Ethereum’s blockchain has become inefficient and expensive to use. Ethereum can only handle about 15 transactions per second and can cost investors anywhere from $10 to over $100 per transaction.
In December 2020, Ethereum launched its Ethereum 2.0 beacon chain. Eth 2.0 aims to solve the problem of scalability by switching to a Proof-of-Stake mechanism, as opposed to its current Proof-of-Work model that works in a similar way to Bitcoin.
Proof-of-Stake replaces cryptocurrency miners (used in PoW) with token staking. By staking Eth tokens on the network, you can earn interest on your Ethereum while helping secure the Ethereum blockchain. Although Proof-of-Work and Proof-of-Stake consensus models may seem confusing, it’s a relatively simple process to stake Ethereum and earn interest on your tokens.
Step 1: Make a Kraken Account
You’ll need to create an account on Kraken’s website to begin earning interest on your Ethereum tokens. To make an account, you’ll need to enter your email address and create a username and password. Next, verify your email address with an activation code sent to your email.
Once you’ve registered, you should secure your account with 2-factor authentication. This will mitigate the risk of your account being compromised by online hackers, as they’d need to access your authenticator app to access your account.
To get access to Kraken’s services, such as Ethereum staking and cryptocurrency trading, you’ll need to verify your account. This process takes about 5 minutes, and it requires you to submit a photo of your ID and provide the platform with personal information for tax purposes.
Step 2: Fund Your Account with Ethereum
Once verified, you’ll need to fund your Kraken account to buy Eth tokens. If you already own cryptocurrency, you can send it to your Kraken crypto address to fund your account. If you don’t own Ethereum already, you can send any cryptocurrency that Kraken supports and trade it for Ether tokens its exchange.
If you don’t already own crypto, then you can purchase Ethereum directly from Kraken’s website using your bank. You can purchase Ether tokens via wire transfer by connecting your bank account information to Kraken’s website.
Step 3: Stake Your Eth Tokens
Navigate to the Staking tab on Kraken’s website to stake Ether tokens on the Eth 2.0 beacon chain. Before you stake your tokens, you should be aware of the implications of staking Ether on Eth 2.0.
You won’t be able to withdraw your Eth tokens until the Eth 2.0 upgrade completes, and there is not a date set for the upgrade to finish just yet. If you stake your Ether, you should be ok with not having access to your funds for at least a year (although the Eth 2.0 upgrade could finish sooner than this, there’s no guarantee it will).
By staking your Ethereum tokens, you’re directly supporting the upgrade to a Proof-of-Stake consensus model for the Ethereum Network. Ethereum’s blockchain needs validators to stake their Ether tokens in order to successfully upgrade its network, so by staking Ether you’ll help secure the new PoS consensus model on Ethereum’s blockchain.
Proof-of-Stake (PoS) vs. Proof-of-Work (PoW)
The 2 main consensus mechanisms that enable blockchain technology are Proof-of-Work (PoW) and Proof-of-Stake (PoS). Major cryptocurrencies like Bitcoin and Ethereum are currently powered by a PoW mechanism which uses cryptography to secure blockchain transactions.
In Proof-of-Work consensus, miners use immense computer power to solve these cryptographic equations in hopes of receiving a block reward. Block rewards are newly minted cryptocurrency that the network pays miners for securing the blockchain network.
Alternatively, Proof-of-Stake mechanisms use staked cryptocurrency to secure a blockchain’s network. The Eth 2.0 will shift Ethereum from a PoW mechanism to PoS which will enable the network to handle more transactions at a fraction of the cost. This is because one node is responsible to create a new block on the blockchain, and the chance a node is chosen to validate a block is proportional to the amount of cryptocurrency they’ve staked on the network.
Since validators (investors who stake crypto for interest) have their tokens staked on the network, they should work in the network’s best interest. If the validator tries to enter fraudulent transactions, their staked cryptocurrency will be seized and they will no longer be able to act as a validator.
If you plan on staking your Ethereum on a platform like Kraken, you don’t have to worry about becoming a validator. You simply need to stake your Eth tokens on the website and Kraken will do the rest. To become an independent validator on the Ethereum 2.0 beacon chain, you need to independently stake 32 Eth tokens (about $57,000).
Staking Rewards on Kraken
Staking Ether tokens on Kraken will earn you a similar interest rate to other platforms that allow you to stake Ether. The interest rate is expected to be 5% to 17% annually, but this number will fluctuate depending on the amount of Ether tokens staked on the network.
Kraken takes a 15% administrative fee on the interest you earn by staking Eth tokens. This is a competitive fee for Eth staking, as Coinbase charges a 25% fee on interest earned through staked Ether. If you have 32 Eth tokens and want to stake your Eth on the Eth 2.0 beacon chain, then you can do so independently to avoid these extra fees.
Pros and Cons of Staking Ethereum on Kraken
Depending on your goals as an investor, staking Ethereum may be a great choice for you. Staking Ether tokens on Kraken is an easy way to start growing your cryptocurrency holdings over the long term.
Pros of Staking Eth on Kraken
- Kraken lets you stake any amount of Eth tokens, whereas you’d need 32 Ether to stake your tokens independently.
- Staking Ether on Kraken is easy and requires little prior knowledge on blockchain technology.
- Staking Eth tokens is a great way to grow your portfolio’s Eth token balance.
Cons of Staking Eth on Kraken
- Your Eth tokens will be locked on the Eth 2.0 beacon chain until the upgrade to Eth 2.0 is complete.
- It takes about 20 days for the Eth tokens you stake to begin earning interest.
- The Ether you stake won’t be available for you to trade or use as collateral for margin on Kraken’s platform.
How Does Staking Work?
You can either stake your Ether tokens independently or through an exchange. To become an independent validator on Ethereum 2.0, you’ll need to stake 32 Eth tokens per node. If you can afford to run an independent node, doing so will save you from paying extra fees on exchanges.
If you want to stake less than 32 Ether, then you’ll need to use an exchange to stake your tokens. Exchanges like Kraken pool together investors’ funds in order to run validator nodes on Ethereum’s blockchain, and they’ll charge an administrative fee for this service.
Stake Ethereum or Simply Invest?
If you plan on holding your Ether tokens for the long term, it may be a good idea to stake your Ethereum to earn interest on your cryptocurrency. Staking Ethereum lets you earn interest in Ether tokens, making it easy to accumulate more Ethereum. By staking Ethereum you’re directly supporting the Eth 2.0 upgrade, which will help lower transaction costs and increase the efficiency of the Ethereum network.
Frequently Asked Questions
Q.When will I start earning Interest after staking my Eth tokens?
It takes about 20 days for you to start earning interest on your staked Ethereum on Kraken. The time it takes to start earning rewards is dependent on Ethereum’s network conditions, as your Ether tokens need to be bonded on the network to work as a validator node.
Q. Can I trade staked ETH in Kraken?
You currently can’t trade staked Eth tokens on Kraken. The platform intends on making a market to trade staked Ether for unstaked Ether, but this service won’t be available in the United States or Canada.