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There is more than one way to make money from cryptocurrency investments. The easiest and most popular is to make profits through old-fashioned appreciation. Then you buy a cryptocurrency in the hope that it will appreciate in value over time and you can sell it for more than you bought it. But you can also use your cryptos to generate passive income that you can accumulate without ever selling your position, much like shareholders receive regular payments from dividend stocks. Crypto staking allows your digital assets to earn income just like the money in your savings account earns interest.
Read: Do you want to diversify in a bear market? Consider these 6 alternative investments
Bitcoin doesn’t allow staking, but Ethereum, the world’s #2 cryptocurrency, does. Coinbase is the largest crypto exchange in America. So if you’re considering getting your crypto up and running through staking, the country’s most popular staking coin and largest exchange are a great place to start.
Read on to learn how to use Ethereum on Coinbase.
How do I start staking ETH on Coinbase?
To start staking ETH on Coinbase, you need to sign up for a Coinbase account, add Ether (ETH) to your digital wallet, and make sure you meet the exchange’s residency requirements.
Signing up for Coinbase is a fairly straightforward process. You will need government issued ID to prove you are at least 18 years old – Coinbase does not accept passport cards. You’ll also need an internet-connected phone or computer and an active phone number to begin the six-step sign-up process:
- Enter your details, read the user agreement and create an account
- Confirm your e-mail address
- Confirm your phone number
- Add your personal information
- confirm your identity
- Link a payment method like a bank account, debit card, PayPal, Google Pay, or Apple Pay
To get started, you need to have Ether in your digital wallet. Ether is the native coin of the Ethereum ecosystem. If you don’t already own ETH, you can easily hold it by buying it right there on the Coinbase exchange.
It’s important to note that Coinbase is available in most of the Americas, but the exchange isn’t yet open to Hawaii residents. It is available in New York, but residents of that state are banned from using multiple cryptocurrencies, including ETH.
You can stake ETH on Coinbase anywhere in the country.
Is it worth using your Ethereum?
By using Ethereum, you are using your ETH holdings to improve and secure the Ethereum ecosystem for the public good. In return, stakers receive rewards in the form of more ETH. You can think of staking as the crypto version of putting cash into an interest-bearing bond or CD. By agreeing to deposit your holdings for a certain period of time, you receive a certain percentage of returns in return.
Before deciding whether staking your Ethereum is worthwhile, it is important to understand the different ways you can use ETH and the potential risk involved. According to the Ethereum system’s own literature, there are four ways to stake ETH:
- Solo Home Deployment: This form of staking has the greatest positive impact on the Ethereum network and pays full rewards, but you need to own 32 ETH to get started. It also comes with the most risk, requiring you to have a dedicated computer and enough technical know-how to run the software that pools transactions and validates the work of others. With this method, you have full control and full rewards, but your ETH is unprotected and there are penalties for going offline.
- Staking as a service: This method still requires 32 ETH, but you don’t have to deal with hardware as you outsource the more complex work while collecting native block rewards. Unlike solo home staking, which is trustworthy, staking as a service requires you to trust a third party with your keys. In most cases you will be charged a fee and therefore receive fewer rewards.
- Pooled Staking: There are many pooling options, most of which involve liquid staking. This simple and popular method gives you liquidity tokens that represent your staked ETH. This method allows you to exit your position by selling your liquidity tokens without prematurely staking your actual ETH.
- Staking through centralized exchanges like Coinbase: This method takes your ETH holdings from your custody and turns them over to Coinbase or another cryptocurrency exchange that consolidates large pools of staked ETH for many validators. The danger is that these large pools are attractive targets for attackers and big bugs that are vulnerable to bugs.
Is it worth staking your Ethereum on Coinbase?
Now that you understand your staking options, it’s time to decide if it’s worth staking your ETH specifically on Coinbase.
Coinbase has different requirements and uses different reward structures for different cryptocurrencies. While only you can decide if it’s worth it, the exchange’s policies when it comes to staking ETH are the most favorable of all. Coinbase allows staking with six cryptocurrencies, including ETH. The others are Algorand, Cosmos, Tezos, Cardano, and Solana.
The other five all have minimum balance requirements, but Ethereum does not. Also, the other five reward payout schedules have been delayed. For example, the payout rate for rewards is three days for Tezos, five days for Cardano, and seven days for Cosmos and Solana. Algorand is the slowest of them all, only paying out rewards every quarter.
Ethereum rewards, on the other hand, are paid daily.
How do I stake my Ethereum?
Unlike solo home staking, staking-as-a-service, and pool staking, staking your Ethereum on a centralized exchange like Coinbase is a quick and easy process that almost anyone can do. It is important to understand that the moment you stake Ethereum on Coinbase, it turns into a different token.
If you use Ethereum, it becomes Ethereum 2.0. ETH2 is an upgrade to the Ethereum ecosystem that improves both scalability and security across the network. The upgrade merges Ethereum’s mining model known as proof-of-work with a staking model called proof-of-stake. Coinbase automatically converts staked ETH to ETH2. The price of ETH and ETH2 is identical and eventually the two will merge into the same token.
In August, Coinbase began rolling out Coinbase Wrapped Staked ETH (cbETH), which the exchange describes as “a utility token representing the combined value of staked ETH and accrued ETH staking rewards.” Account holders can convert or wrap their ETH2 into cbETH without paying any fees, or they can use cbETH to earn income in DeFi applications while still earning ETH2 staking rewards.
How do I bet on Coinbase?
To stake at Coinbase, all you need to do is deposit any amount of Ether tokens into the Ethereum 2.0 network and Coinbase will automatically stake your holdings — but first you need to queue up by joining a waiting list. You must have a Coinbase account to be added to the waiting list, and Coinbase will notify you when you are removed from the list and can start staking ETH and earning rewards.
While you can earn up to 5.75% staking cryptocurrency on Coinbase, the current return for staking Ethereum is 3.28%. However, the return may vary based on changes in the amount of ETH staked on the exchange. That’s significantly less than you would earn from solo home staking, but the trade-off is greater security and a much simpler process.
Know the risks before committing
As with all cryptocurrencies, Ethereum prices are notoriously volatile. When you wager ETH, the earned rewards are paid in ETH. This means that staking ETH is only a sound investment if you think Ethereum will appreciate in value. Unless you exchange it for another cryptocurrency or cash it out, both your main investment and the reward return you get from that investment are tied to the fate of the ETH token.
The potential risk goes beyond just market volatility – your investment is directly tied to the stability of the entire stock market. According to Coinbase, “ETH staking is experimental and comes with some risks, including potential network downtime.”
Staking ETH also carries the risk of slashing, a penalty enforced at the protocol level. Slashing – which can result in the loss of staked assets – can be caused by events beyond Coinbase’s control. Slashing and all other associated risks are outlined in the Coinbase User Agreement, which you must agree to before you can start staking. Read it carefully before you start. Finally, remember that staking rewards over $600 are subject to tax returns.
Information is correct as of September 23, 2022.
Editor’s note: This content is not provided by any of the organizations discussed in this article. Any opinion, analysis, review, rating, or recommendation expressed in this article is solely that of the author and has not been reviewed, approved, or otherwise endorsed by any entity named in this article.