You can have your cake and eat it in the cryptocurrency world. What I mean by that is that you can buy cryptocurrency and hold onto it -- but you don't have to wait until you sell to lock in rewards. Instead, there's a way to generate passive income. It's called staking.
And as of just recently, you can stake your holdings of crypto giant Ethereum (ETH -3.69%). So, should you give it a try? Let's take a closer look at exactly what happens -- and if it's a good option.
Image source: Getty Images.
A new development
Ethereum staking is a new development. The world's second-biggest cryptocurrency originally used a proof of work consensus mechanism like market giant Bitcoin. This means, to validate transactions on the network, computers have to perform complex tasks. This uses an enormous amount of energy and time.
As part of Ethereum's upgrade, it's switching to a proof of stake consensus mechanism. This means validation power is given to computer nodes according to their Ethereum holdings. These validators put up their stake as a collateral of sorts. You can stake as an individual. But that's complicated. First, you have to commit at least 32 Eth (that's worth more than $98,000 according to today's price) to stake. Then, you should have some technical knowledge and have a computer running at all hours to potentially validate transactions.
If that sounds intimidating, no need to worry. There's another option. You can stake your holding through a staking pool. This means you allow a validator that pools holdings from various investors to include your holding. And you don't have to commit a huge amount of Eth. More good news: The validator does the work. And you reap the rewards. You can do this through various staking services -- or even through cryptocurrency exchange Coinbase Global. For instance, Coinbase says you can earn as much as 5% APR on your holdings by staking through its pool.
The risks of staking
All of this sounds great. But there are a couple of risks that come along with staking. One negative point is that when you stake your holdings, they're tied up for a certain period of time. That means, if the value of Eth rises or falls during that time, you can't sell to lock in gains or prevent further losses. You have to wait until the lockup period is over.
There is also the risk of slashing. This happens when the network destroys some of a validator's tokens if that validator doesn't follow the rules. If this happens to your staking pool, you can lose some or all of your investment.
So, let's get back to our original question. Should you stake your Ethereum holdings now? When investing in cryptocurrency, I always say, "Don't invest more than what you can afford to lose." Now, I'll say the same thing about staking. And of course, it's important to research staking pools well before deciding to commit your holdings. I like the idea of going with an exchange like Coinbase.
If you accept the risks, though, staking can be a great way to put your cryptocurrency to work for you. It's an opportunity to benefit in the near term through passive income -- while holding onto the investment for the long haul.
Adria Cimino owns Ethereum. The Motley Fool owns and recommends Bitcoin, Coinbase Global, Inc., and Ethereum. The Motley Fool has a disclosure policy.
FAQs
You can do it via a crypto exchange, join a staking pool, or even become an Ethereum validator if you prefer. Either way, the benefits are clear. Staking Ethereum is worth it, with potential interest earnings of up to 30% in the best cases. And that's all passive income, so you barely have to do anything to earn it.
What is the Motley Fool's prediction for Ethereum? ›
VanEck's Matthew Sigel and Patrick Bush expect its price to more than triple to $11,800 by 2030, while Ark Invest's Cathie Wood says it could be worth a whopping $166,000 by 2032.
Is it good to invest in Ethereum now? ›
Ethereum holds a bright future as it is not just a transactional currency; eventually, it will be on the path of establishing itself as a “store of value” for entities looking to optimize their wealth. ETH functions very well with DApps, NFTs, smart contracts, and DeFi; the list keeps growing yearly.
How profitable will staking Ethereum be? ›
The current estimated reward rate of Ethereum is 2.63%. This means that, on average, stakers of Ethereum are earning about 2.63% if they hold an asset for 365 days. The reward rate has not changed over the last 24 hours. 30 days ago, the reward rate for Ethereum was 2.56%.
Can I lose my ETH if I stake it? ›
Smart contracts on the Ethereum network are not impervious to vulnerabilities or hacks. Validators essential to preserving network security, risk fines if their nodes stop working or don't correctly validate transactions. They may lose some of their staked Ethereum to this penalty, also called slashing.
How long will Ethereum staking last? ›
Newly staked ETH will undergo a bonding period of up to several weeks (often less than a couple of hours, depending on network conditions) before it will start earning ETH rewards.
Will Ethereum hit $10,000? ›
The prospect of Ethereum (ETH) hitting the $10,000 mark has sent ripples of excitement across the crypto community. The convergence of these factors suggests a promising future for Ethereum (ETH), reinforcing its position as a leading cryptocurrency with significant growth potential.
What is the price prediction for Ethereum $5000? ›
Up more than 50% through the first half of 2024, Ethereum (CRYPTO: ETH) now appears to be on track to regain its all-time high of $4,891 from the previous crypto bull market rally.
What is the Ethereum prediction for 2024? ›
Based on Ethereum's price action in 2024, the predicted 'buy the dip' level is $2,888. This level was successfully tested in 2024. If this level holds between July and November 2024, it will be Ethereum's ultimate 'buy the dip'. But ETH should not breach $2,888.
Is it worth putting $100 in Ethereum? ›
Investing $100 in Ethereum is a small entry point into the Cryptocurrency market. While there's potential for high returns, Ethereum's price is volatile. Researching Ethereum's technology and the broader market is crucial. Consider dollar-cost averaging to minimise risk.
As currently one of the leading cryptocurrencies with robust blockchain technology and wide adoption, many investors believe in its potential for significant long-term growth. However, as always, potential investors should carefully consider the inherent risks and volatility of cryptocurrency investments.
How much will 1 Ethereum be worth in 2025? ›
Ethereum (ETH) Price Prediction 2024-2040
| Year | Minimum Price | Maximum Price |
|---|
| 2025 | $5,907.41 | $7,194.28 |
| 2026 | $8,232.18 | $10,283.97 |
| 2027 | $11,892.81 | $14,527.55 |
| 2028 | $18,352.16 | $20,942.91 |
8 more rowsEra | Validator rewards are distributed every 4 - 5 days after the activation period is complete. Rewards may not settle in a specified account for an additional duration depending on network conditions.
Which coin is best for staking? ›
The 10 Best Cryptocurrencies for Staking
- Cosmos. Real reward rate: 6.95% ...
- Polkadot. Real reward rate: 6.11% ...
- Algorand. Real reward rate: 4.5% ...
- Ethereum. Real reward rate: 4.11% ...
- Polygon. Real reward rate: 2.58% ...
- Avalanche. Real reward rate: 2.47% ...
- Tezos. Real reward rate: 1.58% ...
- Cardano. Real reward rate: 0.55%
The quickest and easiest way to start staking Ethereum is on centralized exchanges. Binance, Kraken, and Coinbase all offer Ethereum staking, with no minimum amount of Ethereum required to get started, assuming you are trying to stake at least more than 0.0001 ETH that is.
Will ETH staking rewards go up? ›
As economic conditions improve and further upgrades reduce ETH gas prices and improve scalability, staking rewards may see a huge jump. And the price of ETH may jump as well. You'll never get that potential upside with US Treasuries.
Should I hold my ETH or sell? ›
Ethereum Buy Hold or Sell Recommendation. Cryptocurrencies . . CC . Assuming the 90 days trading horizon and your above-average risk tolerance, our recommendation regarding Ethereum is 'Strong Buy'.
Should I stake my ETH on Coinbase? ›
Coinbase is generally regarded as a safe place to stake your Ethereum. Staking enables passive income through rewards from your staking wallet. You don't need 32 ETH to stake on Coinbase. You can stake as little as 0.01 ETH at a time.
How much can you make staking 32 ETH? ›
Ethereum staking rewards currently average around 4-7% annually but can fluctuate depending on network activity. Here are some estimates: Staking 32 ETH (1 validator) – ~4-7% SRR = 1.6 – 2.24 ETH per year. Staking 1,000 ETH – ~4-7% SRR = 160 – 224 ETH per year.
