What is staking?

Some blockchain protocols, such as Ethereum, Cardano, and Solana, allow participants to earn additional cryptocurrency by contributing to the network. This contribution is made in the form of bets, which are used to verify transactions and support the stability of the blockchain network.

Also, people can earn cryptocurrency with the help of mining. It is carried out with the help of miners of different companies and characteristics. If you need it repair of asic miners, then you can always turn to qualified specialists in this field - Mining.io.

Due to the scalability problems inherent in PoW blockchains, many protocols have turned to staking as a way to encourage users to contribute to the security and stability of their networks. By staking your cryptocurrency, you are essentially supporting cryptocurrency market and a certain validator who certifies only legal transactions in the blockchain. In turn, part of the fee for the network will be returned to you and other participants.

There are several ways to deposit your cryptocurrency, each of which offers a different level of complexity. As a rule, you can either use your own computer to verify transactions (single placing of bets), or delegate your cryptocurrency to someone who handles all technical matters on your behalf.

How to put Ethereum on Coinbase

Ethereum is the second largest cryptocurrency by market capitalization. Although it was initially deployed as a PoW blockchain, since 2015 work has been underway to transition from the Proof-of-Work consensus mechanism to Proof-of-Stake (PoS). However, this concept was implemented only in December 2020. researched through the launch of Beacon Chain, and on September 15, 2022, the Ethereum network completely switched to PoS consensus.

As of October 13, 2022, 14 ether tokens were placed on Ethereum. The smart contract beacon chain has 999 validators.

As already mentioned, there are several ways to stake Ethereum and cryptocurrencies in general. Coinbase offers a built-in staking feature that allows customers to stake their Ethereum. To use this service, you must first register an account on the crypto exchange.

1. Register an account:

Creating a new Coinbase account is a fairly simple process. You will need a state-issued ID card confirming that you are 18 years old, a valid phone number, and an email address.

Enter your information such as name, email address and password to create a free account. Then proceed to confirm your e-mail address, phone number and identity. It is also important to link a payment method such as a bank account, PayPal, debit card or Apple Pay to fund your account. After you have created a Coinbase account, proceed to the next step.

2. Buy Ether:

This is not a problem - you need to have some Ether to bet on the Ethereum blockchain. Coinbase allows you to buy ether (the native currency of the Ethereum network) directly.

3. Stake your ETH:

The next step is to select Ethereum on the Assets tab. Scroll down and click the "Set Now" button. Read the details and confirm that you agree to the terms by clicking the "I understand" button.

Since Coinbase runs multiple validator nodes, all a user needs to do is deposit any amount of ETH for staking, and the exchange takes care of the rest. At the time of writing, the Ethereum network offered an annual income of 3,65%. It is also worth noting that according to the Ethereum protocol, ETH deposited on Coinbase will be blocked and unavailable until the planned Shanghai Ethereum update.

Should I stake my Ethereum on Coinbase?

To answer this question, it is important to know all the available Ethereum hosting options. According to Ethereum.org, there are four ways to put ETH; single home bets, bets as a service, combined bets and bets through centralized exchanges.

• Staking through centralized exchanges: Let's start with the obvious: crypto exchanges such as Coinbase, Binance, KuCoin and Kraken offer staking services. Although this is the easiest way to stake your Ethereum, you will hand over the storage of your crypto-assets to a middleman. A centralized exchange, and since these service providers combine large pools of ETH to run a large number of validators, they become easy targets for attackers. They also create large points of failure that are vulnerable to errors.
  • pros
    • Easy to set up
    • Does not require almost any technical knowledge
    • You can bet the fate of ether
    • It is engaged in the storage of crypto-assets
  • Cons
    • Less rewards due to service fees
    • You lose custody and control over your cryptocurrency
    • It encourages centralization
• Solo Stavka: If you are not comfortable with losing your ETH, maybe you should create your own infrastructure for staking. Solo staking is called the "gold standard" for betting. However, we must warn you that this form of betting can be complicated. This requires proper computing equipment and software, as well as copies of the entire Ethereum transaction history. It also has a high entrance fee.
  • pros
    • Offers the best reward as you will get full reward directly from the protocol.
    • Improves network decentralization
    • Rewards participants for merging transactions into a new block or checking the work of other validators.
    • Gives full control over assets
  • Cons
    • High entrance fee. To get started, you need to have at least 32 ETH (more than 40 USD).
    • A dedicated computer and sufficient technical know-how are required to run the betting software.
    • There are penalties for going offline, that is, your dedicated computer must be connected to the Internet almost XNUMX/XNUMX.
• Rate as a service: Similar to single staking, staking as a service requires 32 ETH. However, you won't have to deal with any hardware in this form of staking, as service providers allow you to delegate hardware. This usually involves creating a set of validator credentials and then uploading your signature keys to the service provider.
  • pros
    • Offers compensation for the full protocol minus the monthly fee for node operations.
    • Gives full control over assets
    • Easily track your validator client
    • Less technical and cumbersome compared to single staking
  • Cons
    • High entrance fee
    • Entrusting your singing keys to a third party can be risky
    • Counterparty risk on the part of the service provider may result in you being fined for going offline
• Combined rates: The fourth and final option when it comes to Ethereum staking is pool staking. As with placing bets on a crypto exchange, co-placing allows you to place any amount of Ether. Most betting options in the pool include liquid staking, an innovative alternative to bypass the risks associated with illiquidity, complexity and centralization. This means that you will receive liquidity tokens representing your staked ETH, which will allow you to exit your position without canceling your bid of actual ETH.

There are several important points to consider when joining a pool, including a potential validator's track record, fees and commissions, and their token delegate protection policy.

• pros
  • Pooled staking services typically offer one or more liquidity tokens that represent your staked ETH in addition to your share of the rewarded validator.
  • Ability to exit at any time
  • Liquidity tokens can be stored in your own wallet or used in other DeFi services.
  • Low entry cost
• Cons
  • Different degrees of risk, including counterparty risk, smart contract risk, and execution risk.

Risks of cryptocurrency staking

As with most investments, investing in cryptocurrencies comes with its own risks. Here is a summary of some of the risks you may face if you decide to stake your digital assets.

Market risk: This is not a problem, the cryptocurrency market is very volatile, prices are constantly fluctuating. For example, on November 10, 2021, Bitcoin rose to an all-time high of $69, only to drop to around $000 24 hours later. The cryptocurrency market often experiences sharp market fluctuations, which can ultimately affect the value of your tokens.

Although the investment option you choose can provide a profitable annual income, you can still suffer losses if the price of your tokens falls.

Liquidity and blocking period:An asset is considered liquid if it can be easily bought, sold or cashed out. Cryptocurrencies are one of the most liquid assets, as they can be sold at almost any time of the day. However, this can quickly become a problem if you are betting on smaller and less popular cryptocurrencies. In this case, you will not be able to cash out your rewards.

Meanwhile, despite the fact that there are some cryptocurrency staking options that do not require locking your cryptocurrency, most legacy projects still have a minimum lock-up period. Your deposited funds will be unavailable during this period. Investors who invested ETH in Beacon Chain had to wait almost two years. As a result, if you suddenly need your staking funds for something else, or you decide that you are no longer interested in staking your coins, there may not be a quick way to get your funds back.

Theft: The number of thefts related to cryptography has increased over the years. Regardless of whether you decide to deploy your own betting infrastructure or rely on a third-party service such as a crypto exchange, the problem of theft and loss of funds still remains. On a personal level, you can lose your private key by giving an attacker access to your funds. Cryptocurrency betting platforms can also be hacked, and if something serious goes wrong online, you can still lose your funds.