How to Stake Ethereum (2023 Guide)

A big perk of crypto is that there are many ways to earn a passive income. Staking Ethereum is one of them! If you’re wondering how to stake Ethereum, you’ve come to the right place!

Ethereum is one of the best vehicles for passive income through crypto mining. If you were working at home or simply kept your computer on, you could set up your GPU to mine ETH. This sort of income would only be a trickle, but it added up fast, especially for people willing to hold their Ether for a while.

All of that changed in 2022. The much-awaited Ethereum Merge went through, shifting the Mainnet from proof of work to proof of stake. So, to keep making a passive income, how to stake Ethereum?

Let’s find out!

What is Ethereum?

Ethereum is a truly revolutionary blockchain platform in that it lays the foundation for the existence of a vast number of major blockchain projects and cryptocurrencies, which are unicorns in their own right.

Many argue that if Bitcoin were to fail, it would crash the crypto market, but if Ethereum were to fail, the entire blockchain industry might go up in smoke.

Ethereum was founded by a team that has gone down in the annals of crypto legend, none more so than its mastermind, Vitalik Buterin.

Buterin, whose interest in cryptocurrencies began at a relatively young age, was ably supported by luminaries such as Dr. Gavin Wood and Charles Hoskinson, who went on to found Polkadot and Cardano, respectively.

What Ethereum brought to the table was the ability to add an element of programmability to the blockchain.Rather than just transacting on the network, Ethereum users and developers can build and interact with decentralized applications on the blockchain.

These dApps benefit from Ethereum’s security and immutability but are already tremendously varied. You can even play blockchain-based games on Ethereum and truly own your in-game assets since they’re in your wallet and not the game server.

The main innovation that enables this programmability is popularly known as the “smart contract.” Thanks to these so-called smart contracts, you can trust code to execute actions when certain conditions are met rather than rely on centralized intermediaries.

This led to the DeFi boom of 2020, when dApps, often composed of just a few lines of code, could entirely replace the services of financial institutions like banks and exchanges.

DeFi is a divisive concept given that it opens up previously closed doors to all and sundry.In traditional finance, the most advanced (and lucrative) products are reserved for high-net-worth investors. DeFi lets you make the same sort of bets and doesn’t care who or where you are.

Best of all, you can audit the code of any dApp before you interact with it. With dApps, therefore, you don’t need to worry about any intermediaries or counterparties pulling a fast one on you.

Granted, you may not be an elite coder, but the open-source nature of Ethereum’s dApps means that any other users who are experts are definitely going over the code with a fine-tooth comb.

What is Staking?

When people talk about “staking,” they usually mean a way to deposit digital assets with a platform and earn a yield. It’s also frequently compared to a bank’s high-yield savings or fixed deposit account, just with crypto.

In actuality, staking is better defined as locking up your digital assets using the smart contracts of a given blockchain. Since most people would rather keep full custody of their assets than lock them anywhere, staking is incentivized with a yield.

Banks only give you a yield on certain financial products because they know that they can turn around and make more money somewhere else, pocketing the difference. That “somewhere else” generally means charging your neighbor or best buddy a predatory rate on a much-needed house or car, but that’s beside the point.

The point of staking, on the other hand, is to secure a blockchain. Bitcoin’s mining is perhaps the most famous blockchain consensus mechanism, and proof of stake is an alternative method.

Stakers, often referred to as “validators,” play a very similar role in securing the network by producing and validating blocks. However, they don’t need the sheer amount of computing power that proof-of-work miners do. They just have to buy coins and stake them.

The more coins a validator stakes on the network, the greater their chance of being chosen as the block producer and winning the block reward. This forces them to have “skin in the game” rather than load up on lots of hardware.

How to Stake Ethereum

Staking Ethereum is simple in concept, but actually getting down to brass tacks involves deciding which staking option suits you most. In the section below, we’ll examine some of the main options you have when you want to stake ETH.

#1. Solo Staking

This is the most demanding option, but it is also the one that most benefits the network. As a solo staker, you will run your own validator node, which means an element of technical competency and running a server 24/7. It also requires at least a 32 ETH deposit to meet the staking minimum, which may be a stiff ask for many people.

On the plus side, you’re adding to the decentralization and, therefore, the security of the network, and you also don’t have to trust anyone else. As a solo Ethereum staker, you have full control of your node and your funds.

If you want to stake Ethereum solo, you’ll need to:

1. Acquire the specified hardware in order to run a node.
2. Sync an execution layer client.
3. Sync a consensus layer client.
4. Generate your keys and load them into your validator client.
5. Monitor and maintain your node.

Before you start staking in earnest, you can link up to Ethereum’s Goerli testnet and carry out a dry run to make sure everything’s in order before risking any funds.

#2. Staking as a Service

As you may have noticed, with solo staking, a lot of technical competency is required. You don’t have to be a computer wizard to do it, but you do need to know your way around both hardware and software, especially with so much in the way of funds at stake.

This creates a niche for firms that provide staking as a service. These providers still require you to deposit at least 32 ETH, but they do take over the burden of managing the validator hardware. You can expect to retain access to your validator keys, but you’ll have to share your signing keys.

This, as you may imagine, is a bit of a risk. SaaS also doesn’t help to decentralize the network any further from a geographical standpoint, but its main downside is the need to share keys and trust a company.

#3. Pooled Staking

The main barriers when it comes to solo staking, which is undisputedly the best way to stake Ethereum, are the 32 ETH minimum and the technical requirements of running a validator node.

SaaS can eliminate the hardware problem, but you still have to deposit 32 ETH. Pooled staking does away with this, allowing you to deposit any amount of ETH and aggregating your deposit along with that of other depositors into a pool.

Pooled staking is one of the most popular options, and odds are you’ve already heard of Lido ETH staking. There are other options in the market as well, and decentralized pooled staking options are also starting to emerge.

Many pooled staking operators also offer liquid staking. This won’t be necessary forever, but it is a valuable benefit now since withdrawing ETH from staking isn’t fully fleshed out on the Mainnet just yet.

#4. Custodial Staking Platforms and Centralized Exchanges

Centralized exchanges provide staking services as well, allowing you to earn a certain yield on your ETH held in custody. This option might be the easiest for most people since it’s very much a Web2 deal: create an account, wire funds, buy ETH, and click ‘stake.’

That said,it doesn’t benefit Ethereum at all since your funds are used to increase the exchange’s power over the network. That’s a free lunch for the exchange at your expense, and they won’t pay you as much as you’d earn from solo staking, either.

Besides, 2022 showed centralized crypto firms in their true colors. Several staking platforms, including Voyager, BlockFi, and Alex Mashinsky’s Celsius, spiraled into bankruptcy for a variety of reasons. FTX’s Sam Bankman-Fried even managed to one-up them by stealing his clients’ funds!

Is Ethereum Staking Profitable?

If you decide to stake Ethereum solo, you can currently expect to earn a return of around 5.3%. This is the best possible rate you can get since it’s staking direct to the protocol and there are no intermediaries at all involved.

As intermediaries enter the fray, you can expect the amount you earn to ratchet downward. SaaS providers will take a cut for the validators they’re running on your behalf, and pooled staking options also need to pay for their nodes.

All in all, you shouldn’t expect to earn less than 4% to 4.5%, regardless of which staking option you choose. This can be a profitable rate of return given the economic aspects of ETH itself, where part of the supply is subject to burns.

That said, inflation is rocketing worldwide. After years of enjoying a zero percent interest economic model, the last couple of years have seen official inflation figures rise to near double-digit levels, even in developed economies.

This means that your household costs will have spiked to dangerous levels over the last couple of years, with each year of high inflation compounding the effects of the previous.

On the other hand, the rate of return you’re earning on your staked ETH is also paid out in Ether, not fiat. If you believe that ETH has a positive outlook compared to the constant devaluation of fiat currency, then staking might be a great idea.

Benefits of Staking Ethereum

These are some of the main benefits of staking Ethereum:

• Security. As a solo staker, your validator node adds another vital bit of decentralization and security to the blockchain, making it harder to corrupt or attack. Staking using a third party isn’t quite as beneficial because even though the ETH is staked, and that helps, the staking provider’s locus of power grows—and you’re funding them. If one staker gets too big, they could compromise the network.
• Decentralization. More stakers means more nodes running validators and copies of the blockchain, and therefore lower odds of corruption thanks to a bad actor.
• Passive income. One of the main motivations for staking Ethereum is passive income. Rather than simply holding your Ethereum, you can let your balance grow over time by staking.
• Non-custodial storage. As a solo staker, you have full responsibility for your validator node as well as your funds. Your ETH stays in your custody! Just remember to take very, very good care of your wallet’s recovery seed.
• Transparency. One of the main things that blockchains do differently from TradFi, and perhaps why TradFi is so scared of them, is focus on transparency. Blockchains like Ethereum are public and transparent, and if you stake ETH, you can see that you’ve staked it. With a bank, you have no idea what happens to your money, even while it’s in your account.

Risks of Staking Ethereum

Not every Ethereum HODLer decides to stake ETH, though. Here’s why:

• Misrepresentation of staking. The problem with staking on exchanges and custodial platforms is that you have no guarantee that your crypto is actually being staked. The platform could be doing anything with your funds—and if you bought Ether from them in the first place, you’ve got no guarantee that they even purchased ETH on your behalf either. Even in cases where the platforms are actually staking your crypto, custody means they own the crypto, and as a customer, you come last when and if they fail.
• Centralization. Even if the staking platform is doing everything right and staking your ETH, they’re still staking it to their nodes. Your funds are going toward making a powerful validator even more powerful, which means the very opposite of decentralization. Solo staking alleviates this problem.
• Liquidity risk. Withdrawal from Ethereum staking wasn’t possible for a long time, and even though things are slowly falling into place, it still isn’t instantaneous. This means that should you need to unstake for whatever reason, restoration of your access to your ETH isn’t immediate.
• Volatility. Along similar lines, you can also find yourself locked in if the market starts to crash and you decide you want to liquidate. You may find yourself stuck and unable to get out while the going’s still good.
• Regulation. The U.S. Securities and Exchange Commission and other regulators are becoming increasingly interested in staking. Granted, they’re mostly looking at misrepresented custodial staking, but you never know what the future may hold.

Why Can’t You Mine Ethereum Anymore?

Ethereum was one of the most popular cryptocurrencies in the mining industry, especially among casual users, since it could be mined with consumer-grade GPUs.

Unfortunately, given Ethereum’s sheer level of decentralization and the enthusiasm around it, Ethereum started to hit the news more for the energy consumption of mining than anything else.

It also started to get a bad rap with gamers and PC buyers at a critical time, given that the crypto boom of 2020 and 2021 coincided with increasing numbers of people working from home.

This trend placed strains on the GPU market, with the COVID-19 pandemic tightening supply on the one hand and Ethereum miners buying GPUs by the crate on the other. Even GPU manufacturers got in on the scalping action, yet it was Ethereum miners who drew the majority of the flak.

To cut down on its energy costs and scale the network to better handle its transactional demands, the Ethereum community decided to ditch proof of work in favor of proof of stake.

The Merge went ahead in September 2022, eliminating GPU mining of Ethereum entirely and making staking the only way to produce blocks and earn ETH.

Why is the Ethereum Merge Important?

For years, Ethereum has been the number two cryptocurrency on the market. Many people talk about the inevitability of the “flippening,” which refers to the day when Ethereum’s market capitalization may overtake Bitcoin.

The flippening itself may be some way off as yet, but Ethereum’s importance already rivals that of Bitcoin. In fact, a quick look at Cryptomarketcap’s top 100 cryptocurrencies shows that a surprising number of them either depend on or have an intrinsic link to Ethereum.

Out of the current top 30, 10 are either purely ERC-20 tokens or part of their supply is in ERC-20 form. There are even 3 scaling solutions for Ethereum in the top 40.

If these statistics underline the importance of Ethereum in the blockchain landscape as a whole, then Ethereum’s ‘merge’ to adopt proof of stake is a ringing endorsement of that consensus mechanism.

Technology can be as divisive as politics, and entire blockchains have forked over what, in the eyes of a layman, can seem like much ado about nothing. Proposed changes to Bitcoin’s block size have created entirely new cryptocurrencies, and Ethereum itself forked over a rollback in the wake of the infamous DAO hack.

Ethereum’s shift to proof of stake also left behind a proof of work blockchain, but the fact that Ethereum’s Merge went through with as much support as it did was a true landmark in blockchain’s journey.

Future of Ethereum Staking

Ethereum’s shift to proof of stake was a pivotal moment for blockchain technology and consensus mechanism. Consecutively, fears remained that any sort of failure to make the transition could spell doom for proof of stake.

That hasn’t materialized, and Ethereum continues to gain momentum, weathering the challenges of a legion of so-called “Ethereum killers” and remaining the dominant smart contract platform in the business.

Critics and proponents of the different consensus algorithms will be watching Ethereum like hawks, ready to pounce on any failings and trumpet the successes. If the network can maintain its strength, security, and dominance as time ticks on, it’ll be the most powerful endorsement of proof of stake there has ever been.

For ETH smallholders in search of the holy grail of passive income, the field is also broadening every day. More and more decentralized and even non-custodial pooled staking options are emerging, offering legitimately network-friendly options that are also convenient.

Key Takeaways

Ethereum staking is becoming a more and more viable option as updates bring it closer to its intended state as a fully-fledged proof of stake network. It’s no longer possible to mine Ethereum, which has made it a little harder to earn a passive income from ETH thanks to the staking requirements.

32 ETH is a lot for anyone to be able to stump up, and that’s just the minimum. On top of that, becoming a solo staker involves setting up and running a validator node. Between these two restrictions, staking isn’t a walk in the park, even though the infamous illiquidity of ETH staking is starting to lift.

Solo staking isn’t the only option for you if you want to stake, but it’s definitely the best one, given that it’s non-custodial, aids in the health of the network, and gives you the maximum possible returns.

That said, for those who can't come up with 32 ETH, liquid staking solutions that fall under the pooled staking umbrella are still an option. Competition in this niche is increasing as well, and the available options are becoming more decentralized and non-custodial.

Ethereum Staking FAQ

• Can you stake Ethereum on Coinbase?

  Coinbase and other exchanges such as Kraken, Binance, and KuCoin fall under custodial exchange staking options. Once you get through this article and understand what staking is, you may think twice about staking with custodians like these. FTX, Celsius, BlockFi, and Voyager customers certainly regret staking on those platforms.

• Can you stake Ethereum on Metamask?

  MetaMask is one example of the sort of crypto wallet you’ll need if you want to become a solo Ethereum staker or use a blockchain-based pooled staking option. The wallet itself doesn’t have integrated Ethereum staking options, though.

• Can you stake Ethereum on Robinhood?

  Robinhood is infamous for its role in restricting household investors from trading stocks in January 2021, and it’s also known for going down at inopportune times and preventing you from selling crypto during pumps. As far as the crypto community and prevailing wisdom go, the consensus is to avoid Robinhood at all costs. As with all things, though, DYOR!

• What are the Ethereum staking rewards?

  The amount you make from staking Ethereum depends on how and where you stake it. The best returns of around 5.3% are available through solo staking, and you can expect other methods to offer slightly lower rewards since the intermediaries involved will take a cut.