Ethereum has taken the crypto world by storm. And to expedite the Ethereum network, the Ethereum merge finally took off on September 15, 2022. Why the hype? The merge is transitioning from a “proof-of-work” to a “proof-of-stake” consensus mechanism. The “merge” is a milestone in crypto history, and it would boost the crypto market. Above all, it proves that the decentralized and permissionless network can work energy-efficiently.
Ethereum staking is an indispensable part of the Ethereum merge. Amidst the merger, the Ethereum staking garnered considerable attention. Exchanges like Coinbase promoted ways to persuade its users to stake in Ethereum and earn rewards. So, what is Ethereum Staking? And is Ethereum Staking worth the price?
The article helps you to understand all about Ethereum Staking. Let’s delve deeper.
What is Ethereum Staking?
Staking involves actively participating in validating transactions on the Proof-of-Stake protocol. It is similar to mining in proof-of-work control. As we know, Ethereum recently migrated from the draining proof-of-work mechanism to the efficient proof-of-stake mechanism. Ethereum staking involves staking 32 ETH to participate in the Ethereum network actively. And each node in the network is called the validator. The validator contributes to the network by data storage or verifying transactions on selection.
How does Ethereum staking work?
Now that you understand the basics of Ethereum Staking. How does Ethereum staking work?
The following are the different ways to stake Ethereum:
Running on a Validator
Ethereum Staking by running a validator is the most profitable staking method. It involves staking 32 ETH to enable the Ethereum software. Once the validator locks the 32 ETH, the blockchain assigns the validators tasks, such as data storage, transaction processing, and adding new blocks, thus, maintaining the overall functionality of the blockchain.
Furthermore, running a validator requires devices leveraging on computing services 24×7 and a good internet connection, thus increasing the overall cost. As a result, the cost of running a validator outweighs the profits of Staking. The cost of running a validator ranges from a one-time setup to monthly fees.
Ethereum staking pool
Staking at a pool involves sharing or combining your ETH with others to reach the threshold of 32 ETH for running a validator. An advantage of the Ethereum staking pool is that you only need a small amount of ETH to begin staking. Another benefit is that you can keep your ETH, subject to the restrictions of the network.
Some exchanges now offer to stake ETH. Crypto investors prefer exchanges for one reason – convenience. Often, these crypto exchanges require less or no staking requirements. On exchanges, you can buy ETH and immediately start staking. However, the disadvantage of exchanges is convenience fees and security. Another downside is that exchanges store ETH in a custodial wallet. So, staking through crypto exchanges involves the risk of hacking attacks raising security concerns.
A significant disadvantage in the standard methods of Ethereum staking is a long-term commitment. When you stake an ETH, it is held in the network until you gain returns. What if you could stake ETH minus the commitment? Liquid Staking helps you to earn staking rewards, yet withdraw your staked ETH or use it in trading like unstacked ETH.
How does it work? It swaps your staked ETH with a receipt token which you can store in your wallet and use as proof of ownership while trading. On the other hand, your original token in the network earns rewards.
How profitable is Ethereum staking?
Ethereum has manifested the potential of cryptocurrency. However, before investing in Ethereum, it is crucial to consider if the bet is worthwhile. Generally, holding Ethereum for a long time is profitable. So, the incremental yield enables you to earn rewards. That said, considering the volatility of the market changes. As a result, the market is unpredictable, and holding might affect the liquidity of your funds.
Liquid staking platforms, such as Lido, help you use your staked ETH tokens via liquid tokens called stETH or staked ETH. To summarize, considering Ethereum staking depends on your time and willingness to hold your coins.
Should I stake Ethereum on coinbase?
As we know, you can also stake on Ethereum through crypto exchanges like coinbase, and it is one of the best place to stake Ethereum through exchanges. Earlier, Coinbase led ways to influence investors to hold Ethereum for earning passive income as the crypto exchange stakes on their behalf. And in return, the users would earn rewards for Staking. However, the downside was stakers couldn’t sell or trade their staked ETH. Later the Ethereum merge got delayed a bit, and finally, on September 15, 2022, the merge took place.
That was a bit about Ethereum Coinbase staking. But the question is should I stake Ethereum on coinbase? Ethereum staking coinbase has a few benefits, such as convenience and no minimum investment. Moreover, Ethereum staking on coinbase involves creating an account, purchasing tokens, and staking after some waiting period. Coinbase allows its users to stake on Ethereum, Cosmos, Algorand, and Tezos. It allows you to earn 5% APY for staking ETH. Furthermore, the coinbase Ethereum staking calculator helps gauge the staking rewards.
However, staking through exchanges sets forth their own risk. Commission fees and long waiting periods are the two significant downsides. As of Jan 2023, Coinbase takes a 25% commission on earning rewards from the network. So, amidst the Ethereum staking fad, ensure you weigh all the points before taking the final step.
What are the reasons for staking Ethereum?
The following are the reasons for Ethereum staking:
Ethereum staking rewards
The foremost reason for Ethereum staking is the possibility of earning rewards. After the Ethereum merge, ETH 2.0 rewards the good players – the validators who accelerate the network. How to get these rewards? Primarily, users receive rewards for operating systems to add transactions in new blocks. Alternatively, users can earn rewards for verifying contributors for other validators
The paradigm shift from proof-of-work to proof-of-stake protocol has one significant benefit – sustainability. Earlier, under the proof-of-work protocol, validators leveraged high-end computing resources for Staking. However, the transition to proof-of-stake changed the roadmap of Ethereum. Now, users can participate in the network (stake) with a smartphone or personal computer. Furthermore, it helps to make our planet more sustainable.
Ethereum security helps to upscale the security of the network. When users stake more ETH, hackers require more ETH to gain control over the network. And acquiring control over the majority of the network is difficult.
How Much Can You Make Staking ETH?
There is no golden rule book that states how much Ethereum staking pays. What decides the profits? The returns depend on – the amount of staked ETH and the number of validators in the network at that given instant. Generally, the rewards are higher for fewer validators. Who decides the rewards? The answer is simple – the protocol decides the rewards.
The highest ETH staking rewards reportedly range from 5% to 20% annually. And the merger would raise the bar to 8% or higher. The Ethereum staking rewards are locked up until the merge is complete. However, validators can avail of liquid Staking through providers like Lido to get liquidity before the next upgrade. Also, the Ethereum staking calculator helps you to calculate the rewards through the staking process.
What are the benefits of Ethereum Staking?
The following are the benefits of Ethereum Staking:
Passive source of income
We know that term deposits, certificates of deposit(CD), and money market accounts allow you to earn interest for your funds. Is there such a provision in the crypto market? Yes, Ethereum Staking is the CD of the crypto world that earns you a passive income. And all you need to do is stake your ETH in the network without additional work. You can earn rewards if the network chooses you as the validator and you complete the transactions. According to the Ethereum Foundation, the annual APR is approximately 4%.
Sense of community
Are you a crypto enthusiast who is passionate about Ethereum? Then, Ethereum staking empowers you to expedite the network. Staking involves putting your tokens to validate the network. So, along with rewards, you also improve the health and security of the network.
Crypto is a highly volatile market. And Bitcoin and Ethereum are the staunch walls that can withstand the ebbs and flows of the market to some extent. So, betting on Ethereum involves comparatively low risk. Moreover, Ethereum’s popularity, applications, and security give it precedence over other tokens.
Ethereum has gained massive success with robust DeFi projects, gaming, web browsing, and supply chain management. Undoubtedly, Ethereum staking is comparatively more profitable than staking on other altcoins. In addition, there are several ways to stake Ethereum; choose the right one for you. Staking on Ethereum helps you yield rewards on your Ether tokens. But, if you are someone who trades crypto frequently and cannot hold ETH long, then Ethereum Staking is not for you. In short, be mindful and analyze your resources and goals before staking Ethereum.