ETH Staking: What to Know and How to Get Started

Written by

August 10, 2022 - 15 Min Read

Ethereum is the second-largest cryptocurrency, with a market cap of approximately $202 billion in August 2022, second only behind Bitcoin. While people may primarily buy or sell Ethereum, Ethereum holders can also stake their tokens to earn an interest yield, much like a certificate of deposit or money market account. Over 1 million ETH coins are traded daily and around 6,000 ETH blocks are created every day and staking ETH can help you earn rewards as those blocks are created.

With staking Ethereum, as with staking any cryptocurrency, there are huge benefits and dangerous investing risks. Here’s what you need to know about staking Ethereum, staking with Ethereum 2.0 how much you can earn, and how to stake it.

Key takeaways

  • Ethereum’s popularity and wide usage make it a solid staking token with returns around 4%
  • Ahead of the Ethereum 2.0 launch, many exchanges restrict or don’t allow ETH staking, since withdrawals are restricted on the network
  • The Ethereum 2.0 launch will merge ETH and ETH 2.0 tokens, so holders don’t have to do anything to prepare

Lido.Fi ETH Staking

Want more freedom to earn with your staked tokens? Lido.Fi ETH Staking offers users a liquid staking solution that makes it easy to trade staked ETH tokens and participate in on-chain decentralized finance with staked assets. This gives you more freedom and more earning opportunities with your assets. Read our full Lido Review

  • No activation delays — You'll get the ability to sell your staked tokens or use them as collateral in decentralized finance.
  • One-click staking — There are no complicated steps to navigate or hoops to jump through; you can just click and stake.
  • Decentralized security — The assets in this pool are spread across the industry’s leading validators chosen by the Lido DAO.
Lido APR for ETH3.9%
ETH Staked4,263,089.904 ETH
stETH Market Cap$7,160,586,081

Click to Stake your Ethereum at Lido.Fi

What is Ethereum?

Launched in July 2015, Ethereum is a blockchain protocol that miners use to produce Ethereum (also known as Ether), its cryptocurrency. As it is stored on a blockchain, it’s an incredibly secured cryptocurrency and appeals to beginning investors, as well as experts. However, it has a severe environmental impact, since a transaction on the Ethereum blockchain uses the same amount of energy that a single U.S. household uses in a week.

While Ethereum is popular worldwide, most of the nodes (or computers) that operate on the Ethereum network are in the United States.

Ethereum 2.0 is a major upgrade to the protocol and is planned to launch in September 2022. The update includes making Ethereum more scalable to support more transactions, adding security, and becoming more environmentally friendly. Many exchanges are prohibiting Ethereum staking or withdrawing stakes until the merge of ETH and ETH 2.0 is complete, so it’s important to understand the implications of staking Ethereum before the launch.

How does Ethereum staking work?

You can stake Ethereum in several ways, but you’ll want to consider more than just yields. For example, some staking platforms are custodial, which means you don’t control your crypto in a private wallet.

Exchanges

Difficulty level: Beginner

The best crypto exchanges now offer staking for Ethereum. The advantages to using exchanges revolve around convenience. You’ll often find low or no minimum staking requirements and — let’s face it — most crypto investors buy their ETH on exchanges. After purchasing some ETH, you can start staking in seconds.

The disadvantages to staking on exchanges concern security and fees. When you stake through an exchange, your crypto isn’t in a private wallet. Threats like platform hacks and government actions can put your staked Ethereum at risk.

Coinbase is among the most popular choices for staking ETH, although higher fees can affect earnings. Other exchange options include Binance, Kraken, eToro, and Uphold.

Running a validator

Difficulty level: Expert

You can earn much more by running a validator, but you’ll need 32 ETH to get started in most cases. In addition, other hardware requirements can add to start-up costs. Notably, Ethereum validator staking requires the staker to store data and process transactions on the blockchain. This requires devices that can handle the computing process, as well as a solid internet connection, so the costs of running a validator can easily outweigh the benefits of staking Ethereum.

New services now offer an easier setup if you’re thinking of going big by running a validator node. Costs can vary from one-time setup fees to monthly fees. Options include Blox, Stakewise Solo, and Allnodes.

Validator pools

Difficulty level: Intermediate

Staking to a pool means pooling your available Ethereum with other stakers to reach the 32 ETH required to run a validator. The advantage of this structure is that you don’t need much to get started but you can enjoy many of the benefits of running a validator without the large financial commitment. Another advantage is that in most cases, you can keep your crypto. The stake is non-custodial, but still subject to restrictions that apply to the network.

For example, Stakefish has options to stake the full 32 ETH — or start with just 0.1 ETH. In the latter option, Stakefish uses a smart contract to track ETH stakes of less than 32 ETH, gathering these stakes to qualify a new validator. Instead of running the validator yourself, Stakefish runs the validator for the group of stakers in exchange for a fee.

Other popular low- or no-minimum staking services include:

Liquid staking

Difficulty level: Intermediate

If there’s a downside to staking Ethereum, it’s the long-term commitment. Staked ETH can’t be withdrawn because the blockchain doesn’t support that feature yet. Liquid staking offers a solution with tokens that can earn staking rewards yet can be withdrawn or used in many of the ways you might use un-staked ETH now. Typically, liquid staking services swap your Ethereum token for a receipt token, which you keep in a private crypto wallet as a proof of ownership and can be used for trading while the original token continues to earn rewards.

In addition to flexibility, the advantage of liquid staking is that you don’t have to take any additional actions to stake your tokens. Receipt token balances in your wallet are revalued frequently to account for earnings from staking.

Two of the big services in liquid staking include Lido Finance and Rocket Pool. Each uses its own ERC20 token as an ETH equivalent.

Liquid staking offers the benefits of staking without restrictions. Stake it, spend it, sell it, or even use your stETH or rETH as collateral for on-chain DeFi lending.

Other liquid staking platforms include:

Yields vary based on network needs, but in most cases, liquid staking provides yields similar to other ETH staking methods, currently about 4%.

Potential returns for staking Ethereum

The average return for staking Ethereum is currently around 4%. With that, if you were to stake 1 ETH, then you would earn an additional 0.04 ETH at the end of one year, leaving you with 1.04 ETH, worth a little over $1,800.

Experts are predicting that returns for staking Ethereum will increase to 10% to 15% after the 2.0 upgrade and when investors can finally unstake their staked ETH.

How much can you make for staking Ethereum?

While most exchanges in the United States have locked Ethereum withdraws from staking pools until ETH 2.0 is launched, here’s what you can earn on staking $1,000 ETH for one year based on current advertised staking rates:

ExchangeAdvertised APY*CompoundingPotential Earnings**
eToroUp to 4.30%Monthly$42.82 (0.024 ETH)
BinanceUp to 5.20%Daily$53.37 (0.3 ETH)
Coinbase3.675%Monthly***$37.38 (0.021 ETH)
Uphold4.25%Weekly$44.35 (0.025 ETH)
BlockFi1.50%Monthly$15.10 (0.0084 ETH)

*APYs are advertised on each exchange website and are calculated using factors like how many staked ETH tokens are on the network

**Earnings are subject to fees

***Assumption based on typical compounding frequency, but not confirmed or advertised by Coinbase

What to know about returns for staking Ethereum

In most cases, your rewards for staking Ethereum are simply added to your staked amount, much like a traditional investment account.

If you choose to invest in validating Ethereum, rewards are earned every Ethereum epoch, which is about six-and-a-half minutes. Then, validators can pay out rewards to the people who have staked with them, minus a fee.

Fees for staking Ethereum

Most services charge a fee for staking Ethereum. For example, Stakefish charges 0.1 ETH to stake 32 ETH and Coinbase charges a 25% commission before your rewards are distributed back to you. Fees for staking Ethereum vary wildly by exchange platform but some, like Binance, don’t charge fees.

Pros and cons of staking Ethereum

Pros

  • Ethereum staking is passive investment
  • Participation in Ethereum network
  • Lower-risk than most other crypto staking

Cons

  • ETH tokens are locked up and unavailable
  • Fees may apply
  • Inherent risk of staking crypto

Pros of staking Ethereum

Passive investment

Like using a money market account or a certificate of deposit in traditional personal finance, staking Ethereum is just putting up your tokens to validate the blockchain. After agreeing to the terms and conditions, no additional work is needed on your end in managing your ETH.

Sense of community

Cryptocurrencies like Ethereum rely on blockchain to function and operate. If you’re passionate about Ethereum and believe in its value, staking ETH means you can participate in the network and invest in the cryptocurrency even more.

Comparatively low-risk

Compared to other cryptocurrencies, Ethereum is a stable staking option. Its popularity, global use, and security give it an advantage over the majority of other tokens.

Cons of staking Ethereum

Withdrawals unavailable

Right now, you can’t withdraw any staked Ethereum until Ethereum 2.0 is released. No one is completely sure when that is, so understand that if you stake Ethereum before the upgrade, you won’t be able to access your staked tokens until it launches.

Fees

As with staking any crypto currency, fees may apply. This could be as much as 0.1 ETH or 25% of your earnings. Always research and calculate the fees that some exchanges charge.

Losing your stake

On the other side of the benefits of staking Ethereum lies the high risk; as with any staking investment, there’s an inherent risk of losing everything from a hack or government and counterparty action.

Is it safe to stake Ethereum?

There is always a risk in staking cryptocurrency, and Ethereum is no exception. However, staking is generally regarded as safe with the largest risks affecting returns rather than your crypto itself.

  • Locked assets: Among the largest risks of staking ETH is that you can’t withdraw until they are enabled on the blockchain. Since the update to Ethereum 2.0 has a tentative launch date in August 2022, your ETH is locked in and unavailable at least until then, if not, longer.
  • Validator penalties: While rare, Ethereum can penalize validators for being offline or for validating incorrect transactions. When this happens, there can be a penalty or some of the validators staked ETH can be permanently removed, which can affect returns.
  • Custodial staking risks: With Ethereum, many of your staking options are custodial, meaning your ETH is not in your private wallet. Instead, an exchange or staking service has your ETH. Crypto not in a private wallet may be at risk of hacking attempts, counterparty failure, or government actions.
  • Beacon chain client diversity: One of the key selling points of cryptocurrency is decentralization. However, the vast majority of validators use the same proof-of-stake consensus client: Prysm. A bug or vulnerability in software tools widely used to secure the network can bring more risk.

How to stake Ethereum

If you’re ready to stake Ethereum and earn yields on cryptocurrency investing, you may find that it’s actually quite simple. Here’s how to stake Ethereum:

Step 1: Pick an exchange and connect (or set up) a wallet

Pick from one of the best crypto exchanges that offers ETH staking and either connect your private wallet or set up a wallet on that exchange to transfer your ETH or buy more ETH.

Step 2: Buy ETH

If you don’t already have Ethereum, you’ll need to purchase ETH in order to stake it. You can purchase ETH, much like you would Bitcoin or traditional stocks, on the cryptocurrency exchange of your choosing.

Step 3: Stake your ETH

Once you have ETH in your wallet or in your cryptocurrency exchange account, head to the “earn” center of the crypto exchange and stake your desired ETH amount. Some exchanges may have minimums, so make sure you choose an exchange that accepts the amount you want to stake.

Is staking Ethereum right for me?

Staking is a popular way to earn with crypto, but Ethereum brings some additional considerations because staking currently requires locking up your ETH for an undetermined amount of time. Fortunately, you also have options such as liquid staking that still allow you to earn staking rewards while remaining nimble.

If you’re in this for the long-term, staking helps build the network in which you’ve invested and helps crypto as a whole become more sustainable. In exchange, you’ll earn a respectable yield that may increase dramatically after the move to Ethereum 2.0 is complete.

Final thoughts on staking Ethereum

Staking Ethereum is an easy way to earn decent yields on the Ethereum you already own. If you like to buy and hold Ethereum already, staking it takes the effort out of earning on it. However, if you like to buy and sell cryptos frequently, staking Ethereum may not be right for you. As with all investments, do your own research and only invest tokens you can afford to lose.

Frequently asked questions

  • What happens when I stake my Ethereum?

  • How long can I stake Ethereum for?

  • Is there a staking minimum for ETH?

  • Is staking ETH taxable?

  • How much can you make staking Ethereum?