Ethereum (ETH) is an open-source, decentralized blockchain that is the 2nd largest cryptocurrency by market cap after Bitcoin. The popular digital currency has undergone a recent upgrade to Ethereum 2.0 using a Proof-of-Work model that can be staked using an on-chain wallet or a cryptocurrency trading platform to earn ETH staking rewards.
In this article, we explain how to stake Ethereum 2.0 for beginners and where to find the best ETH staking rewards.
What Is Ethereum 2.0?
Ethereum 2.0 (ETH2) is the next iteration of the Ethereum network that has shifted from a Proof-of-Work (PoW) model to Proof-of-Stake (PoS) that runs on the Beacon Chain. The set of upgrades are split into 3 phases designed to increase the scalability, increase the speed of transactions, reduces fees, improve the security of the blockchain.
The PoS consensus model will use complex algorithms to choose a node to win a block of transactions to validate and process, as opposed to the current method of nodes competing for blocks using large amounts of power. The shift to Eth2 will dramatically reduce the energy requirements of miners to process and validate transactions by up to 99.95%.
What Does Staking Ethereum 2.0 Mean?
Ethereum investors that decide to lock up ETH will contribute to the security and governance of the Ethereum network. The person that deposits ETH is referred to as a 'validator' or 'Ethereum Staker' and is responsible for processing transactions and adding new blocks to the blockchain. The person will receive a staking reward or return on their investment denominated in ETH for processing transactions. Staking Ethereum can be seen as a similar strategy to cryptocurrency mining and lending to earn passive crypto.
How Much Can You Earn Staking ETH?
Investors can earn approximately 5-6% APY for staking Ethereum 2.0 network based on the current amount of ETH2 locked in for staking. The ETH2 staking rewards are contingent on the amount of ETH staked and the number of validators on the network. If the total amount of ETH staked becomes low, the protocol will increase the rewards to incentivize people to deposit ETH and become a validator. In contrast, the ETH staking reward will reduce as the amount of ETH that are staked increases.
For example, in 2020 the total amount of ETH locked in for staking was approximately 500,000 ETH that yielded an average of 20% APY throughout the year. In comparison to 2021, the amount of ETH staked increased to over 6,000,000 ETH which reduced the staking reward to around 6% APY. Besides the staking rewards, validators will also receive a portion of the daily network transaction fees.
How Much ETH Do You Need To Stake ETH 2.0?
Ethereum 2.0 requires a minimum of 32 ETH to become a full validator on your own. At the current price of ETH, the minimum amount of ETH would be worth more than $100,000. For individuals that do not have the minimum amount or necessary hardware equipment, they can join an ETH2.0 pool or use a crypto exchange.
For example, a person can begin staking without a minimum amount of ETH using Coinbase and Kraken. However, the exchange may take a cut or fee for providing a staking platform which can vary between 10% and 15%.
When Are ETH Staking Rewards Paid?
Staked rewards will not be paid until the Shard Chains are completely implemented once Ethereum 2.0 is live. The ETH will remain staked until Phase 1 is complete which cannot be withdrawn or traded. However, certain exchanges like Binance and Kraken have created tokens that represent staked ETH on a 1:1 basis to use for trading or withdrawing purposes.
How To Stake ETH 2.0
1. Run An Ethereum Node
A popular method to stake Ethereum is to run a full network node and become a validator using the eth2 launchpad. The minimum entry requirement to run a node is to deposit 32 ETH to activate the validator software. In return for storing data, processing transactions and adding new blocks to the Ethereum blockchain, the validator will earn passive ETH staking rewards.
The validator will need to install the ETH1 and ETH2 clients on a computer with specific hardware specifications to operate on a 24/7 basis to run the Beacon node software. The configuration of the hardware and software can be challenging for non-technical investors. Certain risks can result in losing ETH due to malicious actions, an offline node and failing to validate transactions. However, the benefits to stake ETH solo by running an Ethereum node include higher staking rewards.
2. Use A Crypto Exchange
The fastest and easiest way to begin staking on Ethereum 2.0 is to use a reputable crypto exchange or staking pools. This method is suited for beginners that do not have the technical knowledge to operate a full node or do not possess the minimum 32ETH. These platforms may charge a fee between 15% and 25% of the staking rewards for the infrastructure, security and convivence.
For persons with less than 32ETH, the best way to stake Ethereum is using an exchange by following these steps:
- Create an account with a reputable crypto platform such as Binance
- Purchase or transfer ETH tokens to a Binance wallet
- Navigate to 'Binance Earn' and select ETH2.0 Staking
- Click on 'Stake Now' and choose the amount of ETH to stake
- Convert the ETH into BETH (1:1 ratio to ETH)
- Review details and distribute BETH to begin staking
Best Crypto Exchanges To Stake ETH 2.0
Here are the best one-click exchanges to stake Ethereum without a node and less than 32 ETH:
- Binance (best overall for staking)
- Coinbase (best for USA customers)
- Kraken (best for no ETH minimum)
- Huobi Global (best for airdrops)
- OKEx (best for no staking fees)
Places To Stake ETH2.0 With Less Than 32ETH
Exchanges & Wallets For ETH 2.0 Staking
Binance introduced ETH2.0 staking on its cryptocurrency trading platform to provide investors that have less than the required 32ETH to become a validator. Existing users on the popular trading platform can stake Ethereum in a safe, secure and easy way.
A minimum of 0.1ETH is required to start staking on the Binance platform. The major benefit of using Binance is that traders can use the wide variety of other products and services on the exchange such as leverage trading in the futures market or earning interest on cryptocurrencies.
To start staking ETH on Binance, the users will need to convert the ETH tokens into BETH that represents the staked ETH on a 1:1 ratio. For example, a person that stakes 100ETH will be issued 100BETH tokens. The BETH tokens will remain locked in until Phase One is completed and shard chains have been implemented before they can be instantly swapped backed to ETH.
Binance distributes 100% of all on-chain rewards to customers that stake ETH2.0 without any fees. This incentivizes existing Binance customers to stake their Ethereum as opposed to becoming their own validator and incurring operating expenses for hardware and bear the risk of on-chain penalties.
Coinbase is one of the best US crypto exchanges for cryptocurrencies that has revolutionized the digital currency environment by providing a simple and easy-to-use platform for individuals and institutions to buy, trade, store and sell digital assets. The exchange has expanded its core products and services on April 15, 2021 to include Ethereum 2.0 staking to earn up to 5% APY while holding ETH in a Coinbase wallet.
Unfortunately, ETH2 staking on Coinbase is limited to the United States only except for the states of Hawaii and New York. This means new and existing Coinbase users that reside outside of the United States will not be permitted to stake Ethereum and earn staking rewards. For eligible users that have a verified account, there is a waitlist and the exchange will send a notification once a staking position is available to convert ETH into ETH2. The funds will be locked and cannot be used to trade, send, or sell.
Unlike Binance, there is no minimum amount of ETH to stake on Coinbase which makes it easy for beginners to get started with ETH 2.0 staking with a small amount.
Using a centralized cryptocurrency platform can come with certain risks such of loss of initial funds due to an exchange hack or if the validator does not meet their staking obligations. However, Coinbase will cover these risks at no extra cost to the user which provides a reasonable level of assurance. Not to mention, Coinbase is one of the safest platforms to custody cryptocurrency assets. However, Coinbase will take a 25% commission fee of the staking profits for providing this service which is expensive to Binance which does not have any fees.
Kraken is a digital asset exchange that connects willing cryptocurrency buyers and sellers on a simple and intuitive trading platform. Since its inception to the market, Kraken has become a leading crypto exchange in several countries with a high reputation for ease of use, safety and competitive pricing that is suited for experienced crypto investors. Kraken offers staking of 12 digital assets including support for on-chain Ethereum 2.0 staking to earn ETH rewards.
Similar to Binance which issues a BETH token that is 1:1 with staked ETH, Kraken provides a trading pair ETH2.S/ETH that allows users to buy in and out of staked ETH coins and trade un-staked ETH for staked ETH. However, this feature is not available to residents of the United States or Canada.
ETH that is purchased or transferred to a Kraken wallet for staking will undergo a 20 day resting period before it will start earning ETH2 rewards. The duration can be longer depending on the network traffic. Once the coins start to earn rewards, they will be displayed on the 'Kraken Earn' page along with other coins such as Cardano (ADA) that can be staked on the exchange. Similar to the above exchanges, the staking rewards cannot be withdrawn or traded until Ethereum 2.0 is live.
Kraken has an administration fee of 15% on all rewards earned which is reflected in the estimated 5-7% APY staking return. The reward rate is determined by the Ethereum network and is expected to vary depending on a variety of factors outside of Kraken's control.
4. Huobi Global
Huobi has been providing a safe and trustworthy place to buy, trade, store, earn and sell 348 digital currencies. The exchange has introduced a new feature called Huobi Earn which offers flexible and fixed lock-up terms to earn interest on coins and tokens in a Huobi wallet including a simple ETH2.0 One-click Exchange.
To stake ETH2.0 on Huobi a minimum amount of 0.1ETH will need to be deposited to the exchange which is an attractive alternative for small investors and beginners to having 32ETH and becoming a validator.
Similar to Binance, users will need to convert the ETH tokens into BETH that represents the staked ETH on a 1:1 ratio which can be traded on the exchange with BETH/USDT and BETH/ETH pairs. The staking rewards also include HPT airdrop bonus which will be distributed the day after the BETH holdings snapshot. According to the Huobi blog, there do not appear to be any fees.
OKEx is a reputable cryptocurrency trading platform that offers several options to invest in Ethereum to earn passive rewards between 0.43% and 13.6% APY. The exchange supports Ethereum 2.0's proof-of-stake upgrade for its existing users to benefit from using a single-click with a minimum of 0.1ETH to get started.
Similar to Binance and Huobi, there are no staking fees to consider with OKEx covering all expenses such as the Ethereum 2.0 node equipment and the risk of any validator penalties. All on-chain staking benefits are passed onto the individual which is currently 5.89% APY. The rules for staking Ethereum 2 on OKEx are similar to other trading platforms which are largely determined by the upgrade of the Ethereum network to mainnet. This means staked ETH tokens will be locked until Ethereum 2.0 Phase 1.5, which is estimated to be launched in approximately 1-2 years.
Frequently Asked Questions
What Are Ethereum 2.0 Staking Pools?
An Ethereum 2.0 staking pool allows users to stake any amount of ETH by collating the ETH from other individuals. It helps lower the entry barrier of 32ETH and the specific hardware and software requirements associated with running a node. Joining a staking pool is best for beginners as it provides an easy way to earn ETH rewards. The administrator of the pool bares the full staking risks and operating costs.
Is Staking Ethereum 2.0 Profitable?
Operating an Ethereum 2.0 node or delegating ETH to a staking pool offers an attractive return on investment. The rewards are tied to the overall amount of ETH staked in the network which can range between 4.9% to 21.6%. According to data from Ethereum.org, there are over 10 million eth2 staked which will provide an estimated APY of 4.9% for investors. Minus operating costs for running a node or fees associated with staking pool (i.e. 10% and 15%), investors that stake ETH2.0 can earn a reliable source of passive income.
Does Ethereum 2.0 Have Mining?
Ethereum is moving away from a Proof-of-Work consensus model that required high-energy consumption by miners to validate and process a transaction on the blockchain. In return, the miners were rewarded with a portion of the block subsidies and rewards. As part of the ETH2.0 upgrade to Beacon Chain that will utilize a Proof-of-Stake model, the existing Ethereum miners will become obsolete and replaced with 'validators' once the transition is fully completed.
Can You Stake Ethereum 2.0 With A Ledger Wallet?
Ledger has updated the firmware to the Ledger Nano X wallet to support Ethereum 2.0 staking. To become a validator, the staker must deposit at least 32 Ether on the Beacon Chain using what is called a “deposit contract”. The Ledger Live software application allows investors to sign a deposit contract transaction directly from the hardware wallet.
The benefits of staking Ethereum 2.0 go beyond earning passive rewards in ETH. Locking up a portion of Ether to validate the eth2 Beacon Chain contributes to securing the future of the ecosystem. This will bring faster transaction speeds, lower fees, reduced energy consumption and greater stability to attract more developers to the network.
For investors that decide to stake Ethereum solo with 32 ETH or join a staking pool with a lower amount using a cryptocurrency exchange, it is important to note that the ETH rewards cannot be withdrawn until the Ethereum 2.0 upgrade is fully completed.
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