Staking on Ethereum is a crucial component of its switch to proof of stake. Let’s examine why staking Ethereum on Coinbase is crucial and how you can begin receiving interest in your cryptocurrency.
The blockchain of the Ethereum network is currently being upgraded. Depending on the kind of transaction you want to conduct on Ethereum, the cost will range from $10 to $100. The Ethereum network can only process about 15 transactions per second due to its proof-of-work consensus model. The Eth 2.0 upgrade will increase the Ethereum blockchain’s cost and transaction throughput, enhancing the network’s long-term scalability and sustainability.
The proof-of-stake (POS) model will replace the cryptocurrency miners in this Ethereum upgrade, resulting in a minimum 99.95% reduction in network energy consumption. Everyone who owns Ether tokens has the option to stake those tokens on the Eth 2.0 chain, and doing so can result in rewards. These rewards are currently equivalent to an annual interest rate of around 7.5%.
To learn how to stake Ethereum on Coinbase, continue reading.
Table of Contents
What is Staking?
Ethereum, Cardano, and Solana are a few blockchain protocols that let users earn extra cryptocurrency by supporting the network. Staking, which is used to validate transactions and support the stability of the blockchain network, is how this contribution is made. Proof-of-work (PoW) blockchains, like Bitcoin, on the other hand, rely on miners to authenticate transactions and protect the network.
Many protocols have turned to stake as a means of motivating users to contribute to the security and stability of their networks because PoW blockchains have an inherent scalability problem. Staking your cryptocurrency essentially means supporting a particular validator to vouch for only legal transactions on the blockchain. You and the other stakers will receive a portion of the network fees in return.
There are various cryptocurrency stake options, each with varying degrees of challenge. Generally speaking, you have two options for validating transactions: either using your own computer (solo staking) or giving someone else control over the technical aspects of the backend on your behalf.
How to Stake Ethereum on Coinbase
You will require 32 Ethereum tokens to operate your own validator node. However, cryptocurrency exchanges like Coinbase enable anyone to stake their Ethereum tokens easily and without a minimum investment.
Step 1: Make a Coinbase Account.
You must create a Coinbase account using the Coinbase mobile app if you don’t already have one. It’s easy to sign up for Coinbase; all you need to do is enter your name, email address, and location before creating a strong password.
Once you’ve created an account, you’ll need to prove your identity for tax purposes. The last four digits of your Social Security number, your date of birth, and your driver’s license are a few pieces of supporting documentation you’ll require. You can buy any supported cryptocurrency on the Coinbase exchange once your identity has been verified.
Step 2: Purchase Ethereum Tokens.
To stake Ethereum, you must buy ether tokens. You can easily purchase and stake your Ethereum tokens in one location by purchasing them directly on Coinbase. Similar to stock purchases, you can buy Ether tokens using a market order or a limit order. Limit orders only buy Ether tokens if the price reaches a predetermined price that you set when placing your limit order, whereas market orders buy Ether tokens at the current market price.
Step 3: Join the Waitlist.
Sadly, you can’t immediately stake Ethereum tokens on Coinbase. Due to the high demand for Ethereum stakes, Coinbase developed a waitlist that places you in line to stake your Ether tokens. Although the wait time can vary, the earlier you sign up for the waitlist, the sooner you can start earning interest on your Ethereum tokens. Kraken provides Ethereum staking without a waitlist if you want to get started right away.
Step 4: Stake Your Ethereum Tokens.
You only need to stake any number of Ether tokens with Coinbase because it manages the validator nodes; everything else will be handled by the exchange. When you’ve staked your Ethereum tokens on the Eth 2.0 network, you can unwind and watch as your portfolio of cryptocurrencies automatically earns interest.
Is It Worth Staking Your Ethereum on Coinbase?
The decision to stake your ETH on Coinbase specifically must be made now that you are aware of your staking options.
For various cryptocurrencies, Coinbase uses various requirements and reward structures. The exchange has the most benevolent ETH staking policies, though only you can decide if it’s worthwhile. With six cryptocurrencies, including ETH, Coinbase permits staking. Algorand, Cosmos, Tezos, Cardano, and Solana are the others.
With the exception of Ethereum, the other five all have minimum balance requirements. Furthermore, the reward payout schedules for the other five are delayed. For Tezos, Cardano, and Cosmos, the reward payout rate is three days, five days, and seven days, respectively. The most slow moving of all is Algorand, which only pays out rewards every three months.
While Ethereum rewards are distributed every day.
Proof-of-Stake (PoS) Vs Proof-of-Work (PoW)
Proof-of-work (PoW) validation is the method used by the first public blockchain, Bitcoin, to validate transactions. Many other blockchains adopted this model; PoW blockchains include Litecoin, Ethereum, and Dash. The blockchain is secured by a network of cryptocurrency miners who employ powerful computers in this validation model. However, PoW blockchains consume a significant amount of electricity, and they are unable to process nearly as many transactions as proof-of-stake chains.
The first cryptocurrency to use Proof-of-Stake (PoS) was Peercoin, which debuted in 2013. Sunny King, a crypto engineer, developed this proof-of-stake blockchain as a response to the many drawbacks of the PoW model. Users can stake their tokens to serve as validators on the blockchain in place of using power-hungry cryptocurrency miners. The validator’s funds may be seized if they attempt to trick the system in any way.
The network is protected from fraudulent transactions by staking cryptocurrency in this way. The more cryptocurrency you stake, the more control you have over the blockchain. On the other hand, the more cryptocurrency you stake, the more money you stand to lose if you try to game the system. You don’t need to do anything else to earn interest once your Ether tokens are staked because a computer program will accurately validate transactions on your behalf after you stake them.
Pros and Cons of Staking Ethereum
Before deciding whether to stake your Ethereum tokens, you should think about your investment objectives. If you choose to stake in Ethereum, you should be willing to take on a lot of risks because cryptocurrencies are among the most volatile asset classes you can invest in.
You can earn interest on your principal investment by staking Ethereum. This interest is paid in ether tokens and is anticipated to settle between 4% and 8% annually. This is excellent if you believe Ethereum will increase in value because your interest will rise in value as well.
The volatility of Ethereum is the main risk of staking your Ether tokens. If Eth 2.0 has not yet been released, you won’t be able to sell your tokens in the event that the value of Ethereum tokens drops. Only investors who view Ethereum as a long-term investment should stake their coins.
Staking Rewards on Coinbase
Your Ethereum tokens will earn you about 7% a year for staking them on Coinbase. Up until the launch of Eth 2.0, expect this interest to decline as the number of Ethereum staked on the platform varies. Validators will receive rewards for transactions on Ethereum’s blockchain once Eth 2.0 replaces the current Ethereum network.
Additionally, you will earn 25% less interest from your Ethereum stake on Coinbase than you would from a standalone stake. 32 Ether tokens are required to stake your cryptocurrency as an independent node, and you can do this using Argent, an Ethereum software wallet. If you want to earn interest but don’t have 32 Ethereum tokens to stake, you can stake any amount of Ether on Coinbase.
Is Staking Ethereum Profitable?
Staking Ethereum is a fantastic way to boost your return on investment if the price of Ethereum remains stable or increases. You can earn interest that is paid in Ethereum instead of just holding the asset, which will help you amass more cryptocurrency. As a volatile asset, Ethereum, there is a significant risk that your investment will become unliquid if you stake Ethereum tokens on Eth 2.0. You have to accept that it might be a year before Eth 2.0 launches and that you won’t be able to cash out on your investment until then.
Know the Risks before You Stake
The price of Ethereum is notoriously unstable, just like all cryptocurrencies. The rewards you earn when you stake ETH are paid out in ETH. As a result, staking ETH is only a wise investment if you think Ethereum will gain value. Both your initial investment and the reward yield you earn on that investment are dependent on the success of the ETH token unless you exchange them for another cryptocurrency or cash them out.
The potential risk extends beyond market volatility because your investment is reliant on the stability of the entire exchange. According to Coinbase, “ETH staking is experimental and carries some risks, including the potential for network failure.”
The possibility of “slashing,” a penalty imposed at the protocol level, is another risk associated with staking ETH. Events outside of Coinbase’s control may result in slashing, which may result in the loss of staked assets. The Coinbase user agreement, which you must accept before you can begin staking, details slashing, and all the other risks related to it. Before you start, give it a thorough read. Last but not least, bear in mind that staking rewards over $600 are subject to tax reporting.
Conclusion
Since its inception, Ethereum has developed into a successful project. As it has progressed, Ethereum has gathered a talented group of programmers who are working on the core protocol and applications. The multi-phased upgrade for Ethereum was carefully planned and timely carried out.
The core team is working nonstop until all the challenges, including migrations and rollups, are resolved. For now, HODLers can consider staking Ethereum on Coinbase as a long-term investment.
