Ethereum staking is a process that allows you to earn rewards for helping maintain the Ethereum blockchain. It’s similar to mining, but instead of solving complex math problems with your computer’s GPU, you simply deposit and enter staking contracts via liquid staking protocols or delegators.
See also: what is liquid staking?
Benefits of Ethereum Staking
Staking is a way to earn money by helping maintain the Ethereum network. You can stake with any supported Ethereum wallet that has some ETH in it (the minimum amount required varies depending on which staking contract you choose).
Staking provides two benefits: returns on your coins and security for the network.
The first benefit is obvious – you get paid for holding onto your coins! You’ll receive rewards based on how many coins you’ve staked, typically expressed in APY (annual percentage yield).
The second benefit is how the Ethereum blockchain works, now that it is based on Proof of Stake (POS). When you stake, you are effectively providing security to the network. The more people who stake, the stronger the network becomes. As a staker, you are helping to secure Ethereum by acting as a validator on its blockchain.
Ethereum can be unstaked with the rollout of the Shanghai upgrade that is launching April 12.
The Risks of Ethereum Staking
There are a few risks to keep in mind when staking Ethereum. The first is volatility, which can cause your tokens to lose or gain value quickly. This makes it difficult to know how much money you’re making in terms of USD and other fiat currencies.
The second risk is lack of liquidity: the inability to easily buy or sell your stake at any given time. If you want to get rid of your ETH for cash, this could be an issue for quickly accessing your funds.
Finally, there’s smart contract risk – the possibility that bugs will be found in any given smart contract code. However, using popular and audited staking protocols makes this risk very low.
How to Get Started with Ethereum Staking
To get started with staking, you’ll need a few things:
- A self-custody wallet that supports Ethereum. There are many different types of wallets available for Ethereum If you don’t already have one, check out our article on 4 great Ethereum wallets here!
- A staking service, protocol or staking pool.
Choosing the Right Ethereum Protocol
The first thing you’ll want to consider is the APY. This rate varies, but is typically between 4-6%.
Another is the fee the protocol charges. The fee will be a percentage of your rewards, so it’s important to find one that isn’t too high.
The last thing you’ll want to look at is how often they pay out rewards, which is usually once per day or once per week.
Compounding Ethereum Staking Rewards
Compounding rewards: When you stake your Ether, you’ll earn interest on the amount you’ve staked. This is known as “staking rewards.” The more ETH you have in your wallet, the more money you can make from this compounding effect.
Ethereum staking is a great way to earn passive income. You can use the money you earn to earn compounding interest, or you could withdraw and exchange it to USD as profit.
You’ve also learned about some of the risks involved with Ethereum staking, so that you can decide whether or not it’s right for you.