Staking Ethereum with Ether (ETH) that you own helps to maintain this network, strengthening it and allowing it to expand. You gain rewards in ETH for staking, which can be a great way to make a 7.5% passive income off of your crypto holdings.
Staking Ether for the Ethereum 2.0 blockchain upgrade has never been easier and more accessible. In this guide, we’ll cover all the basics and help you figure out how to make the most money.
Main Takeaways: Staking Ethereum
Know these tips to help you stake Ethereum:
- Ethereum 2.0 upgrades the network to proof of stake.
- Proof of stake is more secure and environmentally friendly.
- Coinbase, Gemini, Kraken and others are offering 7.5% APY for any amount of staked ETH.
What is Ethereum Staking?
Every blockchain project relies on its decentralized network of miners to provide its backbone. Ethereum is no different. Staking is a new method of securing blockchain that has its own unique incentive system to go along with it.
Staking is locking up currency for a period of time in order to gain a reward. Staking Ether can generate a reward of 7.5% APY. But, where does this money come from and how can the yield be so high compared to traditional banking?
Proof of Work vs Proof of Stake
A major difference between the Bitcoin and Ethereum networks is the way that it validates transactions. The Bitcoin network uses proof of work (PoW) while Ethereum is migrating from PoW to proof of stake (PoS). Proof of work involves miners running computers dedicated to solving cryptographically hard algorithms in order to secure the network. In contrast, proof of stake means that you show your commitment to the network by staking, or locking up, a deposit of ETH to participate as a validator of the network.
As a network validator, you are awarded the privilege of validating some network transactions and getting paid for it. The amount of money a validator can make is directly related to how much currency they are willing to stake. As a typical validator, you can expect to earn around 7.5% annual return on your stake.
Staking can be thought of as a new form of cryptocurrency mining — without the energy-intensive computers — and with better security.
Ethereum 2.0 will upgrade its network to proof-of-stake, an improvement to be completed in 2021. The exact date has not yet been determined.
But, you don’t have to wait until 2.0 comes out to become a validator and start earning rewards. You can start earning yields today, but here’s the catch — ETH tokens staked for the 2.0 upgrade cannot be withdrawn until the conversion to 2.0 is complete.
Because this is still an unknown amount of time, it’s best not to stake any Ether you might want to trade in the medium term.
How to Stake Ethereum
Staking Ethereum has never been easier. Until recently, becoming a validator required setting up your own Ethereum node, with a minimum stake of 32 ETH. Today, the biggest exchanges are taking care of the nitty-gritty for you — and removing the hefty 32 ETH requirement.
Here are the top platforms offering staking now or in the near future:
- Kraken: You can stake ETH on Kraken today and receive a variable yield of between 5% and 17% according to its website.
- Coinbase: Coinbase has officially launched the Eth 2.0 staking waitlist after announcing full support for the 2.0 upgrade in 2020. Coinbase has predetermined the yield at 7.5% per year. Sign up today to be one of the 1st to stake through coinbase!
- Gemini: Gemini has also announced full support for Ethereum 2.0 and staking coming soon.
- Other staking pools: There are hundreds of other services that pool together the funds of those with less than 32 ETH and split the rewards. The Ethereum Foundation recommends this site but warns users to do independent research before joining any of the pools.
Should you Stake for Ethereum 2.0?
Risks of Staking
Staking Ethereum and being a validator gives a person direct access to the way that the Ethereum network develops. As such, validators have the potential to introduce false information, double spend and participate in groups to increase rewards for staking. To deter validators from participating in activities that are detrimental to the network, the concept of “slashing” has been introduced.
Any validators found to be maliciously hurting the network may have their stake slashed or partially taken from them. The worst offenses are punished by taking the entire stake and disconnecting the validator from the network.
If you plan to stake through an exchange, you are trusting them to properly handle your stake and prevent it from being slashed.
Despite the harsh penalties, experts believe the risk of actually being slashed or taken off the network is relatively low.
A Stake is a Belief
Staking Ethereum is a great way to safely gain a return on your initial crypto investment. It is a great way to supplement your activities on a crypto trading platform. Being a validator requires some blockchain expertise, but once you get over the learning curve, you’ll find yourself in rarefied air. But it is much more important to know why you are staking — hopefully, because you believe in the project.
Frequently Asked Questions
Q: How much can you earn by staking?
In reality, the returns on staking are set by the market and the amount of total Eth staked at any given moment, but most platforms are announcing a preset level of 7.5% — making it easier for widespread understanding and adoption.
Q: What’s the future of Ethereum?
Ethereum’s projected growth as a network is high. The blockchain is not only used for smart contracts and transactions, but actual crypto assets are often built on Ethereum’s blockchain.
There is much positivity surrounding cryptocurrencies, and Ethereum potential is booming. Ethereum could rise like Bitcoin, and it’s hard to tell how high the price of Ethereum may go.
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