much cheaper and much faster.
Is Ethereum Staking Profitable?
If the value of Ethereum remains constant or increases, staking Ethereum is a great way to increase your return on investment. Instead of just holding the asset, you can earn interest paid in Ethereum to accumulate more cryptocurrency. Since Ethereum is a volatile asset, a big risk of staking Ethereum tokens on Eth 2.0 is that your investment is no longer liquid. You must accept that you cannot sell your investment before the launch of Eth 2.0, which may still take 1 year.
Frequently Asked Questions
How long will I be on the Coinbase Ether staking waiting list?
How long will I be on the Coinbase Ether staking waiting list?
The time it takes you to get out of the waitlist for Ethereum staking depends on how many investors are on the waitlist before you. Although there is no standard time to exit the waitlist, Coinbase will notify you via email when you have been accepted to begin staking your Ether tokens.
Is there a minimum bet?
Is there a minimum bet?
There is no minimum stake to stake Ethereum tokens on Coinbase. To stake your Ethereum tokens as an independent validator node, you need 32 Ether tokens. Coinbase aggregates tokens from investors to run nodes, and it takes 25% of the interest you earn as an administrative fee.