Ethereum staking is an integral part of Ethereum’s transition to proof of stake. Let’s take a look at why Ethereum staking is important and how you can start earning interest on your cryptocurrency by staking Ether on Coinbase.
The Ethereum network is in the process of upgrading its blockchain. If you want to transact on Ethereum today, it’ll cost you anywhere from $10 to $100, depending on the type of transaction you want to perform. Due to Ethereum’s proof-of-work consensus model, the network can only process about 15 transactions per second. The Eth 2.0 upgrade will improve both the cost and transaction throughput of Ethereum’s blockchain – enhancing the network’s long-term scalability and sustainability.
See more: How to stake ethereum
This upgrade to Ethereum will replace the crypto miners with staked Ethereum, a model known as proof-of-stake (POS), ultimately reducing network energy usage 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 of these rewards is about 7.5% annually.
To run your own validator node, you’ll need 32 Ethereum tokens. However, cryptocurrency exchanges like Coinbase allow anyone to easily stake their Ethereum tokens with no minimum amount required.
Step 1: Make a Coinbase account.
If you don’t already have a Coinbase account, you’ll need to create one via the Coinbase mobile app. Signing up for Coinbase is a simple process – all you have to do is enter your name, email, and location, then create a secure password.
Once you’ve made an account you’ll need to verify your identity for tax purposes. Some documentation you’ll need is your driver’s license, the last 4 digits of your Social Security number and your date of birth. Once you’re verified, you can purchase any cryptocurrency supported on Coinbase’s exchange.
Step 2: Purchase Ethereum tokens.
Staking Ethereum requires you to purchase Ether tokens. You can buy Ethereum tokens directly on Coinbase, making it easy for you to buy and stake your Ethereum tokens all in one place. You can purchase Ether tokens in a similar way to stocks: as a market order or a limit order. Market orders will purchase Ether tokens at market price, while limit orders only purchase Ether tokens if it hits a prespecified price that you set when placing your limit order.
Step 3: Join the waitlist.
Maybe you are interested: How Many Ethereum Are There, and How Many Are Left? | OriginStamp
Unfortunately, you can’t stake Ethereum tokens on Coinbase right away. Due to the high demand to stake Ethereum, Coinbase created a waitlist 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’ll be able to earn interest on your Ethereum tokens. If you want to get started staking right away, Kraken offers Ethereum staking without a waitlist.
Step 4: Stake your Ethereum tokens.
Since Coinbase runs the validator nodes, all you need 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 portfolio 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 followed suit — Litecoin, Ethereum and Dash are all PoW blockchains. This validation model relies on a network of cryptocurrency miners that use powerful computers to secure the blockchain. However, PoW uses immense amounts of electricity, and these blockchains can’t handle nearly as many transactions as proof-of-stake chains can.
Proof-of-Stake (PoS) was 1st used in Peercoin, an altcoin that launched back in 2013. Crypto engineer Sunny King ideated this proof-of-stake blockchain as a solution to many inefficiencies of the PoW model. Instead of using energy-intensive 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 can be seized.
Staking cryptocurrency in this way secures the network from fraudulent transactions. The more cryptocurrency you stake, the more influence you have over the blockchain; however, the more crypto you stake, the more you risk losing if you try to cheat the system. When you stake your Ether tokens, a computer program will validate transactions on your behalf accurately, so you don’t need to do anything else to earn interest once your tokens are staked.
Pros and Cons of Staking Ethereum
You should evaluate your goals as an investor before deciding whether 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 principal investment. This interest, projected to settle around 4% to 8% annually, is paid in Ether tokens. This is great if you think Ethereum will appreciate in value because if this happens your interest will increase in value as well.
Maybe you are interested: A beginners guide to Ethereum tokens | by Linda Xie | The Coinbase Blog
The biggest risk of staking your Ether tokens is associated with the volatility of Ethereum. If Ethereum tokens crash in value, you won’t be able to sell your tokens if Eth 2.0 hasn’t been launched yet. Staking Ethereum is only for investors who see Ethereum as a long-term investment.
Staking Rewards on Coinbase
The rewards for staking your Ethereum tokens on Coinbase is around 7% annually. This rate fluctuates with the number of Ethereum staked on Eth 2.0, so expect this interest to decrease up until Eth 2.0 launches. Once Eth 2.0 replaces the current Ethereum network, validators will earn rewards for transactions on Ethereum’s blockchain.
Also, staking your Ethereum on Coinbase will net you 25% less interest than staking independently. You need 32 Ether tokens to stake your crypto as an independent node, and you can do so 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 won’t be able to withdraw your cryptocurrency until Ethereum migrates to Eth2. The launch date hasn’t been set, but the Ethereum foundation is working hard to push out the update as soon as they can. According to developers at the Ethereum foundation, it’s likely that Eth2 will launch in March 2022, but could come out earlier or later than this depending on the state of the Ethereum 2.0 testnet.
This testnet has been available to the public since December 2020. Since its inception, thousands of nodes have staked over 5% of Ethereum’s total supply on the testnet. This is where you’ll stake your Ether, and once Eth2 launches the testnet will become Ethereum’s mainnet.
Staking tokens is a way to validate transactions on a proof-of-stake blockchain. While both Bitcoin and Ethereum currently use proof-of-work to validate transactions through cryptocurrency miners, this process is very inefficient and power-intensive. By staking your Ethereum tokens on Eth 2.0, you’re directly supporting the upgrade to Ethereum’s ecosystem. This upgrade will give Ethereum’s network much more utility, as transactions will be far less expensive and much quicker.
Is Staking Ethereum Profitable?
If the value of Ethereum stays constant or rises, staking Ethereum is a great way to increase your return on investment. Instead of simply holding the asset, you’re able to earn interest that’s paid in Ethereum to accumulate more cryptocurrency. Since Ethereum is a volatile asset, a big risk involved with staking Ethereum tokens on Eth 2.0 is that your investment is no longer liquid. You need to be okay with not being able to sell your investment until Eth 2.0 launches, which may still be 1 year away.
Maybe you are interested: 6 ETH to USD – Exchange – How much US Dollar (USD) is 6 Ethereum (ETH) ? Exchange Rates by nftgamef.com