Staking is an alternative way of making money on cryptocurrencies that do not involve trading. You simply hold coins in a wallet or exchange and earn interest on your holdings. It is much like how you can earn interest on fiat money in a savings account.
This article will help you get started with staking crypto coins on the Coinbase exchange as we discuss how staking works, how to earn staking rewards on Coinbase, and the steps to staking on Coinbase.
What is Coinbase?
Coinbase is a cryptocurrency exchange founded by Brian Armstrong and Fred Ehrsam. A US-based company operating since 2012 and allows you to buy and sell Bitcoin, Ethereum, Litecoin, and other cryptocurrencies using your bank account, debit card, or credit card.
Coinbase has its own internal currency called USD Coin (USDC) and earns money by charging fees for buying or selling digital currencies on its platform. Aside from transferring, buying, and selling digital currencies, it is an online platform that also allows you to store those currencies.
Coinbase has recently added the ability to earn money by staking coins on the exchange. The exciting part of this is that you can earn money without having to do anything (like trading).
How does staking work?
Staking lets you earn income with your crypto by contributing to a particular assets Proof of Stake (PoS) network. When you stake your crypto, you make the blockchain of that asset more secure and more efficient. And in Coinbase exchange, you get rewarded with more assets from the network.
The reason your crypto earns rewards while staked is that the blockchain puts it to work. Cryptocurrencies that allow staking use a Proof of Stake mechanism, which is the way they ensure that all transactions are verified and secured without a bank or payment processor in the middle. Your crypto becomes part of that process if you choose to stake it.
To generate staking rewards on a Proof of Stake blockchain, a node has to assign a certain amount of tokens on the network as a stake. The number of tokens being staked directly influences the chance of that node being chosen to validate the next block.
If the node successfully validates a block, it is awarded the staking reward, and this is similar to a miner being rewarded in Proof of Work. Validators lose part of their stake if they approve a fraudulent transaction; this encourages them only to approve valid transactions.
Check out this article on staking to learn more about how staking works and why only some cryptocurrencies have staking options.
How do I then earn staking rewards on Coinbase?
Today, staking your own crypto is a challenge for most investors, and to stake on your own requires running a node on your hardware, syncing it to the blockchain, and funding the node with enough cryptocurrency to meet minimum thresholds, including providing a sizable deposit and bond.
On some exchanges like Coinbase, all this is done for you. While Coinbase stakes, generates, and signs blocks on your behalf, you retain full ownership of your tokens and earn rewards.
Which Proof of Stake crypto assets will earn staking rewards on Coinbase?
Visit their site to see which assets earn staking rewards at a particular time on Coinbase.
And who is eligible to stake on Coinbase?
To stake on Coinbase, you must have your identity verified with a valid TIN (Taxpayer Identification Number) and reside in a location where staking is allowed. You must hold the eligible cryptocurrency on ‘Coinbase.com’ as staking rewards are not available on ‘Coinbase Pro,’ and you should have the minimum balance needed for that particular cryptocurrency. Find out here if your region is eligible for staking on Coinbase.
Steps to staking coin on Coinbase Exchange
You now understand what staking is and how to earn money (staking rewards) on Coinbase, and after confirming your eligibility, you do not know where to start. Relax, the staking process is straightforward:
Step 1: Download the latest version of Coinbase Wallet from the App Store.
Step 2: Create a Wallet or sign in to your existing Wallet.
Step 3: Add your crypto coins to your Coinbase Wallet. You can also buy and sell crypto coins directly from Coinbase.com or the mobile app.
Step 4: Navigate to the triple dash icon in the top left corner and tap Earn Interest. You will see a list of all the tokens in your account. You can add or remove tokens by tapping on them in the list.
Step 5: Tap stake on any of the listed tokens that you want to get started with. You will be prompted to confirm that you agree to “stake” your digital currency for a minimum amount of time. Now all you have to do is sit back and watch as those tokens start to accrue interest.
You can check your earnings anytime by opening up the same Earn page, which will show you how much you have earned so far and when it will unlock for withdrawal back into your Wallet.
Are there any advantages to staking coins on Coinbase?
Yes. Although staking may sound similar to mining, it is entirely different. Unlike mining, staking does not need any special equipment or computer hardware, as anyone can start staking with just some crypto in their account.
Staking coins on Coinbase is of the following benefits:
- Coinbase does most of the work for you, so you don’t have to worry about running a node or being online all the time. You can hold your coins and earn rewards without having to do any extra work.
- You do not have to worry about missing out on compounding interest. Coinbase takes care of that for you as well.
- If you are hodling some coins, staking them on Coinbase is a great way to earn passive income while supporting the networks of your favorite cryptocurrencies.
Drawbacks to staking on Coinbase:
- Coinbase staking is not actually for everyone, it is not available for all types of accounts, and you need to be in some specific region/country.
- You cannot trade the coin while you are staking it; if you want to sell it, you have to stop staking first and wait for the 7-day cool-down period. If the price goes down during this time, you will lose money.
- Coinbase takes a portion of the staking rewards.
Skeptical about the need for staking coins? Don’t be. If you plan to hold these coins for any length of time, then staking might be well worth your while.
In conclusion, you can now earn a passive income for doing something you would be doing regardless- hodling. Now, don’t expect to retire off of this or even get rich from it. And if you find out that you are not eligible to stake on the Coinbase exchange, do not fret, just go ahead and check out staking on the Binance exchange.