Here's Why So Many Coinbase Customers Are Staking Ethereum

by Emma Newbery | Published on March 1, 2022

Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
A person sitting at an office desk and looking at a cell phone with a contemplative expression.

Image source: Getty Images

Staking Ethereum is not the same as other cryptos.

Key points

  • Coinbase said Ethereum is the most-staked asset on its platform.
  • Staking is a way to earn rewards on your crypto and contribute to the network's security.
  • Staking ETH means tying up your coins until Ethereum completes its upgrade.

Coinbase's latest results highlighted a growing trend in crypto investing: More and more investors want to earn passive income from their crypto assets. There are several ways to do this, and each carries a different level of risk and reward. One common method is staking, and Coinbase says this is an area where it expects to see a lot of growth.

In its Q4 earnings report, Coinbase said Ethereum (ETH) comprises the majority of its staked assets. CFO Alesia Haas told analysts on the company's earnings call, "We drove more than $200 million of blockchain rewards this year, which is really rooted largely in our staking revenues as we added a number of proof-of-stake assets, notably ETH2, in mid 2021."

Read on to find out how staking works and why staking Ethereum is so popular.

What is staking?

Staking is a way investors can earn rewards by contributing to the overall security of that blockchain. Certain types of cryptocurrencies use a proof-of-stake model to validate new transactions. Without getting too technical, it's much less energy intensive than the older proof-of-work model used by Bitcoin (BTC).

The only way to participate in mining and validating transactions on a proof-of-stake blockchain is to own some of those coins. Buy-and-hold investors can commit their coins to the staking process and earn rewards. Many cryptocurrency exchanges offer investors a way to stake their coins. Some people opt to stake through decentralized platforms or directly on a specific blockchain. This requires a little more work and technical knowledge, but can pay higher rates.

READ MORE: What Is Staking in Crypto?

Our top crypto play isn't a token - Here’s why

We’ve found one company that’s positioned itself perfectly as a long-term picks-and-shovels solution for the broader crypto market — Bitcoin, Dogecoin, and all the others. In fact, you've probably used this company's technology in the past few days, even if you've never had an account or even heard of the company before. That's how prevalent it's become.

Sign up today for Stock Advisor and get access to our exclusive report where you can get the full scoop on this company and its upside as a long-term investment. Learn more and get started today with a special new member discount.

Get started

Why stake Ethereum?

Ethereum is the world's second biggest cryptocurrency and is a popular long-term crypto investment. Right now it uses the same proof-of-work model as grandaddy Bitcoin. But it's moving to a proof-of-stake model and currently runs both systems in parallel to ensure a smooth transition.

The big difference between staking ETH and other cryptos is that you have to commit your coins for a longer period of time. Since the new proof-of-stake system isn't yet operational, staking ETH is a one-way street. When you stake Ethereum, you're tying your coins up until the upgrade is complete, which could be 2023 or beyond.

When you stake other cryptos, you might have to commit your coins for a month, sometimes more. But with Ethereum staking, you might not be able to access your assets for over a year. Some cryptocurrency exchanges may let you sell your staked ETH tokens, but it's best to assume you're committing them for the long haul.

Once the upgrade is complete, each staked ETH token will be worth one normal ETH token. The big downside is that a year is a long time in crypto. Ethereum could lose market dominance in the time it takes to complete its upgrade. It may experience technical or security issues along the way. There's a chance its price could fall considerably.

The benefit is that you can earn around 5% or more on your staked coins. Plus, you're helping the transition to a new, faster, more sustainable Ethereum blockchain. If you were planning to hold ETH and wait out any price drops, you may be comfortable with committing your coins. Personally, I have about 70% of my ETH holdings staked.

Bottom line

Staking Ethereum may offer long-term investors a good way to earn rewards. However, like anything in the crypto world, there are risks, which include price volatility and technical issues. It's important to weigh your financial situation, investment goals, and risk tolerance before tying up any crypto assets for an indefinite amount of time.

About the Author