How To Stake Ethereum on Coinbase
There’s more than one way to earn money through cryptocurrency investing. The easiest and most popular is to pursue gains through old-fashioned appreciation. That’s when you buy a cryptocurrency in the hope that it will grow in value over time and allow you to sell it for more than you bought it. But you can also put your crypto to work earning passive income, which you can collect without ever selling your position, similar to how shareholders receive periodic payments from dividend stocks. By staking crypto, your digital holdings can earn yields just like the money in your savings account earns interest.
Bitcoin doesn’t allow staking, but Ethereum, the world’s No. 2 cryptocurrency, does. Coinbase is the biggest crypto exchange in America, so if you’re considering putting your crypto to work through staking, the most popular stakeable coin and the biggest exchange in the country are good places to start.
Keep reading to learn how to stake Ethereum on Coinbase.
How Do I Start Staking ETH on Coinbase?
In order to start staking ETH on Coinbase, you’ll have to sign up for a Coinbase account, add Ether (ETH) to your digital wallet and make sure that you meet the exchanges residency requirements.
Signing up with Coinbase is a fairly straightforward process. You’ll need a government-issued ID to prove that you’re at least 18 years old — Coinbase does not accept passport cards. You’ll also need a phone or computer connected to the internet and an active phone number to get started on the six-step signup process:
- Enter your information, read the user agreement and create an account
- Verify your email address
- Verify your phone number
- Add your personal information
- Verify your identity
- Link a payment method like a bank account, debit card, PayPal, Google Pay or Apple Pay
To get started, you’ll 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 keep it simple by purchasing it right there on the Coinbase exchange.
It’s important to note that Coinbase is available in most of America, but the exchange is not yet open to residents of Hawaii. It is available in New York, but residents of that state are forbidden from staking several cryptocurrencies, including ETH.
You can stake ETH on Coinbase everywhere else in the country.
Is Staking Your Ethereum Worth It?
By staking Ethereum, you’re putting your ETH holdings to work to help improve and secure the Ethereum ecosystem for the public good. In exchange, stakers are paid rewards in the form of more ETH. You can think of staking as the crypto version of putting cash in an interest-bearing bond or CD. By agreeing to deposit your holdings for a set period of time, you earn a certain yield percentage in return.
Before determining whether staking your Ethereum is worth it, you should know about the different ways you can stake ETH and the potential risk involved. According to the Ethereum system’s own literature, there are four ways to stake ETH:
- Solo home staking: This form of staking has the biggest beneficial impact on the Ethereum network and pays full rewards, but you have to own 32 ETH to get started. It also comes with the most risk, and requires you to have a dedicated computer and enough technical know-how to run the software that batches transactions and validates the work of others. With this method, you have full control and get full rewards, but your ETH is exposed 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 any hardware because you farm out the more complex work while still collecting native block rewards. Unlike solo home staking, which is trustless, staking as a service requires you to trust a third party with your keys. In most cases, you’ll be charged a fee and therefore earn fewer rewards.
- Pooled staking: There are many pooling options, most of which involve “liquid staking.” With this simple and popular method, you receive liquidity tokens that represent your staked ETH. This method lets you exit your position by selling your liquidity tokens without prematurely un-staking your actual ETH.
- Staking through centralized exchanges like Coinbase: This method takes your ETH holdings out of your custody and turns them over to Coinbase or another cryptocurrency exchange, which consolidates large pools of staked ETH for many validators. The danger here is that those large pools are juicy targets for attackers and large points of failure 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 whether it’s worth staking your ETH on Coinbase specifically.
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 regarding the staking of 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 come with minimum balance requirements, but Ethereum does not. Also, the other five have delayed reward payout schedules. For example, the rewards payout rate is three days for Tezos, five days for Cardano and seven days for Cosmos and Solana. Algorand is the slowest of all, paying out rewards only every quarter.
Ethereum rewards, on the other hand, are paid out daily.
How Do I Stake My Ethereum?
Unlike solo home staking, staking as a service and pooled staking, staking your Ethereum on a centralized exchange like Coinbase is a fast and easy process that just about anyone can do. What’s important to understand is that the moment you stake Ethereum on Coinbase, it transforms into a different token.
When you stake 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, to 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 to cbETH without paying any fees, or they can use cbETH to earn yields in DeFi applications while continuing to earn ETH2 staking rewards.
How Do I Stake on Coinbase?
In order to stake on Coinbase, all you have 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’ll have to get in line by joining a waiting list. You have to have a Coinbase account to join the waitlist, and Coinbase will notify you when you’ve been moved off the list and can begin staking ETH and earning rewards.
While you can earn up to 5.75% staking cryptocurrency on Coinbase, the current yield for Ethereum staking is 3.28%. However, the yield can vary based on changes in the amount of ETH staked on the exchange. That’s significantly less than you would earn through solo home staking, but the tradeoff is greater security and a much simpler process.
Know the Risks Before You Stake
As with all cryptocurrencies, Ethereum prices are notoriously volatile. When you stake ETH, the rewards you earn are paid in ETH. This means that staking ETH is a sound investment only if you believe Ethereum will appreciate in value. Unless you exchange them for a different cryptocurrency or cash them out, both your principal investment and the reward yield you earn on 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 exchange. According to Coinbase, “ETH staking is experimental and involves some risks including possible failure of the network.”
Staking ETH also comes with the risk of so-called slashing, which is a penalty enforced at the protocol level. Slashing — which can lead to the loss of staked assets — can be caused by events beyond Coinbase’s control. Slashing and all the 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 begin. Finally, keep in mind that staking rewards over $600 are subject to tax reporting.
Information is accurate as of Sept. 23, 2022.
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