Since its launch in 2015, Ethereum’s core developers have been on a quest to upgrade the leading smart contract platform from its current Proof of Work (PoW) consensus mechanism to Proof of Stake (PoS).
Both methods help in securing the network and introducing new coins into circulation but PoS is much more efficient and supports a higher network throughput compared to PoW.
In December 2020, the core devs launched Phase 0 of the upgrade which introduced staking on Ethereum.
Expectedly, the validation process is a little too technical for the average investor and hence the need for staking pools such as Coinbase exchange.
Coinbase introduced its ‘staking-as-a-service’ product that supports Ethereum staking in April 2021, having announced it a couple of months earlier.
This guide will show you how to stake Ethereum on Coinbase, its benefits and drawbacks, as well as look at some worthy alternatives to staking on Coinbase.
Can you stake Ethereum on Coinbase?
Yes, you can. Ethereum 2.0 is one of the four Proof of Stake (PoS) assets supported on Coinbase’s staking service. The other three are Algorand (ALGO), Cosmos (ATOM) and Tezos (XTZ).
Coinbase allows its users to stake any amount of ETH to start earning staking rewards on the platform.
This is a huge advantage given that running an Ether staking node will require that you stake at least 32 ETH.
Also read Is Staking Good for Crypto?
The leading US-based crypto exchange started providing ETH2 staking on April 15th, 2021, to eligible customers.
There are four requirements to fulfil to achieve eligibility standards:
- Live in an ETH staking supported country.
- Complete KYC verification and provide proof of identity by submitting ID documents.
- Hold any amount of Ethereum in your account.
- Read, understand and accept relevant terms and conditions associated with ETH staking on Coinbase.
Also, read about staking UMA.
Is staking ETH on Coinbase a good idea?
Whether or not staking ETH on Coinbase is a good idea depends on your investment goals which differ from one individual to another.
However, there are benefits accrued when using Coinbase as your Ethereum 2.0 staking platform of choice.
Here are some of the benefits to staking ETH on Coinbase:
- Coinbase is a leading US-based cryptocurrency investment platform. It has a long history in the industry and is one of the most popular places to trade and invest in digital assets.
- Coinbase is highly regulated by relevant authorities, making it a reliable and trustworthy company to use while staking Ether. Additionally, it has an insurance provision for the staking service in which it compensates users if their Ethereum deposit is slashed for reasons within the exchange’s control.
- Coinbase offers a no-minimum balance requirement to start staking Ethereum. This is unlike some other major competitors that have a minimum staking amount. Independent ETH staking individuals or companies will require as much as 32 ETH to run a node.
- Coinbase acts as a staking pool whereby it takes care of all technical requirements of running an Ethereum node, and all users have to do is just deposit their assets to their account and start receiving rewards.
- Ether staking rewards on Coinbase are distributed daily except in the first couple of weeks when the rewards are held for the entire two weeks, but after that, distributions are made daily. Some other platforms have less frequent ETH staking rewards distributions.
What are the downsides of staking ETH on Coinbase?
Even though Coinbase has several benefits when it comes to staking Ether, it also has some drawbacks.
Some may be deal-breakers, while others are just nice-to-know facts to consider while choosing amongst competing platforms.
Here are the drawbacks to ETH staking on Coinbase:
Availability
Not all countries are supported by Coinbase when for most of its products, including staking or investing in several of its other crypto-related products.
If an investor lives in a non-supported country, they have no option but to seek the services elsewhere.
High staking fees
Investing in ETH2 or staking Ether does not return impressive rewards. Currently, ETH2 stakers are receiving about 5.4% APY for their assets, and this rate keeps falling as more ETH is locked to a low of 4.9%.
Out of this reward, Coinbase charges a 25% commission from its users, meaning they only get to keep 75% of their rewards.
Competing ETH2 staking platforms offer much lower staking fees compared to Coinbase.
KYC provision
to open an account with Coinbase will require that you provide all your identity information and verify your ID documents, something that may not sit well with some crypto enthusiasts.
Alternatively, if you opt to stake ETH independently, you will not have to submit any identifying information to a third party.
Illiquid assets
With Coinbase, staked Ether is locked without any possibility of using it for any other investment purposes.
It may be a feature of Ethererum 2.0, but some platforms that offer ETH staking, such as Binance, have a replacement token for staked coins.
In the case of Binance, the staked Ether equivalent is called Binance ETH (BETH), and it is issued on a 1:1 ratio to the staked coins.
The newly minted tokens representing staked coins provide the much-needed utility and liquidity of staked assets, a feature Coinbase has not yet enabled for its ETH staking service.
What do you need to stake ETH on Coinbase?
Staking Ethereum on Coinbase involves a straightforward process split into three stages. These are:
- Joining the waitlist
- Fulfilling eligibility requirements and getting approved to stake
- Depositing ETH for staking
Coinbase introduced the waiting list for people wishing to stake ETH back in February 2021, with approvals beginning on April 15th to eligible users to participate in Ether staking.
To be eligible to stake ETH on Coinbase, you need to ensure that you live in a supported country, complete KYC verification and submit your ID documents.
With all this done, you can then proceed to deposit your ETH for staking. There is no minimum amount to start with as Coinbase allows any amount of Ether to be staked for rewards.
Alternatives to staking on Coinbase
There are several alternatives to staking ETH on Coinbase. Some solve the challenges or drawbacks of Coinbase’s service while also introducing their downsides, while others just offer a similar service.
Here is a list of some of the available alternatives:
The above Coinbase staking alternatives are just some of the popular services. Otherwise, there are tens of options in the market.
We encourage you to research and find a service that may fit your investment portfolio.
Most investors considering Coinbase as their staking platform may want to consider Binance, Kraken and Bitcoin Suisse exchanges, among other similar platforms.
Binance is currently the leading cryptocurrency exchange by daily trading volume, and it offers competitive commission fees and a platform token that represents the staked ETH.
The token, called BETH (Binance ETH), provides utility and liquidity to the otherwise locked Ether assets and gives their owners the rights to claim the locked assets once Ethereum 2.0 launches and their staking rewards.
What do you need to stake ETH on Binance?
Binance, being a centralised cryptocurrency exchange, has several of the same procedures as Coinbase when it comes to the requirements for participating in ETH staking. Some of the requirements include the following:
- Create a Binance account
- Provide ID verification
- Deposit at least 0.1 ETH to your Binance account or buy the coins from the exchange.
- Stake your ETH coins
It is worth noting that Binance has fewer restrictions to staking Ether as opposed to Coinbase. For instance, Binance supports more countries than Coinbase.
Another difference between the two platforms is that they differ in commissions paid by users of their services.
Coinbase charges a 25% cut on all rewards from Ethereum staking, while Binance offers the service for free.
You’ll also notice that with Binance, you’ll need a minimum of 0.1 ETH (current ETH price is ~$4,000) to start staking while there is no minimum amount when staking ETH on Coinbase. This means that you can start with $100 or even less if you are eligible to stake on Coinbase.
Final thoughts
Staking Ethereum on Coinbase is an easy, lucrative way to participate in Ethereum’s governance.
Ethereum is in the midst of a significant upgrade, and community participation is mandatory to ensure that the resultant network works for a majority of the potential users.
Coinbase, a reputable crypto exchange, is increasingly offering services that offer utility to its users and staking as a service is one of the most sought after products.
There are several platforms to consider, and as we have seen, Coinbase and Binance are our top recommendations to start your journey into staking.
Several other blockchain networks offer staking as a consensus method to secure the network, but Ethereum is by far the most exciting.
The rewards from participating in ETH staking may be modest compared to other networks. Still, depending on your investment goals and risk appetite, it may be a great investment opportunity to include within your portfolio.
