Ethereum (ETH) is the second-largest cryptocurrency by market cap after Bitcoin. Recently, Ethereum has been making waves as it shifted from proof of work (PoW) to proof of stake (PoS) consensus mechanism, allowing anyone to earn passive income by staking ETH. In this article, we will explore the world of staking and its benefits and risks, as well as share tips for finding a trustworthy staking platform. From security to fees and reputation, we will cover all the factors you need to consider when searching for a reliable staking platform.
How to Stake Ethereum
There are multiple options available for users who want to participate in Ethereum staking, ranging from solo staking to staking-as-a-service and pooled staking. These options target a wide range of users and ultimately are each unique. They vary in terms of risks, rewards, and trust assumptions. Some are more decentralized, battle-tested, and/or risky than others. For those who do not feel comfortable holding their own keys, there are options available to delegate the hard part while still earning native block rewards. For example, Coinbase is a top exchange that offers an Ethereum staking program for users who do not want to run their own node. As for wallets, Ledger is an optimum choice for staking ETH.
Staking Via Cryptocurrency Exchanges
Here are the steps to stake Ethereum via a crypto exchange, such as Binance:
Step 1: Sign up for an account. The first step is to sign up for an account on the exchange. This typically involves providing personal information, verifying your identity, and setting up a payment method to purchase ETH.
Step 2: Purchase ETH. Once your account is set up, you will need to purchase Ethereum. This can usually be done through a variety of payment methods available on the exchange, such as bank transfer, credit card, or debit card.
Step 3: Transfer ETH to the exchange's staking program. Once you have ETH in your exchange's wallet, you should be able to find an option to stake ETH within the wallet itself. The specific steps may vary depending on the exchange, but typically you will need to navigate to the staking section of the wallet and follow the instructions to stake your ETH.
Step 4: Choose your staking options. The next step is to choose your staking parameters, such as the amount of ETH you want to stake and the length of time you want to stake it for.
Step 5: Start staking and earning rewards. The rewards will typically be added to your account periodically, depending on the specific staking program and its payout schedule.
Best Cryptocurrency Exchanges
|Company||Transaction Fees||Currencies||Minimum Deposit or Purchase||Trade Limits|
|Kraken||0.00% to 0.26%||185+||$1||No|
|Coinbase||0.00% to 0.60%||200+||$2||Yes|
|Crypto.com||0.00% to 0.075%||250+||$1||Yes|
Unlike traditional brokerage firms, cryptocurrency exchanges are not members of the Securities Investor Protection Corp. (SIPC). Therefore, unless user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their funds as unsecured creditors.
Staking Via a Wallet
Here are the steps to stake Ethereum via a crypto wallet, such as Guarda:
Step 1: Choose a compatible wallet. Select a wallet that is compatible with Ethereum staking. Some popular options include Ledger, Trezor, and MetaMask.
Step 2: Transfer ETH to your wallet. Once you have selected a wallet, you will need to transfer ETH to it from an exchange or another wallet.
Step 3: Navigate to the staking section. Once you have ETH in your wallet, navigate to the staking section of the wallet. This may involve clicking on a specific button or tab within the wallet's interface.
Step 4: Follow the instructions to stake. Once you have located the staking section, follow the instructions provided by the wallet to stake your ETH.
Best Crypto Wallets
|Company||Type of Wallet||Purchase Cost||Incorporated Exchange||Compatible Hardware|
|Trezor Model T||Cold||$219||Yes||Yes|
|Ledger Nano X||Cold||$149||Yes||Yes|
What You Need to Begin Staking
Staking Ethereum (ETH) not only allows you to earn rewards for supporting the network, but it also helps to make the network more secure and sustainable. When staking solo, you can stake ETH by setting up your own staking node and running the software on your own hardware. In this case, you don't necessarily need to submit personal data to a third-party service provider.
However, staking-as-a-service (SAAS) and pooled staking are other methods where you delegate your staking rights to a third-party service provider, who then manages the staking process on your behalf. In this case, you will typically need to create an account with the service provider, which may require you to submit personal information or have a minimum balance.
When it comes to staking cryptocurrencies, you may need to provide the following pieces of personal information, including:
- Full legal name
- Date of birth
- Government-issued identification number (e.g., passport or driver's license)
- Address (physical or email)
- Phone number
This information is required for Know Your Customer (KYC) procedures, which are in place to help prevent fraud and money laundering. These requirements vary by platform and jurisdiction, but in general, you can expect to provide at least some of the information listed above.
For solo staking, the minimum deposit required is 32 ETH, which is the amount required to run a validator node on the Ethereum network. However, for pooled staking or staking via a staking-as-a-service option, there may not be a specific minimum deposit requirement, as it varies depending on the exchange or wallet service being used. Some exchanges and wallets have no minimum deposit requirement, while others may require a minimum deposit of as little as 0.1 ETH to 5 ETH worth of cryptocurrency.
Types of Cryptocurrency Exchanges
Centralized exchanges (CEXs) are platforms that facilitate the buying and selling of cryptocurrencies. They operate on a centralized server and require users to deposit funds into the exchange's wallet.
CEXs are known for their user-friendly interfaces, high liquidity, and access to a wide range of cryptocurrencies. They are also regulated and offer advanced security measures to protect users' funds. However, they are vulnerable to hacking and require users to trust the exchange with their funds.
Decentralized exchanges (DEXs) operate on a decentralized network and allow users to trade cryptocurrencies directly with one another. They are non-custodial, meaning that users can connect and transact with their own (decentralized) wallet.
DEXs use smart contracts to execute trades and provide users with greater control over their funds. However, DEXs have lower liquidity and may have a less user-friendly interface than CEXs. They are also subject to the limitations of the blockchain network they operate on.
Hybrid exchanges combine the benefits of both CEXs and DEXs. They allow users to trade cryptocurrencies on a centralized platform while using a decentralized network to execute trades. This provides users with higher liquidity, faster trade execution, and increased security.
Hybrid exchanges also offer advanced trading tools and a user-friendly interface. However, they are still subject to the risks associated with centralized exchanges, such as hacking.
Types of Crypto Wallets
Hot wallets are software-based wallets that are connected to the internet, allowing you quick access to your crypto assets. However, they are more susceptible to hacking and theft due to their online accessibility. Examples of hot wallets include mobile wallets, desktop wallets, and web wallets.
Cold wallets are hardware wallets that are used offline for storing cryptocurrencies and digital assets. They are considered more secure because they provide an additional layer of protection against hackers and cyber threats.
Cold wallets store your private keys offline and require physical access to your device to execute transactions. Examples of cold wallets include hardware wallets like Ledger and Trezor.
Physical wallets refer to the physical manifestation of cold wallets. They come in the form of a USB drive or other physical device that stores your private keys offline. Physical wallets offer the highest level of security because they are completely disconnected from the internet. They are ideal for users who want to store large amounts of crypto assets and are willing to sacrifice convenience for security.
However, physical wallets are also more expensive and may require some technical knowledge to set up and use. Examples of physical wallets include Ledger Nano, Trezor, and KeepKey.
Understand Ethereum’s Proof-of-Stake Method
Ethereum is currently undergoing a transition from its previous consensus mechanism, Proof of Work (PoW), to Proof of Stake (PoS). Here are some key points about Ethereum's PoS:
- Ethereum's PoS, also known as Ethereum 2.0 or Eth2, is designed to improve the network's scalability, security, and sustainability.
- In Ethereum's PoS, participants are called validators, and they are required to hold a minimum of 32 ETH to participate in network validation. Validators are selected randomly to create and validate blocks, and they are rewarded with transaction fees and newly minted ETH.
- One of the key benefits of Ethereum's PoS method is that it uses significantly less energy compared to PoW. This makes it more environmentally friendly and reduces the cost of participating in network validation.
Ethereum underwent a significant upgrade to Ethereum 2.0 with the Shanghai update successfully occurring on April 13, 2023. Validators are now able to unstake their ETH, which is a crucial development for those who have been participating in Ethereum staking. The Shanghai update was an important milestone in the transition towards the full implementation of Ethereum 2.0, as it unlocked the ETH deposited on the Beacon Chain, allowing validators to withdraw their funds.
As of April 13, 2023, Ethereum stakers are able to withdraw their rewards or principal deposit from their validator balance, following the successful implementation of the Shanghai upgrade. The upgrade included a new withdrawal functionality that allows stakers to easily access their funds.
Prior to the implementation of the Shanghai upgrade, stakers continued to earn rewards in the form of fees and MEV when proposing blocks. These rewards were immediately available via the set fee recipient address, allowing stakers to benefit from their participation in the network.
In the Ethereum network, validators who do not make head, source, and target votes or do so slowly face penalties for missing the target and source votes. These penalties are equal to the rewards the validators would have received had they submitted their votes.
Slashing is a severe penalty that can result in the removal of a validator from the network and the loss of their staked Ethereum. Validators on the Ethereum network can be slashed in case of the following:
a) If they propose and sign two different blocks for the same slot
b) If they attest to a block that surrounds another one
c) If they double vote by attesting to two candidates for the same block.
When a validator is slashed, 1/32 of their staked Ether is immediately burned, and a 36-day removal period begins, during which their stake gradually bleeds away. At the midpoint of the removal period, an additional penalty is applied. Its magnitude scales with the total staked Ether of all slashed validators in the 36 days prior to the slashing event. This midpoint penalty is called the "correlation penalty."
Factors to Consider When Choosing a Staking Method
Security, fees, the quality of the wallet, and various other considerations are important for staking as it involves holding and locking up large amounts of cryptocurrency, making your funds an attractive target for hackers. We discuss some of these factors below.
Security: Security is a crucial factor to consider when choosing a staking method because staking involves locking up a significant amount of cryptocurrency for an extended period. Therefore, you should select a platform with top-notch security to prevent the risk of loss.
Fees: Staking fees can vary widely between different wallets and exchanges, and can have a significant impact on the overall returns from staking. It is important to carefully consider the fees associated with staking and choose a provider that offers competitive fees.
Wallet quality and safety: A high-quality wallet with a strong track record of safety can provide added security and peace of mind when staking, especially if you are looking to lock up a huge amount of ETH.
Customer service: If you run into any issues or have questions about staking, it is better to have access to responsive and helpful customer service. A wallet provider or exchange with strong customer support can make the process smoother and less stressful.
Validator uptime/reliability: Validators are responsible for processing transactions and maintaining the blockchain, and downtime can result in missed rewards or even financial losses. Therefore, find reliable validators that have a strong track record of uptime and performance.
Speed: Some staking methods can be slow or have long waiting periods before rewards are distributed. It is important to find an efficient validator (if you are delegating your stakes) that offers fast and efficient rewards distribution to maximize returns and minimize waiting times. If you can’t find one, simply run your old node as long as you understand the know-how of how to stake ETH.
What Is Ethereum Staking?
Digital currencies, also known as cryptocurrencies, are virtual or digital tokens that use cryptography to secure and verify transactions, as well as to control the creation of new units. These currencies operate independently of central banks or governments and are decentralized.
Cryptocurrencies utilize various consensus mechanisms to prevent double spending, one of which is Proof of Stake (PoS), where users can stake their cryptocurrency to assist in validating transactions in exchange for rewards. It simply means holding a certain amount of cryptocurrency (stake), and using it to validate transactions on the network. This can be done directly from a wallet or on an exchange that supports staking.
One distinct feature of staking is that it allows cryptocurrency holders to earn passive income in the form of rewards for participating in network validation. Another advantage is that it uses significantly less energy compared to other consensus algorithms like Proof of Work.
Additionally, staking reduces selling pressure on the market, as participants are required to hold their cryptocurrency, which can help stabilize the price of the currency. However, there is a risk of losing staked funds if participants act maliciously or fail to follow the network's rules.
How Much Can You Earn Staking Ethereum?
The amount of money you can earn from staking Ethereum depends on a variety of factors, such as the amount of ETH staked, the current market conditions, and the staking rewards offered by the network validators. The validator rewards are calculated using a mathematical formula, and are subject to network activities.
It's important to note that staking rewards are paid out in ETH, so the amount of earnings will also be influenced by the price of ETH in the market.
How Long Until I Earn Rewards From My Stake?
The time it takes to earn rewards from staking Ethereum varies. If you are running your own validator node, the reward distribution will depend on the amount of ETH you have staked and the number of validators on the network. It may take some time before you start receiving rewards, as it requires the validation of multiple blocks before the Ethereum network can issue a reward.
If you are staking via a staking-as-a-service provider or centralized exchange, the rewards will typically be distributed by the provider at set intervals, which could be daily, weekly, or monthly. The time it takes to earn rewards may also depend on the provider's payout policies and the amount of ETH you have staked.
How Long Does It Take to Unstake Ethereum?
The time it takes to unstake Ethereum can vary depending on the staking method used. If you have staked through a centralized exchange or staking-as-a-service provider, the time it takes to unstake will depend on their specific terms and conditions. Some providers may allow for quick unstaking, while others may have a longer lock-up period before the funds can be withdrawn.
If you are staking through the Ethereum 2.0 network with your own validator node, it is now possible to unstake your Ethereum after the Shanghai upgrade.
Where Do Staking Rewards Come From?
Staking rewards come from the block rewards earned by validators responsible for the security and integrity of the Ethereum network. Every time a validator successfully validates a block, they receive a block reward in the form of newly minted ETH. A portion of this block reward is then distributed among the users who have staked their ETH with the validator node.
Is Staking Ethereum Safe?
The Ethereum network is highly secure, and the PoS consensus mechanism used for staking is designed to discourage malicious behavior and incentivize good behavior from validators. However, there are some risks associated with staking, such as the possibility of slashing or losing a portion of your staked ETH if you engage in malicious behavior.
To minimize the risks of staking, choose a reliable and reputable staking service provider or validator. It's also recommended to keep your staked ETH in a secure and trusted wallet, and to ensure that your private keys are properly protected. Additionally, it's important to stay informed about any potential security vulnerabilities or updates to the Ethereum network, and to take necessary action to ensure the safety of your staked assets.
Ethereum.org. PROOF-OF-STAKE (POS).
FintechNexus. PoW vs PoS and why you should care.
Ethereum.org. PROOF-OF-STAKE REWARDS AND PENALTIES.