Staking is a great way to increase your cryptocurrency holdings without buying more. When you stake your coins, you lock them up for a specified period in which you want to participate in transaction validation.
In simple terms, staking involves using your assets as a security deposit. The network whose asset you stake uses the security deposit to incentivize good behavior, and any validator caught acting contrary to acceptable behavior will lose their stake.
There are two main ways to participate in staking: running a staking node and pooling assets with other interested individuals within a staking service.
Coinbase and Binance are two popular staking services that offer staking as a service to their users.
This article will delve into the world of staking cryptocurrencies. We’ll look into which assets are ideal to stake, which staking services you can use, the advantages and drawbacks of staking.
We’ll also highlight simple steps to follow if you wish to stake your crypto assets.
Can you stake Bitcoin on Coinbase?
No, you cannot stake Bitcoin on Coinbase. Bitcoin (BTC) is the native cryptocurrency on the flagship blockchain network Bitcoin. You cannot stake Bitcoin on Coinbase because the Bitcoin network does not use staking as a consensus mechanism.
There are two main ways in which blockchain networks achieve consensus within their chain nodes, and that is through mining or staking.
Those that use the former use a consensus mechanism called Proof of Work (PoW), in which participating nodes show that they have done the work before they are rewarded with new coins.
Bitcoin was the first to implement the PoW consensus mechanism, and after eleven years in existence, it has proven to be a study mechanism. Other blockchains that have implemented mining include Ethereum, Litecoin, Bitcoin Cash, and Ethereum Classic.
The other popular consensus mechanism is staking, which exists in various implementations depending on the project, but the most popular version is the Proof of Stake (PoS).
Other versions include Proof of Staked Authority (PoSA), such as that used on the Binance Smart Chain, and Delegated Proof of Stake (DPoS), popularly adopted by the EOS smart contract platform.
With staking, the transaction validators must perform their tasks as prescribed in the network documentation, and any mistakes in the execution could lead to a penalty. As punishment, the validators could lose part or the whole of their staked coins.
Staking is a highly technical activity and beyond the reach of most average investors. Therefore, to circumvent some of the steep requirements for all node operators, individuals interested in staking use the service of staking pool operators such as Coinbase and Binance, who take up the role of running a node and validating transactions on the pool members’ behalf.
In exchange, the staking services charge a fee or commission, which is a cut out of the rewards from the network. The staking pool members share in the rewards according to the ratio of their contributions.
Which crypto can you stake on Coinbase?
Coinbase supports staking for some coins whose networks use the Proof of Stake (PoS) consensus mechanism. So far, six cryptocurrencies are supported, which are:
Ethereum (ETH) – the leading smart contract platform and second-largest blockchain network by market capitalization.
Ethereum currently uses mining and staking, but the former is being phased out in favor of the latter by the network’s core developers. Staking rewards are 4.5% APY.
Read our guide about Staking ETH On Coinbase.
Algorand (ALGO) – is another smart contract platform similar to Ethereum that uses PoS for transaction validation and securing the network.
Coinbase introduced ALGO staking on December 17, 2020, and the Algorand network pays rewards at the rate of 4% APY, which are paid out daily.
Cosmos (ATOM) – is an interoperability protocol aiming to enable seamless communication between various blockchain networks. It uses PoS staking as a consensus mechanism.
Coinbase users who wish to stake ATOMs have been able to do so since September 30, 2020, with rewards of 5% APY paid out weekly.
Tezos (XTZ) – is yet another smart contract platform using PoS staking. Coinbase users have been able to stake Tez coins (XTZ) since November 6, 2019, with the network rewarding them 4.63% APY, which the exchange pays out every three days.
Dai & USD Coin (USDC) – the two stablecoins are dependent networks running on top of Ethereum blockchain for both and Stellar, Algorand, Solana, Tron, and Hedera Hashgraph for USDC.
Coinbase has included the two assets in the staking service to allow users to hold their assets within their Coinbase accounts for lending purposes. Owners will thus be paid interest at the rate of 2% APY or 0.15% APY for Dai and USDC, respectively.
How do you stake on Coinbase?
To stake cryptocurrency on Coinbase, you need to be a qualified Coinbase user who fulfills all the staking eligibility requirements.
Then, you will need to buy and hold your preferred asset in your Coinbase account.
Eligibility requirements are:
- Open a Coinbase individual account.
- Complete identity verification.
- Complete ID document verification.
- Reside in an eligible country. Check this page to confirm whether your location is supported.
- Hold the specific cryptocurrency asset you wish to stake in your Coinbase account. Pay attention to the minimum amounts required to start staking each coin.
Head over to the ‘Settings’ section and select ‘Financial Services.’ Locate the asset you want to stake and toggle the Rewards icon [On] to opt-in or [Off] to opt-out.
Can you stake your Bitcoin on a different exchange?
No, you cannot stake Bitcoin in any exchange. It is impossible to stake Bitcoin because the flagship blockchain network does not use staking as a consensus mechanism. Instead, it uses mining to achieve inflation and secure the network.
Miners invest in expensive hardware called ASICs (Application Specific Integrated Circuits), which they use to compete against one another to solve arbitrary puzzles.
The first to get the solution is given a chance to create the next block and, in return, get the block generation reward.
What are the disadvantages of staking Crypto?
Staking may be profitable, but it comes with some drawbacks and risks worth considering before engaging in the activity. Here are some of the more prominent disadvantages of staking crypto.
Lockup periods – essentially, staking involves holding your crypto assets in a locked wallet where you cannot access the assets for a specified period. Within this time, you cannot use the assets for any other reason.
However, some exchanges such as Binance have created a neat solution to solve this challenge. For staking Ether on Binance, the exchange issues a tokenized version of your deposit on a 1:1 ratio giving some liquidity to the locked ETH.
Inherent risks – it’s a risky affair to commit to holding coins of a given crypto asset over a long period. The dangers inherent in staking include price volatility, validator slushing, asset theft or loss, and liquidity risk.
Slushing is an event that happens when the network automatically reduces a validator’s stake as punishment for bad or unacceptable behavior.
The validator could lose part of their stake or the whole amount depending on the severity of their actions.
What are the advantages of staking?
Staking offers more advantages than it does drawbacks, and some of these merits include:
Scalability – networks that use staking as a consensus mechanism are generally faster than those using mining. The potential for faster network speeds is why Ethereum core developers are working on upgrading the Ethereum network from using PoW to PoS.
Less capital intensive – staking has a lower entry barrier compared to mining. With staking, some networks allow users to start staking with as low as a few dollars worth of the native asset or use a staking service that enables users to stake with as little as possible.
Energy-efficient – staking requires a fraction of the amount of computing power that mining networks use, reducing energy consumption, which is more environmentally friendly.
Passive investment – staking, especially when done through a staking service, is a more passive investment that is ideal for the average investors who make a majority of the crypto investment community.
Read more Is Staking Good for Crypto?
Popular Coins to Stake and How to Stake Them
Solana is a popular staking coin with a market cap value of over $59 Billion and a variable staking reward of around 6.7%. The staking reward changes according to network conditions.
The simplest way to stake SOL coins is to use the Exodus wallet. Deposit some SOL coins into the Exodus wallet or exchange an asset for SOL through the Exodus interface and enable the Rewards feature.
Then select SOL, specify the amount of SOL to stake, and start staking.
Ethereum 2.0 (ETH2)
Ethereum 2.0 is an ongoing upgrade of the leading smart contract platform Ethereum that uses PoS instead of PoW as a consensus mechanism.
Staking rewards for ETH2 coins are currently at 5.2%, but that figure varies depending on how much of the asset is staked by the community. The more ETH2 is staked, the lower the rewards rate and vice versa.
There are two ways to stake Ether 2: as a solo validator or using a staking service. To start staking as a solo validator, you will need to run an independent node and stake 32 ETH.
Otherwise, you can use a staking service such as Binance or Coinbase, where the minimum stake is reduced to a few dollars, and you avoid running a staking node.
Cardano is a popular smart contract platform with a market valuation of over $50 Billion as of the end of 2021.
It uses staking as a consensus mechanism and rewards participants of its governance protocol at a 5-7% APY variable rate. Cardano staking can be done independently or through a staking service such as Binance.
Binance may be the best option for an average investor looking for passive income instead of actively participating in staking ADA.
Open an account with Binance and deposit, buy or exchange some coins for ADA, then follow a simple staking process on the platform. Staking on Binance is advantageous because Binance does not charge staking commissions on most supported assets.
Staking can be profitable if done right by choosing a good asset to stake and the right way to participate.
Often for most investors, using a staking service is necessary to avoid the technical aspects of the process.
However, if you are technically-minded and have the funds to run a staking node, opting to stake solo may be more profitable.
As an investor, it is worth considering the risks and drawbacks to staking and the potential gains before investing. You just might find that staking is the best way to invest in crypto and earn passive income compared to other channels.