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Should You Stake Your Ethereum? A Beginner's Guide to Cryptocurrency Staking

February 13, 2023
News, Community, Education, Ethereum

Stake your Ethereum for passive income and network security! With the new Shanghai upgrade, it's easier than ever. Just do your research and happy staking!

Are you missing out on earning huge profits with Ethereum? With the new Shanghai upgrade, staking your Ethereum has never been easier! 

Here's what you need to know before you decide whether to take the plunge and stake your Ethereum. Learn about the two primary ways to stake your Ethereum, and which one is right for you. Don't miss out on earning interest rewards while supporting the Ethereum network. 

āš ļø Warning: This article is not meant as financial advice. It’s just a source of information.

What is staking, and how does it work?

Staking has emerged as an alternative to the traditional mining process for cryptocurrencies like Bitcoin. Instead of solving complex mathematical problems to verify transactions and earn rewards, staking involves holding and locking up a certain amount of cryptocurrency in a wallet or staking pool to support the network's operations. 

It’s Like Owning Dividends of Web3

Soon, Ethereum developers finalize the Shanghai upgrade, which will allow users to withdraw their funds from staking and many Ethereum holders are wondering whether to stake their funds or not. Staking Ethereum allows users to earn interest rewards while supporting the Ethereum network. 

Look at it this way, Staking Ethereum is similar to owning a dividend stock, where consistency over the long run can lead to significant gains. The current annual percentage rate (APR) for staking Ethereum is around 4% to 5%, which can generate modest profits. 

If Ethereum rises in price, the value staked also increases, thereby increasing the returns. Investors should avoid investing more than what they can afford to lose and research staking pools well before deciding to commit their holdings.

Pros & Cons

Staking Ethereum has become an increasingly popular way for users to earn rewards while supporting the network. While there are many benefits to staking, including the potential for high returns and the ability to help secure the network, there are also some downsides to consider. Let’s take a look at them so you can make an informed decision.

Pros

  • Staking allows users to earn interest on their Ethereum holdings, which can be a passive income stream.
  • By staking, users contribute to the security and decentralization of the Ethereum network.
  • Staking rewards are typically higher than interest rates on traditional savings accounts.

Cons

  • Staked Ethereum is locked up and cannot be easily accessed or sold until the staking period ends, which can be several months or more.
  • There is a risk of losing part or all of the staked Ethereum due to penalties for noncompliance or network attacks.
  • Staking requires technical knowledge and setup, which can be a barrier to entry for some users.

Future of Staking After the Shanghai Upgrade

The Ethereum Shanghai upgrade is set to take place in March 2023, which will allow validators to withdraw their staked ETH for the first time since 2020. 

The upgrade will bring confidence to the network and liquid staking derivatives (LSDs) will become redeemable 1:1 to actual ETH directly in the platforms, enabling tighter arbitrage ranges. 

The withdrawal cap of 43,200 ETH per day will prevent mass withdrawals and mitigate selling pressure, although some capital outflow and selling pressure are still expected. 

Read more about Shanghai Upgrade in our recent article!

What is the best way to stake Ethereum?

There are several ways to stake Ethereum, each with its own advantages and disadvantages. Here are a few of the most popular options:

Staking on an exchange

Many cryptocurrency exchanges, such as Coinbase, Binance, and Kraken, offer staking services for Ethereum. This is a convenient option, as you can stake your Ethereum directly from your exchange wallet, but it usually comes with higher fees and lower rewards.

Running your own validator node

If you have the technical know-how and resources, you can run your own validator node on the Ethereum network. This gives you complete control over your staking, but it requires significant technical expertise and comes with some risks.

Staking pools

Staking pools allow you to pool your Ethereum with other users to increase your chances of being selected as a validator and earning rewards. This is a popular option for users who don't have enough Ethereum to run their own node, but it can come with some fees and risks.

Liquid staking

Liquid staking protocols, such as Lido and Rocket Pool, allow you to stake your Ethereum while also maintaining liquidity. This means you can trade or use your staked Ethereum while still earning rewards. However, this method is relatively new and requires more technical expertise than other options.

How to Stake Ethereum on Coinbase: A Step-by-Step Guide

Staking Ethereum on Coinbase is an easy and secure process that can be done in just a few taps. Follow these steps to start staking and earning rewards:

  1. Open the Coinbase app on your mobile device and navigate to the ETH asset page.
  2. On the ETH asset page, you will see a prompt to stake your ETH. Click on the “Stake” button.
  3. Select the amount of ETH you want to stake. Remember that staked ETH is locked up in the Ethereum protocol for a period of time, so be sure to choose an amount you won't need to access for a while.
  4. Read and agree to the terms and conditions of the staking program.
  5. Click “Confirm” to complete the staking process. 
  6. Once you have staked your ETH, you will start earning rewards at the current reward rate, which is up to 4.00% APY at the time of publishing. Note that the reward rate for ETH is set by the network and can change over time. 
  7. After staking your ETH, Coinbase also offers the ability to wrap your staked ETH for cbETH (Coinbase Wrapped Staked ETH). This allows you to use your staked ETH in DeFi or sell it at any time. The price of cbETH is determined by the market and may lose value. cbETH is available in select regions.
  8. There are no fees to wrap your staked ETH into cbETH, and you will still earn staking rewards while holding the token. 

How to Stake Ethereum on Binance: A Step-by-Step Guide

  1. Create an account on Binance if you haven't already.
  2. Deposit your Ethereum into your Binance Spot account.
  3. Go to the "Finance" tab and select "ETH Staking."
  4. Choose the amount of Ethereum you want to stake and click "Stake Now."
  5. Review and agree to the terms and conditions.
  6. You will receive BETH as the tokenized representation of your staked Ethereum in a 1:1 ratio.
  7. On-chain rewards will be distributed in the form of BETH to your Spot account regularly.
  8. When the Shanghai Upgrade enables staking withdrawals, you can swap BETH to ETH on a 1:1 basis and receive the amount equivalent to your BETH balance in your Spot Wallet.

How to Stake Ethereum on Kraken: A Step-by-Step Guide

  1. Ensure that you have an account with Kraken.
  2. Deposit ETH into your Kraken account, if you don't already have any.
  3. Go to the "Earn" section at the top of your page, and click on "Stake" and select "ETH".
  4. Read through all the provided information.
  5. Enter the amount of ETH you want to stake, then click "Continue".
  6. Once you see that your funds have been initiated for staking, go to the "Transactions" table on the "Earn" tab to view your staked funds.
  7. Newly staked ETH will undergo a bonding period of up to 20 days (often less than a couple of hours, depending on network conditions) before it starts earning ETH2 rewards.
  8. Note that currently, it's not possible to unstake staked ETH.

Wrap-up

staking Ethereum can be a great way to earn passive income and support the Ethereum network. With the new Shanghai upgrade, staking has become more accessible and easier than ever before. 

Before you start staking, it's essential to weigh the pros and cons and choose a staking method that works best for you. While there is a risk involved, staking can be a smart way to earn some extra cryptocurrency. 

Just make sure to do your research, invest wisely, and only put in what you can afford to lose. 

Happy staking!

Disclaimer: The content of this piece reflects the writer's opinion. This article is not intended to provide financial advice and is meant solely for entertainment and educational purposes. Investing in cryptocurrency involves significant risk. Capital is at risk, and returns are not guaranteed. Always conduct your own research.

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