Ethereum staking is not the same as other cryptos.
- Coinbase said Ethereum is the most-bet asset on its platform.
- Staking is a way to earn rewards on your crypto and help keep the network secure.
- Staking ETH means tying up your coins until Ethereum has completed its upgrade.
The latest results from Coinbase highlighted a growing trend in crypto investing: more and more investors want to earn passive income from their crypto assets. There are several ways to do this, and each carries a different level of risk and reward. A common method is staking, and Coinbase says this is an area where it expects to see a lot of growth.
In its fourth quarter earnings report, Coinbase said Ethereum (ETH) comprises the majority of its staked assets. Chief Financial Officer Alesia Haas told analysts on the company’s earnings call, “We’ve generated over $200 million in blockchain rewards this year, which is largely rooted in our staking revenue, as we added a number of proof-of-stake assets, including ETH2, in mid-2021.”
Read on to find out how staking works and why Ethereum staking is so popular.
What is staking?
Staking is a way for investors to earn rewards by contributing to the overall security of this blockchain. Some types of cryptocurrencies use a proof-of-stake model to validate new transactions. Without getting too technical, it consumes far less power than the old proof-of-work model used by Bitcoin (BTC).
The only way to participate in mining and validating transactions on a proof-of-stake blockchain is to own some of these coins. Investors who buy and hold can commit their coins to the staking process and earn rewards. Many cryptocurrency exchanges provide a way for investors to stake their coins. Some people choose to stake through decentralized platforms or directly on a specific blockchain. It takes a bit more work and technical knowledge, but can pay higher rates.
READ MORE: What is staking in crypto?
Why Stake Ethereum?
Ethereum is the second largest cryptocurrency in the world and is a popular long-term crypto investment. Currently, it uses the same proof-of-work model as grandaddy Bitcoin. But it’s moving to a proof-of-stake model and currently running both systems in parallel to ensure a smooth transition.
The big difference between staking ETH and other cryptos is that you need to pledge your coins for a longer period of time. Since the new proof-of-stake system is not yet operational, staking ETH is a one-way street. When you stake Ethereum, you are binding your coins until the upgrade is complete, which could be 2023 or beyond.
When you stake other cryptos, you may need to pledge your coins for a month, sometimes longer. But with Ethereum staking, you might not be able to access your assets for more than a year. Some cryptocurrency exchanges may allow you to sell your staked ETH tokens, but it is best to assume that you are committing them for the long term.
After the upgrade is complete, each staked ETH token will be worth a normal ETH token. The big downside is that a year is a long time in crypto. Ethereum could lose its market dominance in the time it takes to complete its upgrade. He may encounter technical or security problems along the way. It is possible that its price will drop considerably.
The benefit is that you can earn around 5% or more on your staked coins. Additionally, you are helping the transition to a new, faster and more sustainable Ethereum blockchain. If you were planning to hold ETH and wait for any price drops, you might be comfortable with your coins being pledged. Personally, I have around 70% of my ETH holdings staked.
At the end of the line
Ethereum staking can offer long-term investors a good way to earn rewards. However, like everything in the crypto world, there are risks including price volatility and technical issues. It is important to weigh your financial situation, investment goals, and risk tolerance before locking up crypto assets for an indefinite period.
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