How to Stake Ethereum
The Ethereum Merge is finally here. On its website, Ethereum states that the “most significant upgrade in the history of Ethereum […] is in its final stages” and is expected to take place sometime before 2023.
The Merge describes the process whereby the current Ethereum blockchain will be merging with the Beacon Chain. This will mark the end of proof-of-work (PoW) for Ethereum and complete the transition to proof-of-stake (PoS). After the merge, Ethereum mining will be a thing of the past as PoS no longer requires the solving of mathematical puzzles to establish consensus. Staking Ether is now taking the place of mining Ether.
What Is Ether Staking?
Instead of using powerful hardware to build the Ethereum blockchain, users can deposit Ether in the Ethereum network to participate in proposing and validating new blocks. These blocks are then added to the Ethereum blockchain. This process is called proof-of-stake (PoS), because only users who can provide proof that they have deposited and locked (staked) a certain amount of Ether with the Ethereum network are allowed to participate in maintaining the Ethereum blockchain.
There are many different types of proof-of-stake consensus mechanisms in use today. Each PoS blockchain uses its specific form of PoS tailored to the needs of its network. The basic principles are the same for all PoS blockchains though. Users stake a network’s native coin to participate in proposing and validating blocks. The larger a user’s stake, the higher the chances that he gets to build or validate the next block. Creating and validating a new block is rewarded with the network’s native coin.
Should users propose or validate incorrect or fraudulent blocks, which are not compliant with the network’s rules, then they will lose a part or all of their staked coins. This is generally referred to as slashing. This mechanism ensures that stakers have a strong economic incentive to comply with the network’s rules and only add valid blocks to the chain.
How Much Ether Is Needed to Participate in Staking?
In the case of Ethereum, the network’s rules determine that a minimum of 32 Ether have to be staked to run a network node and participate in building the Ethereum blockchain. Depending on the price for Ether, this equals several ten- or hundred-thousand U.S. dollars.
This is a large sum, especially for smaller investors. To lower the entry barrier for Ethereum staking, platforms like Coinbase, Binance, and many others offer staking pools. In these, investors can pool their Ether, while an Ethereum node is run by the platform itself. Often, with such pools, there is no minimum-staking requirement and investors can participate with as little Ether as they want.
Where to Stake Ether
Solo staking: Ether can be staked directly on the Ethereum network. To do so, stakers have to run their personal Ethereum node. No programming skills are necessary to run a node, as all the software needed is provided by the Ethereum community. Nevertheless, the process of setting up a personal Ethereum node requires technical skills and knowledge.
Pooled staking: The much simpler way to stake Ether is through platforms that run the Ethereum nodes for their users. This allows users to stake Ether with a few clicks. Examples are Coinbase, Binance, Lido, Kraken, and Rocket Pool, among many others. For their services, the platforms usually charge a percentage of the staking rewards.
Should You Stake Your Ether?
When staking Ether directly on the Ethereum network, you will earn a staking reward. The current annual percentage rate (APR) for staking Ether is around 4% and can be looked up here. The APR decreases the more Ether is staked within the network.
Currently, staking Ether on the Ethereum network is a one-way street. Staked Ether and the earned rewards cannot be redeemed until the Merge is finished and the Ethereum Shanghai upgrade is implemented. The exact date that will enable withdrawals is still unknown, but chances are that it won’t be before mid-2023.
When staking Ether on platforms, investors will earn the current Ether APR minus a fee the respective platform is charging for its service. Coinbase charges a 25% commission on the earned rewards, meaning investors only get to keep 75% of their earnings. Other platforms charge significantly less for their staking services, so comparing fees can save investors real money.
How to Stake Ether on Coinbase
Coinbase offers Ether staking for its private users but is only available in certain regions, among others in the U.S. Check your eligibility here.
Step 1: Open a Coinbase account. To stake Ether on Coinbase, you must verify your identity and reside in a location where staking is offered.
Step 2: Top up your account and buy Ether.
Step 3: Go to the ‘Assets’ section and choose Ethereum.
Step 4: Click ‘Join the Whitelist,’ read through the information provided, and join the list. As soon as Coinbase is ready, you will get a notification via email.
Step 5: Go back to the ‘Assets’ section, choose Ethereum, and click the ‘Stake Now’ button. Read through the Information provided and click ‘I understand.’
Step 6: Choose the amount of Ether you want to stake and confirm your selection.
Step 7: Your Ether is now being converted to ETH2. Go to ETH2 in the ‘Assets‘ section to see your stake and the earned rewards.
How to Stake Ether on Binance
Step 1: Open a Binance account and verify your identity.
Step 2: Top up your account and buy Ether.
Step 3: Go to the ‘Earn’ section and choose ‘ETH2.0.’
Step 4: Click ‘Process’ and read through the provided information. Note: Binance will tokenize your ETH 2.0 stake as BETH, which allows you to trade your staked ETH 2.0.
Step 5: Click ‘Stake Now’ and choose the amount of Ether you want to stake. Confirm your choice. A second window will pop up. Read and confirm that too.
Step 6: Your Ether is now successfully staked. Binance will distribute your staking rewards daily in the form of BETH. Once Ethereum 2.0 is live, BETH can get exchanged back for Ether.
How to Stake Ether Yourself
To stake Ether on the Ethereum network on your own, you need to run your personal Ethereum node. Additionally, you need at least 32 Ether to qualify as a network validator and earn staking rewards. For a step-by-step guide on how to set up and run an Ethereum node and stake Ether, see our guide here.
If you don’t feel comfortable dealing with hardware but still want to stake your 32 ETH, staking-as-a-service (SaaS) providers allow stakers to delegate the technical part while still letting them earn native block rewards.
SaaS providers like Lido or Rocket Pool usually walk users through creating a set of validator credentials, uploading their signing keys, and depositing the 32 ETH. This allows the SaaS providers to validate blocks on the user’s behalf.
Outsourcing these tasks requires a certain level of trust in the SaaS provider. To reduce counterparty risk, the keys to withdraw the deposited ETH should be kept in the investor’s possession.
For a list of Staking-as-a-Service providers recommended by Ethereum, see here.