Ethereum, the Latin word for digital finance 2.0. Not really, but it does roll off the tongue nicely. Pseudo-etymologies aside: Anyone who has been paying attention to cryptocurrency headlines knows that Ethereum is on fire, demonstrating its potential as a viable infrastructure for the future economy to be built. With ether (ETH), the cryptocurrency that powers the Ethereum blockchain, you can be your own bank without dealing with any pesky centralized intermediaries. Thanks to the upcoming Ethereum 2.0 (ETH2) network upgrade, you can now stake your ETH, support the blockchain, and earn passive interest in return.
This article will show you everything you need to know about how to stake ETH, take you to the best exchanges and pools to stake your ETH, and compare the advantages and disadvantages of the different staking methods available. To keep things as tangible as possible, I’ll include step-by-step instructions on how to stake ETH on Coinbase, Kraken, Binance, and other centralized exchanges and how to stake ETH the non-custodial way on the Ledger hardware wallet or via Metamask.
Before we get our hands dirty with the practical side of staking ETH, I’ll start with a rundown on why Ethereum is so revolutionary for the financial system and what Ethereum 2.0 is all about. If you already know everything about Ethereum or don’t particularly care, feel free to skip this part.
In this guide, you’ll learn
Extra: How to earn interest on ETH without staking
Just want to know the best places to stake ETH? For most people, the best places are Kraken, Coinbase, or Ledger.
Ethereum 2.0 – Fundamental analysis
Skip this part and jump to the tutorial right here.
Is Ethereum a new financial system?
The invention of Ethereum has been compared to a breaking point in the custodial banking system that was established more than 500 years ago in Renaissance Italy. Traditional banking entails depositing money with a bank and allowing the bank to keep it for safekeeping. Not so long ago, those banks would pay depositors interest for the privilege of holding their money. Today, most banks offer zero interest rates (or even negative interest rates) and charge fees for their services. Not only that, but customers have even less privacy, data, and money extracted from them while banks continue to earn increasing profits year after year.
The way most banks generate their huge profits is by charging interest on the money they lend out. Customer deposits provide the capital banks need to finance the loans. In academic discussions of money, it’s frequently stated that banks create money by creating debt or credit. In his often-cited 2014-paper Can banks individually create money out of nothing, Richard A. Werner very convincingly demonstrates that “that each individual bank creates credit and money out of nothing, when it extends what is called a ‘bank loan.’ The money supply is created as ‘fairy dust’ produced by the banks out of thin air” (more on that later).
Other than the government-backed deposit insurance programs, there are few benefits to today’s banking system for depositors. Cryptocurrency networks like Ethereum offer an alternative financial system where people can enjoy all the advantages banks have while keeping complete control of their funds. Ethereum allows you to store, move, lend, and borrow money peer-to-peer with someone else, completely decentralized. You don’t need to go through intermediaries.
What exactly is Ethereum?
Ethereum is a type of public software (computer code) that runs on a decentralized network of computers, or distributed ledger, which replicates, shares, and synchronizes data among each other. Every computer on the Ethereum network verifies the transactions being carried out. In other words, Ethereum is like a worldwide virtual computer with no central server. The technology allows you to trust the data record without needing a central authority because it employs decentralized consensus.
As the Bitcoin network, Ethereum employs blockchain technology to authenticate, store, and verify transaction data across all network nodes. The basic idea of a block is that it’s merely a time-stamped record of data (transactions), linked together by cryptographic hash functions (mathematical algorithms), and each new block references the previous one. The blockchain, then, is a chain of blocks, each containing every transaction that has ever occurred on the network.
How is Ethereum different from Bitcoin?
Ethereum was created to build one vast and decentralized virtual server, whereas Bitcoin was intended to be a digital currency. Because Ethereum was conceptualized to be more than just a cryptocurrency, the Ethereum blockchain has some built-in capabilities that Bitcoin doesn’t.
In contrast to Bitcoin, Ethereum can handle digital assets and apps using smart contracts (ETH is used to pay for the cost of interacting with those smart contracts). That means developers can create applications on top of the Ethereum blockchain known as decentralized applications or “dApps.” This is important because it opens up a wide range of new possibilities for doing financial transactions. The Ethereum network can be used for a lot more than just sending and receiving currency.
What is Ethereum 2.0?
Ethereum 2.0 or Eth2 is the second version of the Ethereum network. More particularly, ETH 2.0 refers to a collection of connected improvements that will allow Ethereum to be more scalable, secure, and sustainable than it presently is. The most significant change made to Ethereum’s infrastructure with this upgrade is switching from a mining model to a staking model and implementing sharding.
- Scalability. Scalability is an issue that affects all distributed networks. Because of the increased wealth and security, Ethereum has had to face some difficulties in terms of scalability. Eth2 will be more scalable than its predecessor; it will support thousands of transactions per second instead of 15 transactions per second on Ethereum.
- Security. The Ethereum network is decentralized, meaning that decisions on the protocol level are made by everyone who has access to it, not just one person or computer. This means there cannot be any central point of failure for this system where malicious actors could cause damage to the system. By staking ETH, you help validate transactions and improve the security of the network.
- Energy efficiency. The Ethereum Foundation wants the Ethereum network to become more sustainable by migrating from a proof-of-work to a proof-of-stake-based consensus. This implies moving to a system where stakeholders validate transactions by running their own validator or joining a staking pool with a lesser stake.
The first ETH 2.0 addition to the Ethereum ecosystem is the Beacon Chain, which brings staking to Ethereum and makes it possible for further upgrades in the future. The Beacon Chain will eventually coordinate the new system. You may know the Beacon Chain as “Phase 0” on technical roadmaps. The Beacon Chain is currently live and does not change anything about the Ethereum network as it stands today.
Eventually, Mainnet Ethereum will have to “merge” with the Beacon Chain – estimated to happen in 2022 – thus enabling staking for the entire network and will signal the end of mining as the network officially transitions from proof-of-work to proof-of-stake.
Moving from mining to staking
Like Bitcoin, Ethereum employs the proof-of-work (PoW) consensus mechanism to verify transaction blocks. The procedure of generating a block to be included in the Ethereum blockchain is known as mining. Ethereum miners – computers that execute code to solve algorithmic problems and generate new blocks – require a significant amount of processing power for this work. It’s costly in terms of time, energy consumption, and monetary fees to mine ether.
While proof-of-work is a highly secure consensus method, it has several drawbacks in scaling the network. Such systems are incapable of handling high transaction throughputs in a decentralized fashion because all the mining nodes must reach a consensus on the validity of every transaction on the network. Hence, Ethereum has significant performance problems when the network gets clogged with transactions.
To address the problem of scaling, Ethereum developers are currently working on Ethereum 2.0 or Eth2, which moves Ethereum from a proof-of-work to a proof-of-stake (PoS) consensus model. By moving from mining to staking, Eth2 hopes to improve the network and minimize energy usage.
Proof-of-Work has proven itself to be a highly effective way to maintain a secure decentralized blockchain. However, the process is highly energy-intensive, making it difficult to scale when accommodating the many transactions blockchains like Ethereum can generate. Thus, an alternative consensus mechanism was created in the form of proof-of-stake.
From the very beginning, the developers responsible for Ethereum understood that Proof-of-Work would present scalability issues. This became especially evident during the rise of Ethereum-powered decentralized finance (Defi) protocols (the blockchain ultimately had issues keeping up, causing fees to soar).
Proof-of-Work worked well with the Bitcoin blockchain because its primary job was to act like a big ledger, processing incoming and outgoing Bitcoin transactions. Ethereum has far more utility, however, and not only has to process incoming and outgoing transactions but must also process stablecoins, smart contracts, DeFi transactions, NFT minting, and future innovations dreamed up by Ethereum developers.
The ETH 2.0 blockchain was born as a result, using the far faster and less resource-draining proof-of-stake consensus mechanism. In a PoS system, the term “staking” is the equivalent of mining in PoW, in which a participant in the network is selected to add to the next batch of transactions to the blockchain. Rewards in the form of crypto are given in exchange.
In a proof-of-stake network, projects generally start by selling pre-mined coins, eliminating the need to mine for the sake of validating transactions. Furthermore, new blocks are created through a process known as “minting” or “forging” by randomly selecting a participating node to confirm that the next block of transactions is valid. Those interested in joining this forging process will have to lock a certain number of coins into the network, serving as their stake. Ethereum, for example, requires a minimum of 32 ETH.
Due to the random nature of the selection process, the bigger the stake, the better your chances of a node being selected as the next validator to forge the next block. In other words, having a bigger stake will increase the probability of being selected.
Sharding and other improvements
Proof-of-stake is not the only thing that comes with Ethereum 2.0. The remodeled version of the network will include a series of interconnected changes that will allegedly “upgrade Ethereum to radical new heights” and make it more scalable, secure, and sustainable.
The second most significant change, in addition to the switch to a blockchain proof-of-stake system, is the introduction of sharding. A shard is a horizontal division of data in a database that distributes the strain and increases transaction rates.
Sharding the Ethereum blockchain will allow each shard to have its own transaction history; it can be considered an individual blockchain within the Ethereum network. Sharding divides transactions into thousands of pieces, allowing for parallel processing; as a result, one of Ethereum’s major performance issues – scalability – should be resolved.
Ethereum 2.0 roadmap
Because the network update is so complicated, Ethereum 2.0 will be launched in four stages:
- Phase 0: Proof-of-stake. The first ETH 2.0 addition to the Ethereum ecosystem is the Beacon Chain, which brings staking to Ethereum and makes it possible for further upgrades in the future. The Beacon Chain will eventually coordinate the new system. The Beacon Chain is currently live and does not change anything about the Ethereum network as it stands today. Finally, Mainnet Ethereum will have to “merge” with the Beacon Chain – estimated to happen in 2022 – thus enabling staking for the entire network and will signal the end of mining as the network officially transitions from proof-of-work to proof-of-stake. The switch to proof-of-work is expected to be a thousand times more resource-efficient than the current Ethereum architecture.
- Phase 1: Sharding. Shard chains are created to divide Ethereum into branches to function correctly. The data processing tasks of the blockchain are broken down into smaller parts, and the old Ethereum network is connected to the Eth2 blockchain. Sharding divides the network’s validators into smaller groups, with each group responsible for just one shard of the network instead of the entire blockchain. The Ethereum blockchain will be divided into 64 shards, with Ethereum 1.0 one among them.
- Phase 1.5: Bridging. The second and final phase will connect Ethereum 1.0 and Ethereum 2.0, allowing users to exchange ERC-20 tokens between blockchains. The old Ethereum chain splits into shards on the new Ethereum blockchain. During this stage, dApps are to be deployed on Eth2, allowing smart contracts written on any shards to communicate with Ethereum smart contracts running on any other shard.
- Phase 2: Completion. The third stage, known as Phase 3, is the most-defined phase of the Ethereum upgrade and refers to any future features or modifications that developers will need to put in place to ensure a seamless and safe transition to Eth2. It’s expected that shard chains will be fully operational at this point, capable of interacting with one another and executing smart contracts.
What is Ethereum staking?
Staking on Ethereum 2.0 entails staking ETH – committing them as a validator – and serving as a validator to verify blocks on the network. Staking can be done in two ways: as a validator or part of a staking pool. You must have at least 32 ETH, along with software and technical skills, to function as a validator. If you have less than 32 ETH, you can still stake by adding a smaller stake to a staking pool. There are several staking pools to pick from, allowing you to relax while still earning staking rewards.
It’s crucial to note that staking your ETH will keep it locked until Ethereum 2.0 is fully released. Of course, while your ether is locked, it will earn stake rewards, but you won’t be able to remove it from the stake pool. Staking before the release of Ethereum 2.0 is maintained by a smart contract on the Ethereum 1.0 legacy network, preventing ETH from being withdrawn until the current chain becomes a shard in Ethereum 2.0
What returns should you expect by staking ETH?
No one can tell you exactly how much you can earn by staking ETH, as staking rewards depend on multiple factors. Staking ETH will earn you a different rate of return depending on the amount of ETH in circulation, the number of participants, the amount of ETH being staked, and the staking platform and approach utilized.
That said, several calculators can estimate the Ethereum staking rewards. These tools generally produce the same result, but they’re not perfect. Among the Ethereum staking calculators that I’ve tested, there’s no consensus on just how much you can earn. Instead, we can get a rough approximation of what to expect by using the consensus staking calculator and averaging the results.
Ethereumprice.org is one of the tools that allows you to see how much you could make just with Ethereum staking. The site enables you to modify several network settings that have an impact on the reward calculation. For example, increasing the amount of all ETH in circulation that is staked from 1% to 10% yields a difference of 5% or 15%. Other aspects that influence yearly reward include the number of years the staking node (validator) has been operational.
If the total amount of staked ETH increases, the ETH rewards decrease. On the flip side, if more market participants want to stake, assets held on exchanges and wallets decrease. With less ETH available for trading and more staked, the fiat (USD, EUR) value of ETH would rise, all else being equal.
To stake or not to stake – Is Ethereum staking worth it?
Jumping headlong into Ethereum staking may seem fun and exciting with the potential for a major payout at the end of the road, but it also requires a fairly high tolerance for risk. Here are five factors that go into my own risk/reward assessment when it comes to staking ETH.
- Risks vs rewards. The first key factor to consider is whether or not you want to take on the risks involved in staking. It’s easy to see ETH staking as an opportunity to “make money while you sleep”. However, putting your ETH at stake entails locking it up until the present Ethereum network is replaced with a shard on ETH2. If the ether price falls while you’re still in there, there’s no way to get out. If a bear market is in effect, the risk taken to get those 4% to 7% annual interest would be deadly. Naturally, only someone who is very bullish for the long run on ether should stake it.
- Ideological commitment. Many people support Ethereum and Bitcoin development for more than just financial reasons. Aside from cash, self-custodied assets are rare. Cryptocurrencies are easily transported and present a whole new way to store and protect valuables against questionable authorities and forfeitures. Moreover, bitcoin and ether, the currencies, are both deflationary, meaning their supply can’t be diluted by an increase in money and credit.
- Future performance. Predicting the future price of ether is oracle territory. That said, it’s clear that the potential of decentralized financial systems is big. The largest hinderance until now has been the inability to execute transactions cheaply and quickly. Gas fees on Ethereum are too damn high, and the network is almost unusable for anybody else but those who have money to burn. Yes, there are layer-2 solutions that minimize costs to near zero, but they’re still too complicated for the general public. Many other networks, such as Solana, are confident that users will move on to a different platform once they discover how much cheaper it is.
I won’t be guessing the price because it’s a useless game, but it’d be boring not to discuss long-term trends. First, when analyze the key metrics for Ethereum in Q1 and Q2 2021, it’s clear that adaptation and usage are growing fast. One of the most important questions is whether ETH is being bought and hold. When we look at the number of addresses with 1+ ETH, it continues to rise, with 1m and growing of those wallets existing as of right now. Secondly, between January and June 2021, the number of individuals who have ever owned 1+ ETH increased from 14m to 23m.
Finally, the amount of ETH in all exchanges’ wallets has been declining throughout 2021, suggesting that more people are investing for the long run. Overall, the long-term macro trends suggest a positive picture, but of course, in the short term, things can be very volatile.
How to actually stake ETH – Ethereum staking guide
To stake ETH for the Ethereum 2.0 upgrade and earn staking rewards, you must become an Ethereum validator. In practice, there are three different ways to become a validator and stake ETH, depending on how much ether you can afford to deposit and your technical skills. The easiest way to stake ETH for most people is by joining a staking pool through a cryptocurrency exchange or personal wallet.
- Method 1 (easy): Stake on an exchange
- Method 2 (medium): Stake through a private wallet
- Method 3 (hard): Run a validator node
For those who want to take the easiest approach, staking ETH on an exchange is usually the way to go. Kraken, Coinbase, Binance, and other exchanges provide one-click solutions for staking ETH without worrying about the technical side. If you have more than 32 ETH or want to stake ETH for business purposes, running a validator and staking solo is probably the better choice due to the privacy and control it gives you.
I’ll go through all three methods in detail below, so if you just want to learn how to stake ETH in practice, scroll down.
Method 1 (easy): Stake on an exchange
The easiest way to stake ETH is to join a staking pool on an exchange like Kraken, Coinbase, or Binance.
Staking on an exchange pool is simpler than staking alone since the platform manages everything for you.
The exchange handles all the technical and security work. It also covers the power cost for keeping the computer on 24 hours a day, 7 days a week.
How to stake ETH through an exchange
Ethereum holders can stake ETH through a cryptocurrency exchange like Binance or Coinbase. In this scenario, the exchange acts as the guarantor and is in charge of Ethereum staking technicalities. Staking rewards are calculated and paid out
Here is a list of cryptocurrency exchanges that offer Ethereum staking:
There are a few things to keep in mind should you choose to use an exchange to start staking:
- Locking period. Some platforms may withhold a small amount of crypto if you’re staking with assets with lockups at the protocol level. This will ensure that all customers have liquidity and can cash out should they need to at any given time.
- Fees. The platform will collect a commission on rewards received. This commission is often reflected in the return rate offered by the platform.
- Non-custodial. You will likely have to accept user terms and conditions specific to the asset you will be staking.
- Slashing. All users will likely retain full ownership of their staked assets. Should a slashing incident occur involving your staked crypto, the platform may choose not to replace the assets you have lost (this will largely depend on the reason for the slashing).
Best Exchanges to Stake ETH
The easiest method of staking Ethereum is through a lending platform. There are dozens of platforms to choose from, and it can be quite daunting to make the right choice with so many companies to sift through.
Not every platform is built equal, and each has its pros and cons. Below we’ve compiled a list of the best exchanges to stake ETH to help you start earning passive income the easy way.
Staking rewards: Up to 5% APR.
Since its inception in 2012, Coinbase has garnered the reputation of being one of the world’s most popular digital currency exchanges and allows its customers to stake Ethereum. They have approximately 56 million verified users, 8,000 institutions, and 134,000 ecosystem partners in over 100 countries that trust their platform to securely invest, spend, save, earn and use crypto.
You can stake ETH on the Coinbase platform and earn up to 5% APR. Coinbase takes it a step further by covering the risks associated with staking in ETH. Usually, there’s a risk of loss of principal funds if the validator duties are not met. Coinbase picks up the slack by covering these risks with no extra cost to you, keeping your principal safe, and providing peace of mind.
Coinbase does not have a minimum staking requirement. They do, however, require a maximum amount of ETH each customer can stake to help manage network limits, but these amounts are subject to change over time and may vary from account to account.
How to stake ETH on Coinbase
Step 1. Head over to Coinbase.com. If you don’t already have ETH in your Coinbase account, you’ll need to deposit or buy some. To stake ETH on Coinbase, you must first deposit or purchase it. If you already have funds in your Coinbase account, continue. In the Watchlist menu, click Ethereum.
Step 2. Continue to the ETH2 page.
Step 3. Find ETH staking. Scroll down and click either “Looking for Ethereum 2” to read more about Coinbase’s ETH staking program, or click “Stake now” to stake right away.
Step 4. Stake ETH. Read the text and ensure you comprehend what it says. Until the ETH2 network is launched, your ETH will be locked on Coinbase. Choose how much ETH you wish to stake and click “Stake now” to finalize your stake. Congratulations! Your Ethereum has been staked on Coinbase, and daily rewards are accumulating.
Staking rewards: Up to 5% to 7% APR.
Considered one of the largest and oldest Bitcoin exchanges globally, Kraken stands out from the herd due to its excellent service, rigorous security standards, low fees, and versatile funding options. To begin staking on Kraken, simply fund your wallet with Ether and sit back and enjoy the rewards as they roll passively into your account.
Users can stake twelve cryptocurrencies on the Kraken platform. Each provides a range of APYs, with ETH offering a 5 – 7% annual return. While the process of staking is simple, the rewards for staking may vary dependent on the rules of the Ethereum staking protocol, including how much ETH has been staked (administrative fees may apply).
As a courtesy to their customers who may desire to exchange their staked ETH for unstaked ETH, Kraken provides a trading pair of ETH2.s/ETH. There is one caveat, however: Users in the United States and Canada can stake ETH but not trade their staked ETH for unstaked ETH.
How to stake ETH on Kraken
Step 1. Head over to Kraken.com. If you don’t already hold ETH in your Kraken account, you need to deposit or buy some as you’ll need it for staking.
Step 2. Go to Earn. After you’ve funded your Kraken wallet, go to the “Earn” tab in the top menu. Find Ethereum along with other cryptocurrencies listed on this page. You can also click the “Stake” button at the top.
Step 3. Understand how staking works. Read the FAQ in the pop-up window on ETH 2.0 and text to double-check your understanding of how staking works on.
Step 4. Stake your ETH. Enter the amount you want to stake, then choose “Continue”. You can now observe that your funds have been started for staking under the ‘Transactions’ table.
Staking rewards: 4.9% – 21.60% APY.
Binance holds the title of the world’s largest leading cryptocurrency exchange. The Binance platform handles an average daily volume of 2.0 billion, more than 1,400,000 transactions per second, and 24/7 support. In addition to being a crypto exchange platform, Binance offers an entire ecosystem, including investment and fundraising, digital asset research, and support and adoption.
What gives Binance an edge over its competitors is Binance Earn, a suite of savings and staking products designed to help users earn passive income without the need to engage in trading activities. Binance Earn enables users to select anywhere from regular savings products to DeFi solutions to stakes. These features add an incredible amount of utility to the platform but have the one drawback of not being as user-friendly as other platforms.
In an attempt to counter the various risks associated with staking, Binance launched its “ETH 2.0 staking” service. You can start with as little as 0.1 ETH, and Binance will pick up the validator costs and bear the risk of on-chain penalties.
How to stake ETH on Binance
Step 1. Head over to Binance.com. If you don’t already hold ETH in your Binance wallet, you need to deposit or buy some. You’ll need to deposit or purchase ETH in order to stake it on Binance. Funds must be loaded into your Binance wallet before you can use it.
Step 2. Go to Binance Earn. After you’ve funded your Binance wallet, click the “Finance” tab in the top menu, then “Binance Earn”. Scroll down and click “ETH 2.0 Staking”.
Step 3. Understand how staking works. Read the FAQ on the ETH 2.0 page, then text and double-check that you understand how staking works on Binance. Once you’ve finished reading it, click the “Stake Now” button.
Step 4. Stake your ETH. Enter the amount of ETH tokens you wish to stake. Confirm that you accept and agree to the terms and conditions before completing the transaction. Once completed, you will begin earning staking rewards on Binance’s platform.
Staking rewards: 6% to 20%.
Promotion: Get a 5% fee discount on all trades
Huobi Global was founded in 2013 and is a world-class virtual asset exchange. Huobi was first founded in China but has since moved to the Seychelles, helping it remain ahead of the crypto regulations imposed by the Chinese government. Huobi has an impressive trading volume of $2.3 trillion, making it one of the world’s most popular crypto trading platforms.
Huobi has launched an ETH 2.0 one-click stake function, allowing users to pledge ETH as BETH (a new token unique to ETH 2.0) with one click and participate in ETH 2.0 staking. To stake ETH2.0 on Huobi you need minimum 0.1 ETH. The staked ETH will be converted into BETH, which represents the staked ETH on a 1:1 basis and may be traded on the exchange. The staking rewards also include a HPT airdrop bonus, which will be given out the day after the BETH holdings snapshot.
Huobi brings more than 380 crypto assets to the table and over 200 coins listed on its trading platform. In addition, Huobi’s native token, Huobi Token (HT), is one of the top 100 cryptocurrencies by market cap. Huobi offers many unique features that set it apart from the competition, including Huobi prime, where new tokens are offered, Eco Chain, a decentralized and cost-efficient public chain that Ethereum developers can use to get started with ease, and Huobi wallet, a secure and professional Defi wallet.
Staking rewards: 5% – 6.25%
eToro was founded in 2007 and has more than 20 million users in 140 countries around the world. eToro runs multiasset brokerages, including stocks, commodities, and forex trading. That said, users in the United States can only trade cryptocurrencies, not traditional equities on the
platform, though eToro has plans to soon increase its offerings in the US.
Eligible eToro users can use ETH 2.0 staking and potentially earn between 5% and 6.25% interest per year. Staking on eToro is relatively straightforward, and users are rewarded in ETH every month. ETH rewards are paid into users’ eToro crypto wallet, and they remain locked together with the user’s staked ETH. The amount of ETH 2.0 staking rewards is determined based on the total quantity of ETH invested.
eToro’s ETH2 staking feature is available in multiple regions, but it does not support cryptocurrency staking in the US or Australia. Most of Europe (including the UK and Switzerland), South America, the UAE, and several East Asian countries are supported.
How to stake ETH on eToro
Ethereum staking on eToro is relatively easy. To stake ETH on eToro, first download the eToro Money app. Then send ETH from the eToro investment platform or an external wallet to your eToro Money wallet. However, you need minimum 1.0 ETH to stake on eToro. Once you have ETH in your wallet, click “Stake ETH”. Your staked ETH will be unlocked when Ethereum launches the ETH 2.0 network.
Option 2 (medium): Stake through a private wallet
The safest way to stake your ETH is through a personal wallet that you fully control. Personal wallets are private and allow you to store your cryptographic keys directly, rather than having them held by a third party like an exchange.
Hardware wallets are the best types of private wallets. They are small, offline devices that keep your keys offline and out of reach from hackers and government control.
You can easily stake ETH via the Ledger hardware wallet and earn passive income with any amount of ETH.
How to stake ETH with a private wallet
The second way to stake ETH if you have less than 32 ETH is to join a staking pool. Staking pools allow you to combine your assets with other people who also don’t have 32 ETH, so you can operate a validator together. The most significant benefit of using a staking pool over an exchange is that you can join them using a non-custodial, non-KYC personal wallet like Ledger, Metamask, or similarly, so you can keep your information private.
Staking pools are operated by staking service providers, who are essentially groups of people, mainly with a computer science background, that dedicate their time to building the Ethereum infrastructure. Some of the most popular staking protocols are Lido, ANKR, Stakewise, and Rocket Pool, which have made it very easy to stake ether. You can find a lot of information about staking pools on Reddit, Telegram, or Discord, so you can do your research before joining one. I personally like Rocket Pool because it has been properly audited and is sufficiently decentralized, but make your choice.
Tip: It’s not advised to stake ETH this way unless you have a lot of it. Transaction costs on the Ethereum network are extremely expensive right now, and they will most certainly wipe out a significant portion of your staking rewards and it will take months to break even.
Read more here: https://www.reddit.com/r/ethstaker/
How to stake ETH with Ledger
Ledger is the recommended hardware wallet to use when staking with Lido, Rocket Pool, or any other Ethereum staking service provider. Hardware wallets, such as Ledger, are a type of cryptocurrency wallet that allows you to securely control the keys to your funds. Cryptocurrency hardware wallets offer the highest level of security and protect you against theft and disasters by mitigating almost all risks.
Step 1. Prepare for staking through Ledger Live. Ledger works with Lido through the Ledger Live application on desktop or smartphone. If you haven’t done so already, you first install the Ethereum app on your device. After installation, go to the “Discover” tab in the Ledger Live menu (on the left).
Step 2. Stake with Lido. In the “Discover” tab, click “Lido” and continue. Once on the Lido staking page, enter the amount of ETH you would like to stake. Click submit and choose your preferred fees. Finally, sign the transaction with your Ledger hardware wallet. Done.
What is an Ethereum staking pool?
A staking pool is when a group of token holders merge their resources. By banding together in this manner, the chances of validating blocks and receiving rewards are increased.
Participating in a staking pool is often simple enough, but running a pool requires a good bit of experience and time investment. Furthermore, staking pools aren’t as effective on platforms that have a low barrier to entry. Finally, the more open staking is, the less effective the pool will be.
As such, quite a few pools require an entry and membership fee to help thin out the herd. These staking pools will often take an extra cut of the delegated rewards to cover the upkeep of operating the staking pool and, of course, to compensate for their services. Many staking pools will also set up a minimum balance that all participants must meet, as this is a way to prevent foul play within the pool.
Some staking pools can be both public or private, as is the case for cryptocurrencies like Cardano. Public pools allow for open delegation to all nodes within. On the other hand, private pools only provide rewards to the owners of the pool.
Another important aspect about staking pools is that the higher the stake delegated to a staking pool, the better its chances of being selected as a slot leader. If a pool is selected and produces a block accepted onto the blockchain, rewards are distributed to the pool. The distributed rewards are then split between the owner of the pool and the staking pool delegators.
How do I choose an Ethereum staking pool?
Like crypto trading platforms, staking pools are numerous. Finding the best staking pool to stake Ethereum doesn’t have to be difficult, but you also don’t want to make the mistake of choosing the first option that comes your way. Instead, you should want a staking pool that will be the most profitable in the long run. Here are a few factors you should consider when choosing an Ethereum staking pool.
Charity or Profit
The vast majority of staking pools operate for the sole purpose of generating rewards for their users. However, some pools have a more humanitarian goal in mind and donate a portion or all rewards to charity.
Whether or not you should choose a charity-based or profit-based staking pool depends entirely on your intentions. Picking the right pool that aligns with your goals is the key.
In an ideal world, validators will have 100% uptime, maximizing the ability to mint blocks and reap the rewards. In the real world, there will inevitably come a time when a validator may experience some downtime for one reason or another. Therefore, you should choose a well-managed pool that has a track record of minimal downtime, if any.
Every pool has a limit on the amount of ETH that can be staked. Once this max limit has been reached, the pool has become “saturated,” and delegators will begin to receive lower rewards to compensate. As such, you should pick a pool with low saturation to avoid this issue.
Good communication with delegators
Not many people would be against staking pool operators who make an active effort to keep them informed every step of the way. Of course, good communication is not essential to be successful at staking, but it always feels good to be kept in the loop, and it helps you feel more in control of your investment.
The fewer fees you have to pay, the more rewards you get to keep in your pocket. When it comes to staking pools, users must contend with two types of fees – fixed fees and the pool’s margin. Fixed fees are the reward that’s paid out every five days.
Margins, on the other hand, can go as low as 0%. So when shopping around for the best staking pools, low fees are often the way to go, though this should not come at the expense of the other factors we’ve highlighted in this list.
What’s the difference between staking wallets?
Crypto investors can choose to hold their cryptocurrency in a designated wallet of their choice to maintain full custody over their digital assets while still taking an active part in the staking process.
There are many options to choose from, so doing your research is the best way to determine which wallet is the best choice for you. Here are a few differences between wallets to help you in your research.
Team and experience
First and foremost, the best cryptocurrency wallet for staking will have a dedicated team behind it that has plenty of experience with cryptocurrency and staking. The more experienced the team, the higher the likelihood of seeing good results, as they will likely make sound investment choices.
If a wallet allows for staking, you can bet there will be a fee associated with it. These fees will vary and may include but aren’t limited to management fees, early withdrawal fees, and performance fees.
How the wallet earns crypto
Consider how the wallet ultimately earns cryptocurrency. The team behind the wallet will employ a strategy to increase your holdings one way or another. Some wallets will lend crypto, others will trade it, while others will use arbitrage.
Every strategy has its pros and cons. For example, risky strategies tend to yield better potential rewards. The best wallets will employ various methods, including both risky and non-risky strategies. That way, you have a greater chance of seeing success in the long run.
Requirements are another factor that differentiates wallets from one another. Some wallets may have high requirements for minimum investment amounts, for example. Reading the terms and conditions of the wallet, you decide to go with will help you make a more informed choice.
Interest rates will differ amongst wallets. Some wallets will offer single-digit interest rates with a guaranteed return, while others will offer double-digit interest rates but won’t come with guaranteed earnings. The more you can trust the team behind the wallet, the better when it comes to lofty promises.
Option 3 (hard): Run a validator node
If you have more than 32 ETH and the technical know-how to operate a validator, you can solo stake and retain complete control of your funds.
Solo staking is considered the gold standard for staking among Ethereum maximalists, but it’s not going to be cheap or easy.
If running a validator is accessible for you, this is arguable the best way to stake ETH.
Ethereum is a decentralized network of computers that execute software called nodes and verify block and transaction data. To run a node, you need a dedicated computer set up to perform validations 24/7 with zero downtime. To operate the required Beacon node software, a you must have ETH1 and ETH2 clients installed on a local machine or VPS. However, to activate the validator software, you must deposit at least 32 ETH.
If you’re an expert and know exactly what you’re doing, running your own validator node may be the most profitable way forward for you. The hardware requirements are low. But investors who are not tech-savvy may run into difficulties when configuring their machine and software. It’s conceivable that you would lose ETH as a result of fraudulent behavior, an offline node, or failure to validate transactions validation.
If you decide to become a validator, you will receive high ETH staking rewards in return for validating transactions on the Ethereum network and adding new blocks to the blockchain. While running your own validator node gives you options, it’s not practical for an average investor. Instead, most people would be better off staking their crypto via one of the methods mentioned above.
- ETH2 Launchpad: launchpad.ethereum.org/en/
- ETHStaker on Reddit: reddit.com/r/ethstaker/comments/jjdxvw/welcome_to_rethstaker_the_home_for_ethereum/
Tip: How to earn interest on ETH without staking
If you just want to earn interest on your ETH and don’t care much about the whole decentralized part, a lending platform is probably your best option.
Platforms like Celsius Network, BlockFi, Crypto.com, Nexo, and others offer excellent rates with no or short lock-up periods.
Note that lending and staking are not the same thing, and there are different risks and processes going on behind the scenes you should research.
If your motivation for staking Ethereum is primarily financial, it may make sense to use an Ethereum savings account to earn interest. Here are some recognized lending platforms where you can earn high interest rates on ETH:
Celsius Network is a US-based lending platform that earns users up to 17% yield on their crypto and lets users borrow cash or stablecoins at low rates. They don’t require minimum balances because they believe everyone should have unparalleled access to fair, rewarding financial services. There are no fees of any sort. This includes balance fees, origination fees, and transfer fees. They will even cover you when you withdraw funds from the platform. In addition, if you choose to earn rewards for the Celsius Network’s native token, CEL, you can earn weekly rewards of up to 25%. Otherwise, you can still earn up to a very generous 17% on your crypto investments.
Founded in 2016, Crypto.com has developed into a well-respected cryptocurrency trading and lending platform in just a few short years. Crypto.com offers various services, including the Crypto.com cashback card, an app, a crypto exchange, Crypto Earn, Crypto Credit, and other services. Crypto.com is akin to a one-stop-shop where you can buy and sell cryptocurrencies via their exchange in addition to swapping with other users through their Defi wallet. They also offer numerous benefits for investing in their native coin, CRO. You can earn 4.5% to 8.5% interest on ETH at the time of writing, which is the highest reward rate in the market right now.
Staking vs. lending ETH – Which is better?
The two most useful and popular trading techniques in the crypto space are staking and lending. Before moving forward, it’s important to distinguish between the two. Where staking helps to secure the network and rewards users with newly minted coins as a result, lending enables users to lock up their coins and receive an interest payment.
To outright say one strategy is better than the other would be a mistake, as this entirely depends on the type of investor you are. For instance, if you intend to participate in a protocol directly, your best bet is to stick with staking. However, if you’re looking to receive an interest payment on your tokens, lending is the way to go.
As we’ve already talked in great length about the process of staking, allowing you to generate effortless passive income as long as the market conditions are in your favor, let’s dive deeper into crypto lending.
Users who hold different crypto-assets can put their investments to work by placing them in a high interest-bearing account. Crypto lending platforms like Youhodler and BlockFi provide a simple way for users to earn high-interest rates on their investments annually. Keep in mind that while the allure of high-interest rates (sometimes as high as 10% or higher) may seem enticing, there are risks to consider.
For instance, lending through crypto lending platforms comes with a higher chance of default than traditional loans. Furthermore, where traditional loans tend to be federally insured, lending platforms are often not insured. Moreover, because all transactions take place online, hacking is a major threat.
With crypto staking, hacking is still a threat that users must contend with. Also, you have to consider market volatility, validator fees, and lockup periods – all issues crypto staking shares in common with crypto lending.
While there are more issues to address for both of the aforementioned investment strategies, lending is ultimately the riskier of the two. As long as you have a high tolerance for risk, the payout can be significant and may be worth it. It will come down to how much risk you can tolerate and how you intend on approaching your personal investment strategy.
What are the benefits and risks of staking?
Helps to prevent 51% Attacks
A 51% attack occurs when a group or an individual gains more than 50% control of a blockchain network’s hash rate. 51% control over a network enables the ability to change blocks, leading to a potentially harmful outcome if less than scrupulous individuals had nefarious intent in mind.
For a 51% attack to succeed in a Proof-of-Stake consensus algorithm, you would need to stake a minimum of 51% of the overall amount of cryptocurrency in circulation. This would be a costly and difficult endeavor to pull off, and it wouldn’t make much sense for an attacker to go after a network where they already hold a majority stake.
PoS networks are set up so that should the value of the network’s native token fall, the value of the staked holding falls as well. Therefore, Proof-of-Stake naturally incentivizes stakeholders to do all they can to maintain the stability of the network.
PoS consensus reduces the risk of centralization because rewards are determined by the number of assets held and because validators are selected at random. Furthermore, Proof-of-Stake networks employ governance rules to discourage centralization, possibly due to the high level of independence on the hardware used for validation of block.
Reduces energy consumption
Bitcoin consumes a massive amount of energy. Estimates put Bitcoin’s annual energy consumption at 140TWh and Ethereum’s annual energy consumption at 34TWh. That’s more than some countries. As you can imagine, this level of energy consumption is unstainable and extremely harmful to the environment.
Proof-of-Work also slows down the real-world adoption of cryptocurrencies because miners require fiat money to pay their ever-mounting electricity bills. With Proof-of-Stake consensus, validators are not required to solve complex calculations, thus eliminating the need to consume excessive amounts of electricity.
Jumping headlong into staking ETH may seem fun and exciting with the potential for a major payout at the end of the road, but it also requires a reasonably high tolerance for risk. Many websites and YouTube commenters do not fairly explain these risks, making people think Ethereum staking is an easy way to make money. Here are some of the considerations worth taking into account before you stake your ETH.
Lock-up period: When you stake ETH for ETH2, your cryptocurrency is locked until Ethereum 2.0 goes live. Your ETH2 can be reverted to ETH after the upgrade to the Ethereum network is complete. There is no definite word on how long this period will be, however. Unfortunately, this can work against you should the value of your staked investment fall, leaving you with no choice but to watch helplessly until the lockup period is over. On the one hand, this forces you to have diamond hands and hang on to ETH even though it fluctuates, which might turn out to your advantage.
Gas fees: Ethereum gas fees have jokingly been called “the real Ethereum killer”. Gas fees on Ethereum are notoriously high, sometimes reaching up to hundreds of dollars per transaction. Gas fees must be paid if you stake ETH. When staking modest quantities, gas expenses might eat into your earnings and severely reduce the return on staking. If ETH rises a lot, however, those costs will be insignificant.
Competition: Ethereum is number one right now when it comes to the number of wallets, tokens, high-quality projects, and active developers contributing to its network. However, it’s not the only cool kid on the block. Other competitors are ramping up their features, gaining users and support. If another platform gains adoption at the same time, ETH will take a hit.
Regulations: While born in opposition to control and centralized power, it’s clear by now that cryptocurrencies won’t escape the long arm of the government. The US especially has started to crack down on some of the most prominent players in the cryptocurrency space. If ETH is regulated as a security or commodity, its future value could suffer significantly. On the flip side, regulations would legitimize ETH and put it in a different category than other coins.
Platform risk: When you stake ETH on an exchange, you’re putting your trust in that entity to care for and protect your funds while also returning them to you. Exchanges are far safer than they were in the past, but you run the danger of stringent KYC and AML regulations that freeze or shut your account.
Slashing risk: ETH 2.0 validators risk staking penalties, with up to 100% of staked funds at risk if validators fail to validate transactions. To minimize this risk, stake pool providers usually stake across multiple node operators with heterogeneous setups.
The formation of oligopolies: Some argue that PoS based networks lay the groundwork for forming oligopolies – The greater your staked investment, the more power you hold over the individuals with a smaller staked investment. To offset this risk, the vast majority of Proof-of-Stake based networks have governance rules that safeguard against abuse when selecting validators, also making it fairer when rewarding validators for their participation.
Liquidity risk: The liquidity of a coin is a significant risk to be on the lookout for. If you invest in a coin with hardly any liquidity on an exchange, you may find it challenging to exchange your returns into stablecoins or a cryptocurrency of your choice. Furthermore, you may find it challenging to sell your asset. The simplest way to offset liquidity risk is only to stake coins with high trading volumes on exchanges.
Validator risk: It takes a significant amount of technical expertise to operate a validator node to stake cryptocurrency to ensure there are no disruptions throughout the process of staking. For nodes to maximize staking returns, they must be up 100% of the time. Should a disruption occur, you may sustain penalties to your staking returns. You may even have your stake “slashed,” causing a portion of the staked tokens to be lost. To avoid the issues that may come with using your own validator node, you can use a third-party validator.
Duration of rewards: Depending on what platform you choose, you may not receive rewards daily, meaning you will have to wait longer to receive the rewards you’ve worked so hard to earn. This will reduce your options when reinvesting the interest you’ve gained to increase your yield. To avoid this issue, choose a coin that pays daily staking rewards.
Validator costs: Validator risk is just one side of the coin. The costs associated with running a validator node are the other side. Running your own validator node isn’t free. Not only will you need to invest in specialized hardware, but you will also have to pay the electricity bill (still a cheaper option than running a PoW operation).
You will only have to pay a few percentage points of the staking rewards if you decide to use a third-party provider instead. Of course, only you can determine which option makes the most feasible sense, but for most people, choosing to go with a third-party provider saves them more money in the long run.
Market risk: Like it or not, should the market take a tumble, so will your return on investment. This is especially the case for anyone interested in staking crypto, as cryptocurrency is infamous for its volatility. Therefore, when choosing a digital asset to invest in, you should look beyond just the APY and figure out whether or not the investment is sound in the first place.
Loss or theft: Every crypto investor’s nightmare is losing their wallet’s private key. Unfortunately, there have been several cases of individuals who have lost millions in crypto assets because they lost their private keys and were locked out of their wallets as a result.
Theft is another threat to be on the lookout for. If your security is lax, an opportunistic thief can make off with your digital assets, and there is typically nothing you can do about it. As such, it’s imperative that you backup your wallet and store your private keys in a safe place. If not, you have no one to blame but yourself should you lose access to your stored crypto.
Can I stake stablecoins?
You may be asking yourself whether or not it’s possible to stake stablecoins. One of the main issues associated with staking cryptocurrency is that you risk your asset becoming devalued due to market volatility.
Stablecoins, as their name implies, are naturally resistant to market volatility because they’re backed by a reserve asset, whether it be gold, the US dollar, or another asset. Ultimately, it is possible to stake stablecoins, but only a select few.
The vast majority of stablecoins cannot be staked. As such, if you’re interested in generating income from stablecoin investments, you’re likely better off lending your coins on platforms such as YouHodler, Celsius Network, and Crypto.com, amongst others.
Crypto lending is an alternative investment form where an investor lends either fiat money or cryptocurrency to other borrowers in exchange for interest payments. Lending stablecoins has become a popular way to generate a viable passive income without worrying about market volatility.
There are pros and cons to Ethereum staking, but it can’t be argued that staking is an incredibly easy way to earn passive income in the world of crypto investing. Sure, running a validator node may not be in the cards for everyone, but you can just as easily pick a staking exchange that can do the heavy lifting for you. Simply place your Ether in your wallet and walk away. That’s it.
With the full launch of Ethereum 2.0 just over the horizon, there’s a lot to be excited about if you’re an Ethereum investor. Still, it’s important to do your research before making any sort of crypto investment. It’s never advised to make a blind investment without taking stock of the risk involved first.
If you accept the risk of investing in cryptocurrency, we don’t see why you wouldn’t move forward with Ethereum staking. It’s easy, quick, and a surefire way to generate potential good returns.