The Proof-of-Stake (PoS) consensus mechanism is gaining more and more legitimacy in the cryptocurrency community. Existing PoS cryptocurrencies like Cardano, Solana, Algorand and Tezos are demonstrating that a well-designed PoS mechanism can successfully secure billions of dollars worth of assets while being faster and much more environmentally friendly than Proof-of-Work (PoW).
Scalability and energy consumption are becoming crucial issues as cryptocurrency goes mainstream and attempts to prove itself as a legitimate and useful technology. Some PoW cryptocurrency projects have already decided to transition over to PoS, while others are debating such a move with their communities. For example, Zcash co-founder Zooko Wilcox-O’Hearn recently argued that it would be beneficial for Zcash to make the jump from PoW to PoS.
Ethereum is moving towards Proof-of-Stake, and that means that you can earn staking rewards on your ETH
Of course, the most notable example of this trend is Ethereum, which has been planning its transition from PoS to PoW for several years now. The new Ethereum, which will have both Proof-of-Stake and sharding, is commonly referred to as Ethereum 2.0.
In December last year, Ethereum made its first major step towards this goal with the launch of the Beacon Chain, a blockchain that will coordinate the staking and sharding process in Ethereum 2.0. According to Beaconcha.in, there’s over 230,000 validators and more than 7.3 million ETH staked on the Beacon Chain at the time of writing.
Even though the Beacon Chain is already operational, it doesn’t support smart contracts or any of the other cool features that Ethereum users are currently enjoying. At some point in the future (hopefully soon), the current PoW Ethereum mainnet will be merged with the Beacon Chain, completing the transition to PoS.
Ethereum 2.0 staking rewards
Many cryptocurrency investors love staking because it allows them to passively grow their cryptocurrency holdings while taking on a relatively small risk compared to more active strategies like day trading. Thanks to the launch of the Beacon Chain, ETH holders can now also benefit from staking, although there are some caveats.
Important: Once you stake your ETH on Ethereum 2.0, you will not be able to withdraw it back to the current Ethereum mainnet.
Rewards that are paid out to stakers decrease as more ETH is staked in the network overall. The current APR for staking ETH is about 5.7%.
The estimated APR drops with the total amount of ETH staked. Image Ethereum.org
In this article, we’ll be going through some of the best ways that you can grow your ETH holdings through Ethereum 2.0 staking.
If you want to earn ETH staking rewards, you can either choose to become an Ethereum 2.0 validator yourself or stake through a third-party service like a cryptocurrency exchange. However, you need 32 ETH to operate your own validator, which isn’t a realistic scenario for most people. That’s why we’re going to start by covering third-party services first, because they’re much more accessible – you can stake much smaller amounts of ETH and still earn staking rewards.
1. Stake ETH on Binance
Binance is the most popular cryptocurrency exchange in the world, and they offer an Ethereum 2.0 staking service that has a minimum size of only 0.1 ETH.
When you stake your ETH via Binance, you will receive an equivalent amount of a token called BETH in return. BETH is a token representing the ETH staked by Binance, and it can be used for trading and even withdrawals – essentially, you still have liquidity even though your ETH is being staked on Ethereum 2.0.
Stake Now on Binance
The staking rewards that your ETH is generating are distributed to you on a daily basis depending on how much BETH you hold in your spot wallet on the Binance exchange. If you decide to withdraw your BETH from Binance or move it out of your spot wallet into Launchpool or other products, you will stop receiving rewards from staking.
Binance will give users the ability to redeem BETH tokens for ETH once it’s possible to unstake ETH – the timeline will depend on how quickly the Ethereum project can advance along the Ethereum 2.0 roadmap.
How to stake ETH on Binance?
- Create an account on Binance
If you don’t have an account on Binance yet, you will need to create one. Please note that due to the exchange’s new policies, you will have to verify your identity through a know your customer (KYC) process. You will also need to deposit some ETH to your Binance account, or buy some ETH on the exchange.
- Navigate to Binance ETH 2.0 staking
Under the Finance tab at the top of your Binance interface, head over to Binance Earn. Then, you’ll be able to find the ETH 2.0 Staking option. Select “View More”.
- You’re ready to stake
Select “Stake Now” and choose an amount of ETH that you want to stake. Then, you’ll have to confirm that you understand the terms and conditions of staking ETH on Binance.
Make sure to read the terms carefully, as they contain important information!
Pros of staking ETH on Binance
- You can start staking with as little as 0.1 ETH
- Thanks to BETH tokens, you can earn staking rewards while retaining liquidity
- Binance doesn’t charge a fee on staking rewards
Cons of staking ETH on Binance
- Custodial solution – you have to trust that the exchange will keep your ETH safe
- Binance now requires KYC from all users for services other than withdrawals
2. Stake ETH on Ledger via Lido
Ledger is the most popular manufacturer of cryptocurrency hardware wallets, which provide some of the best security that’s available to the average user. Ledger has partnered with Ethereum staking provider Lido to give its customers the ability to access ETH staking right through the Ledger Live application.
You can stake small amounts of ETH with Lido. When you stake ETH with the service, you will receive an equivalent amount of stETH. This is why Lido is referred to as a “liquid staking” solution – you still get liquidity even though your ETH is being staked and earning rewards. Staking rewards are subject to a 10% fee that goes to the Lido DAO.
The ETH deposited is managed by a DAO-owned smart contract, which then stakes the funds through staking providers elected by the DAO. At this time, Lido is perhaps best described as a hybrid between a centralized and decentralized staking solutions. Deposits made to Lido after July 15, 2021 are fully non-custodial, but there’s still some trust involved when it comes to withdrawals and node operators.
If you want to learn how to stake your ETH on Ledger Live through Lido, you can check out this helpful article by Ledger.
Pros of staking ETH on Ledger via Lido
- You can stake a smaller amount of ETH
- Your private keys stay safe with your Ledger hardware wallet
- Retain liquidity thanks to stETH token
Cons of staking ETH on Ledger via Lido
- The Lido DAO takes a 10% fee on rewards
- The gas fees could be problematic depending on Ethereum network conditions
3. Stake ETH on Kraken
Kraken is a cryptocurrency exchange that was launched in 2013, and has maintained a very strong track record on security ever since. This has made it one of the most trustworthy names in the cryptocurrency community and a popular destination for cryptocurrency staking.
Stake Now on Kraken
If you hold ETH on Kraken, you can start staking and earning rewards. As we’ve mentioned before, tokens that are currently staked on Ethereum 2.0 cannot be unstaked at this time. Kraken tackles this issue by giving users the option of trading staked ETH for unstaked ETH to get access to liquidity.
The main downside of staking Ethereum on Kraken are the fees – the exchange takes a 15% cut on the earned staking rewards.
How to stake ETH on Kraken?
- Create an account on Kraken
If you don’t yet have an account with Kraken, you’ll need to create it first. Please note that Kraken requires all customers to complete KYC. You will need to fund your account with some ETH – you can either deposit some ETH from a wallet or buy ETH directly on Kraken.
- Find the “Earn” section of the Kraken website and click on “Stake”
After you create your account, navigate to the “Earn” section at the top of the Kraken website. Then, click on the “Stake” option and select “ETH”. Next, you will be presented with important information about staking ETH on Kraken. Make sure to read this carefully and don’t proceed if you don’t agree with or understand the terms and conditions!
- Select the amount of ETH to stake
If you agree with Kraken’s ETH staking terms and conditions, you can proceed by selecting how much ETH you want to stake. After that’s done, you’ll have to wait for a while before your staked ETH starts earning rewards – this could take up to 14 days, but will usually take less than one day.
Pros of staking ETH on Kraken
- You can stake smaller amounts of ETH
- Kraken has a very strong track record on security
- Users have the option of trading staked ETH for unstaked ETH to access liquidity
Cons of staking ETH on Kraken
- Custodial solution – you have to trust the exchange
- Residents of the United States and Canada can’t trade staked ETH for unstaked ETH
- Kraken takes a 15% fee on staking rewards
4. Stake ETH on Coinbase
Similarly to Kraken, Coinbase is one of the longest-standing cryptocurrency exchanges in the industry and has a very good reputation for keeping customers’ crypto funds secure. Coinbase offers an ETH staking option that you can use to stake smaller amounts of ETH, but it comes with a considerable fee of 25% on your staking rewards.
Stake Now on Coinbase
Rewards are paid out daily, but Coinbase doesn’t offer an option to get any liquidity out of the ETH you are staking. When you stake your ETH, you will receive an equivalent amount of ETH2 tokens on Coinbase, but users are currently not able to trade or withdraw ETH2 tokens.
How to stake ETH on Coinbase?
- Create a Coinbase account
In order to start staking ETH on Coinbase, you will first have to create an account with the exchange. Then, you will need to either deposit some ETH on Coinbase or purchase some ETH directly on their platform.
- Find Ethereum in your Coinbase Portfolio
In order to start staking ETH on Coinbase, navigate to the “Ethereum” section of your Portfolio.
- Convert your ETH to ETH2
If you are eligible for ETH staking on Coinbase, you will be able to choose how many of your ETH you’d like to stake. This amount of ETH will be converted to ETH2, and you’ll start earning rewards shortly.
Pros of staking ETH on Coinbase
- Stake smaller ETH amounts
- Coinbase has a strong reputation for keeping customer funds safe
- Simple staking process
Cons of staking ETH on Coinbase
- Custodial solution – you have to trust the exchange
- You can’t get liquidity from the ETH you stake on Coinbase
- Only available to customers in the United States (excluding New York), and selected countries
5. Become a validator yourself
The most direct way of staking ETH is to do it yourself and become an Ethereum validator. This way of staking ETH is also the most compatible with the principles of decentralization and self-sufficiency, which many cryptocurrency users want to abide by. Another benefit of running your own validator is that you don’t have to pay any additional fees – as we’ve shown above, most exchanges that offer ETH staking charge a fee on the staking rewards.
Operating a validator can be a great option for people who are both tech-savvy and hold a significant amount of ETH. However, the massive growth in the price of ETH has made it very difficult for users to amass enough capital to launch their own validator. At the time of writing, 32 ETH will set you back $112,900, which is much more than the average person is willing to invest into crypto.
If you’re interested in becoming an Ethereum validator, the best way start is to visit the Ethereum Foundation’s official website, which has a thorough guide on the requirements and process of setting up an Ethereum validator.
Pros of staking ETH by becoming a validator
- You handle everything yourself – no need to trust any third party with your ETH
- You don’t have to pay any fees to an intermediary
Cons of staking ETH by becoming a validator
- Big upfront capital requirement of 32 ETH (over $100,000 at the time of writing)
- Some technical knowledge is required (need to run an Eth1 and Eth2 client)
- If you don’t set up your validator properly or have an unreliable internet connection your stake could be slashed
Ethereum 2.0 staking FAQs
There can sometimes be confusion about Ethereum’s transition to Proof-of-Stake and what it entails for ETH holders and stakers. Let’s quickly address some of the most frequently asked questions.
When can I redeem my staked ETH?
Currently, ETH staking is a one-way street. Once a validator stakes ETH in the Ethereum 2.0 deposit contract, they cannot get it back to the Ethereum mainnet.
When you’re staking with the exchange, the exchange pools up your ETH alongside the ETH of other customers and launches multiple validators. Some staking services like Binance and Lido give you a way to still keep liquidity while you’re staking (through BETH and stETH, respectively). Other services like Coinbase currently don’t offer this option – you’ll have to wait until after the Ethereum merge to get access to your coins again.
According to Ethereum.org, the merge between the Ethereum mainnet and the Beacon Chain is expected to happen sometime in Q1 or Q2 2022. However, this could change in the future as Ethereum’s transition to Proof-of-Stake is a complex process with many moving parts. After the merge is completed, a small upgrade will introduce the option of withdrawing staked ETH.
How is the Ethereum 2.0 APY calculated?
The APY you will get from staking on Ethereum 2.0 mainly depends on two things, namely the actual rewards that are being distributed to stakers and the fees that your staking service provider is charging on those rewards. If you’re running a validator yourself, you won’t have to pay any extra fees, but you’ll have to factor in the costs of keeping your validator up and running.
The award that’s distributed to stakers depends on how much ETH is staked in the system as a whole – the more ETH that is staked, the lower the APY is. You can see a chart of how the rewards change in relation to the total staked ETH here.
When will Ethereum 2.0 be released?
The move to Ethereum 2.0 is a process that’s happening across several phases. Phase 0 was completed in December 2020 with the launch of the Beacon Chain. The next step will be the merge between the Ethereum mainnet and the Beacon Chain, which will officially make Ethereum a Proof-of-Stake blockchain. This is expected to happen in Q1 or Q2 2022. Following the merge, the next phase will be to introduce shard chains, which will greatly enhance Ethereum’s scalability. Currently, shard chains are expected to go live in 2022, after the merge is completed.
The bottom line
Ethereum’s transition to Proof-of-Stake is one of the biggest storylines in all of crypto. The move seems to be a win/win situation for users – Ethereum will become faster and more environmentally friendly, while users can passively grow their ETH holdings through staking. In this guide, we’ve shown you some of the most popular ways of earning rewards by staking ETH. Generally speaking, the more convenient options require more trust, and also come with fees.
Another important thing to consider when choosing how you will stake your ETH is liquidity. Are you willing to fully lock up the value of your ETH until unstaking coins becomes possible on Ethereum 2.0, or do you still want to have access to liquidity even though you’re staking? Hopefully, this article helped you make a more informed decision on how you want to stake your ETH. Good luck!