Updated: Mar 15, 2021
You’ve seen the headlines— Ethereum's price is on the rise because the Ethereum 2.0 network is here and the bridge to the new format has been deployed. You’d like to join the party, but you don’t have thousands of dollars to invest, or the technical expertise to buy, store, and secure cryptocurrency yourself. What do you do? This is your chance to get in on the ground floor of a new alternative investment class with massive potential and little downside. This post will show you how you can stake your Ethereum 2.0 on Binance or Coinbase to make money on a consistent basis, plus gain additional passive income through appreciation.
What is Ethereum?
The Ethereum network is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third party interference. These apps run on a distributed platform of many thousands of computers around the world, each running its own copy of the app. The blockchain is stored across all of these computers rather than within any one of them. Because these apps can be run on many computers at the same time, they are extremely secure. This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middleman or counterparty risk.
ETH is Ethereum's cryptocurrency token— a unit of value used by app developers to pay for transaction fees and computational services on the Ethereum blockchain. Over 75% of all ETH tokens already exist in the system.
What is Staking?
Staking is a way of earning Ethereum tokens (ETH) without mining. You don't have to buy and maintain expensive hardware and use a ton of electricity. Instead, to earn a return, you stake your ETH tokens, and in turn they will give you a proportional share of all the fees paid on the Ethereum network. This is an alternative to buying and holding ETH tokens, which is the more common way to buy Ethereum and the predominant way to earn a return on your investment.
Staking is what keeps the Ethereum blockchain up-to-date and running smoothly. By staking, users validate transactions and produce new blocks. In doing so, they help the Ethereum network. The results of staking are more fees collected on the transaction fees in each block. Each consensus round requires 1000 gas. With Ethereum's upgrade to Ethereum 2.0, Ethereum can now be staked and ETH can be used as a reward: fees you receive for the work you did as part of the Proof of Stake process.
How Much Can You Earn Staking Ethereum?
Staking is attractive to investors because of the speed and security it offers, as well as the guaranteed passive income. The gains from staking are directly tied to the amount of coins in your staking account. So whatever Ethereum you stake, that’s how much you earn for each Ethereum block reward.
The starting reward for staking is 1% per year or around 1% each time Ethereum blocks are solved. The limit is based on the total amount of your ETH tokens. When you stake more than 30% of your tokens, your annual interest rate goes up to as much as 10%.
What are the Advantages of Staking?
Staking has several advantages over the other ways of earning a return on your ETH. First of all, every staking operation has a chance to get the reward for a block directly, in the form of a stake that earns compounding interest based on that block output. Block rewards are paid to a stake contract, and not to individual wallets. This means that stakers don’t have to wait for a payout; instead their rewards are instantly issued as ether tokens.
Second, staking returns are guaranteed. The Ethereum network provides a way to trustlessly report the amount of the reward you receive to the blockchain so that it can be credited correctly. This means you don’t have to trust the staking pool to be fair and pay ample rewards.
How Exactly Do I Stake Ethereum?
First, you’ll need to buy some Ethereum (ETH) tokens using fiat currency on Coinbase or Binance. If you don’t have an Ethereum wallet or you're a newbie to creating a crypto wallet, this is the best, safest way you can get Ethereum. These trusted exchanges provide access to many different fiat-crypto exchange services for you.
Once you've bought Ethereum on these platforms, your ETH will be automatically stored in an online wallet you can easily observe on their "wallet" pages. At this point, you’ll have to follow their instructions on how to stake Ethereum, but it mostly entails just placing the Ethereum in a staking wallet and then just sitting back and watching it build. The platform will automatically stake your ETH. The rewards will be automatically added to your current balance, resulting in your total compounding over time. In addition, Ethereum's future price appreciation will further accelerate that compounding effect.
Staking will only become more popular as the Ethereum network expands. In its protocol is the ability to use staking not just to incentivize, but to also validate all network transactions. In parallel, the company behind the Casper Foundation is trying to build a scalable solution for staking and bringing it to the average user.
Making Ethereum and other cryptocurrencies more scalable will make both blockchain performance and the staking process more successful. Staking is a smart investment because the returns are predictable. There are no trading fees, security risks, or brokerage fees. You don’t even have to manage a complete wallet. Just keep in mind, the price of Ethereum is often volatile.