Everyone in the cryptocurrency space knows what ethereum is, but many don’t understand how to use it to its full potential. There are a lot of different use cases for the network, but many of the best use cases are focused on finance. One of the most common ways to use the network is to deposit (stake) ethereum and cryptos on various interest generating platforms and networks to earn interest.
Staking your ethereum is a great way to earn passive income without the need to sell. you deposit coins for a fixed period of time to earn interest, just like a traditional savings account. the following discussion will break down the purpose of staking ethereum and discuss whether you should.
Reading: Should you stake ethereum
what is ethereum?
ethereum is the pioneer of general purpose blockchains. it acts as a base for thousands of other apps and tokens. the most innovative part of ethereum is its support for smart contracts, something that has been copied by many new cryptocurrencies like binance smart chain and solana. Smart contracts are programmable self-executing contracts written in code on the blockchain. they are the tools that a new class of brilliant software developers use to build complex applications on ethereum and similar networks. Developers can also create their own tokens on the network, called ERC-20 tokens, and integrate them into their platforms.
Smart contracts enable decentralized applications (dapps) like uniswap, sushiswap, aave and yearn finance. These platforms provide loans, loans, interest betting and other financial services. If you are used to the interest that your bank pays on a savings account, the figures that most of these platforms boast will leave you speechless. Platforms like sushiswap can earn you anywhere from 5% to 200% apy on your crypto. This activity is often called yield farming, and for good reason. participants can earn huge returns on their crypto over time, but it can also be extremely risky. there is a relatively small chance that they could lose their entire cryptocurrency crop.
ether: ethereum’s native cryptocurrency, ether, is the fuel that runs the network. it is used to pay for computational resources and transaction fees for transactions executed on the network. overall, it ranks #2 in the crypto market cap ranking behind bitcoin.
Smart Contracts: Programs stored on a blockchain that facilitate the exchange of assets between two parties when predetermined conditions are met are called smart contracts.
Ethereum Virtual Machine (evm): evm is the engine that understands the language of smart contracts, which are written in solid, the native programming language of ethereum.
decentralized applications (dapps or dapps): these digital applications or programs run and exist on a blockchain. dapps built on ethereum can be developed for a variety of purposes including finance, gaming, and social media.
decentralized autonomous organizations (daos): member-owned communities without centralized leadership are called daos; can be created on ethereum to allow democratic decision making.
what can you do with ethereum?
ethereum offers many possibilities of use because smart contracts allow developers to have almost endless options for types of applications. however, the platforms with the highest incentives for users have been more successful, which is why defi remains king of ethereum. as of early september 2021, nearly $89 billion worth of cryptocurrency is staked across hundreds of different defi protocols. The app with the most locked funds now is AAVE, the leading decentralized lending and lending platform. aave allows you to deposit cryptocurrencies as collateral to borrow a different cryptocurrency. It supports 29 different cryptos and offers some of the lowest lending rates in the entire defi ecosystem. that’s why you should learn to stake ethereum.
Recently, a popular use of the ethereum network has been to mint, trade, and track the progress of non-fungible tokens (nfts). the nft craze must seem absolutely crazy to most people. it is difficult to understand that investors buy and sell images for millions of dollars that anyone can see or save. Algorithmically generated profile pictures like cryptopunks, bored apes, and chubby penguins can easily sell for higher prices than most people’s houses or cars. Many new investors have made millions of dollars in NFTs in recent months with small initial investments. the profit potential right now seems greater than even most opportunities in defi. However, because NFTs must be at least relatively scarce to be so valuable, they can be difficult to sell during a market downturn.
how to use ethereum
Looking for the easiest way to get started with ethereum today? Follow these 4 easy steps.
1. buy ether tokens.
ether is available to trade on a wide variety of trading platforms. almost all cryptocurrency exchanges offer the token and even some brokerage apps have it as well. Some of the best platforms to buy Ether are Coinbase (Nasdaq:Coin), Gemini, WeBull, and Robinhood (Nasdaq:Hood). After signing up for an account with the platform of your choice, you need to verify your identity before you can start trading. This process typically involves providing your social security number, address, and a photo of your driver’s license. once your identity is verified, you can fund your account with fiat currency or other crypto. set the price and make your purchase.
2. download an ethereum wallet.
You don’t need an ethereum wallet to speculate on the token price, but you do need one to use the network. There are 2 main types of cryptocurrency wallets: software and hardware. hardware wallets are usually the most secure, but can be difficult to use with platforms on ethereum. software wallets are usually free and incredibly easy to use. One of the best software wallets available is the Coinbase wallet. it supports a wide range of applications on ethereum and has more features than most of its competitors. It has a trading tab where you can exchange your cryptos for fiat or other cryptos, a place to store your nfts, and a dapp browser to easily use defi platforms in the app.
3. send your ether to your ethereum wallet.
if you paid with usd from an instant deposit, you may need to wait a few days to move your ether. You will need to find the ethereum address of the wallet you want to transfer the ether to. You can often find it by clicking a button in the app labeled receive, deposit, or something similar and then selecting ethereum. the address must start with “0x” and be quite long. Once you are ready to transfer your tokens, look for the withdraw or submit button on your trading platform. enter the ether address you found in your personal wallet and hit submit.
4. connect your wallet to a web3 enabled website.
You’ve already done the hard part. Now is the time to reap the rewards. navigate to any dapp on ethereum you want to use. some of the most popular at the moment are uniswap and opensea. uniswap is the go-to platform for many crypto investors who want to trade cryptocurrencies or stake their own for interest. opensea is a top nft marketplace where users trade and track their favorite collections like cryptopunks and bored ape yacht club. If you are looking for a good place to start yield farming, check out our list of the best dapps for that. You may want to check out the helpful ETH Gas Station website to see how much the transaction fees will cost you. once you find the platform you want to use, click connect wallet and login; you should be ready. If you want a more detailed guide on staking ethereum on eth 2.0 or decentralized finance (defi) platforms, keep reading!
how does it work to earn interest on cryptocurrencies?
You can use a few different ways to earn interest on your cryptocurrencies, but most are pretty similar. there are 2 main types: eth 2.0 staking and defi staking. You can think of both as earning interest on your fiat money (like USD) in a savings account. The bank lends your cash to other people or institutions and pays you a small reward for your trouble. Crypto staking, or yield farming, is often exponentially more profitable than the interest you earn on a savings account. Some traditional banks will pay you 0.1% a year for holding fiat currency, while staking certain cryptocurrencies on some decentralized applications (dapps) can earn you tens or even hundreds of percent per year. learning how to gamble with ethereum and other cryptocurrencies may soon be more important than setting up interest-bearing bank accounts.
In recent years, thousands of yield farming platforms have sprung up on ethereum and rival networks like binance smart chain. It may seem easy to start earning a lot of interest on your cryptocurrencies right away, but you have to be careful. when you invest, you must be completely sure of the security of a platform (which is impossible for most) or be willing to lose your entire deposit. it can be an incredibly time-consuming and arduous task to sort through all of them to find secure platforms with high apys.
what is ethereum 2.0?
ethereum 2.0, now known as the fusion, is an update that aims to improve the scalability and security of the ethereum network. The upgrade will move the ethereum network from a proof-of-work (pow) consensus algorithm to a proof-of-stake (pos) consensus algorithm where network validators can verify transactions and stake their assets.
In essence, merging with pos will reduce grid power usage by at least 99.95%. Other benefits of fusion include:
- pos makes participating in the network more accessible to many users, not just big miners.
- more equitable distribution of network rewards to incentivize good behavior opens up performance to more users.</li
- lack of mining will decrease ethereum’s total coin supply, which should drive up its price.
what is ethereum 2.0 staking?
Betting on eth 2.0 is considered a public good for the ethereum ecosystem. it involves blocking eth (ether) to secure the network and earn rewards in the process. currently, over 11.5 million eth in total are being staked, a significant portion of the entire circulating supply.
However, unlike staking other assets, you need to commit your coins for a longer period of time when staking eth. Ethereum’s new pos system is not yet operational on its mainnet, which means eth staking is currently a one-way street.
However, when you stake ethereum, you are locking up your coins until the upgrade is complete, which could be 2023 or beyond. Some crypto exchanges may allow you to sell your staked Ethereum tokens; however, it is good practice to assume that you are committing them for the long term. one of the main advantages of eth 2.0 is that you don’t need to learn how to stake ethereum on complicated decentralized finance (defi) platforms.
why bet ethereum?
Top three reasons to stake your ethereum include:
earn rewards: On the ethereum network, rewards are given for actions that help the network reach a consensus. in terms of eth staking, you will be rewarded for helping to protect the network. ethical staking rewards are given according to the amount of validated ethics and rewards offered by the network over a period of time.
When very little eth is at stake, the protocol rewards will be higher as an incentive for more eth to connect. conversely, if an increasing amount of eth is staked, the reward will decrease. See the current amount of eth staked and current April here.
Think of this as another way to set up a savings account, along with an easier way to hold your crypto and earn. You don’t have to be an active trader to profit from your assets, and gambling may be the best way to do it.
better security: the network becomes stronger against attacks as more eth is staked, since it then requires a larger amount of eth to control the majority of the network. this circumstance benefits the community in general and all individuals in the ethereum ecosystem.
more sustainable: ethereum staking is greener compared to mining because stakers do not need power-hungry computers to participate in a pos system.
how to stake ethereum on eth 2.0
You can use four different ways to stake your eth. which option you choose depends on the amount of eth you are willing to stake.
solo home staking: solo staking on ethereum is considered the gold standard. essentially, it is the act of running an ethereum node connected to the internet. this method provides full staking rewards, improves network decentralization, and never requires trusting anyone else with your funds.
Those considering participating solo must have at least 32 eth and a dedicated computer connected to the internet 24/7. ideally, some technical knowledge is helpful; however, easy-to-use tools can simplify this process.
Staking as a Service: Staking as a Service (saas) is a category of staking services where you deposit your own 32 eth for a validator but delegate node operations to a third party operator. This method allows you to avoid the difficult part of the process while still earning native (eth) block rewards. however, a monthly fee is often required in addition to a certain level of trust in the provider. a great place to stake eth is gemini, although coinbase offers the same service at a slightly higher cost.
Joining: If you don’t feel comfortable staking 32 eth, you can participate in various pooling solutions that exist to help users. staking pools are a collaborative approach that allows those with smaller amounts of eth to obtain the 32 eth needed to activate a set of validation keys.
Many of these options include what is known as liquid staking, which involves the use of an erc-20 liquidity token that represents your staked ethos. however, since shared staking is not native to the ethereum network, it faces inherent risks associated with third parties creating these solutions.
centralized exchanges: lastly, many centralized exchanges like coinbase global inc. (nasdaq:coin) provide staking services if you are uncomfortable with holding eth in your own wallet, allowing you to get a return on your eth with minimal effort or oversight.
However, the implication here is that centralized providers consolidate large eth pools to run a large number of validators. this practice is dangerous to network users because it creates a large centralized target and point of failure, making the network more susceptible to attack or error.
how to stake ethereum on defi platforms
ethereum 2.0 isn’t the only place you can stake ethereum for high interest rates. The burgeoning decentralized finance ecosystem on Ethereum makes it possible to get great rates on all kinds of cryptocurrencies, including Ether.
yearn.finance is one of the largest defi platforms on ethereum and has over $604 million in crypto assets deposited in its pools. yearn rose to the top by offering more than most other yield farming apps. it hires brilliant software developers to actively manage the strategies used to gain returns from its users. yearn has 64 different pools which he calls vaults. most of these vaults are significantly less risky than many defi platforms because they only have 1 crypto in them. individual asset groups do not suffer temporary losses, which is common in groups with 2 or 3 volatile assets in them.
yearn.finance: ~8% apy on ethereum with curve seth pool
yearn has several large stablecoin pools that earn between 1% and 100%, depending on the token. if you have dai, usdt, usdc, etc. extra, you should consider depositing some in one of these vaults for passive income. however, stablecoin pools are not the only pieces of brilliant technology on the yearn.finance platform. it has over 30 vaults tightly integrated with curve finance, one of the other kings of defi.
A popular example is the curve synthetic seth group. synthetix is a derivatives liquidity protocol. synthetix allows users to mint stablecoins that track the price of other assets. For example, seth is a stablecoin pegged to the price of ethereum. When you deposit your crypto into this pool, Yearn exchanges your asset for Ethereum and Synthetix Ethereum (Seth) and deposits it into Curve. The pool uses 2 different strategies that defi experts yearn to actively manage to ensure the highest profit. At the time of writing, the pool is earning an incredible 8% annual return, which is staggering for ethereum and much higher than the app’s main competitors.
You may be wondering why it is better to deposit into the longing curve seth vault than the normal curve seth pool. Yearn vaults provide some important benefits, primarily because of their size. the first is simple; Yearn Vaults increase the interest you earn by depositing it into the pool regularly without having to pay any transaction fees. Ethereum fees can be so high that compounding is often unprofitable.
The second main benefit is more complex. curve has another pool for the curve token (crv) called the locker where you can stake crv and lock it for up to 4 years at a time for huge profits. Participants get a boost to rewards in their other liquidity pools based on how long they lock up and how much CRV they deposit. Using another of Yearn’s vaults, the “back scratcher”, they deposit a large amount of crv into the locker and lock it indefinitely, distributing the boost to multiple vaults.
how to bet ethereum and other cryptocurrencies
Looking for the easiest way to start earning interest on your ethereum or other tokens? check out this quick and easy guide.
step 1: open an account online.
Before you learn how to stake ethereum, you need crypto to stake. you also need ether to pay transaction fees on the network. Some of the best trading platforms to buy cryptos include Coinbase (Nasdaq:Coin), Robinhood (Nasdaq:Hood), WeBull, and Gemini. Before you can start trading on any of these platforms, you need to verify your identity. This process typically requires you to provide your address, social security number, and a photo of your driver’s license.
step 2: buy cryptocurrency.
As soon as your account is verified, you can deposit your funds and buy cryptocurrencies. all of the above recommended platforms have instant deposits so you can start trading right away. you may need to wait until the deposit is cleared before you can transfer the cryptocurrencies out of the platform. now, find the trading pair with the cryptocurrency you want to buy, set its price and make your purchase.
If you don’t already have a personal wallet, either hardware or software, you need to get one to use defi platforms like yearn. hardware wallets are more secure than software wallets, but they can be a bit clunky, especially for everyday use. ledger and trezor are ranked as 2 of the best and most secure hardware wallet brands. software wallets are usually free and incredibly easy to use. A great software wallet is the Coinbase wallet because it has more functionality than almost all of its competitors. When you’re ready to deposit your funds into a defi protocol, you need to send the crypto (and some ether to pay transaction fees) to your personal wallet.
Step 3: Earn interest on your crypto.
Now that you have the cryptocurrency in your wallet, go to the defi platform and click connect wallet. click on the type of wallet you want to use and accept the connection in your wallet when it appears. once your wallet is connected, find the pool you want to deposit into. if you’re using yearn, you don’t need the exact crypto in the vault. you can deposit eth, wbtc, usdc, dai or usdt, and it will automatically exchange it for the vault token. yearn has no lockout times, so you can withdraw whenever you want, though keep in mind that ethereum transaction fees will likely be expensive.
Alternatively, you can skip the wallet process altogether and use hodlnaut. hodlnaut allows you to earn interest on your ethereum without the need to use defi applications on the ethereum blockchain.
The Hodlnaut Interest Account lets you put your digital assets to work. you can earn over 12% annual interest on stablecoins, and the platform also offers options for bitcoin, ethereum, and wrapped bitcoin. hodlnaut offers higher rates than competitors, and you don’t need to stake another token to unlock the higher rates, which is a requirement on some other exchanges. hodlnaut rewards are paid weekly. if you use hodlnaut you won’t even need to learn how to stake ethereum.
best ethereum wallets
Ethereum users and everyone who owns even 0.1 ethereum should get a personal wallet of some kind. those who already use the network or want to stake ethereum need a quality wallet even more. the problem is that there are tons of different wallets to choose from. here is our list of the best ethereum wallets for holding crypto, staking ethereum, and more.
nano x ledger
the ledger nano x is among the most popular hardware wallets and gives you maximum security by storing your tokens offline. supports a wide range of tokens including ethereum, bitcoin and many more. Ledger Nano X even offers Bluetooth connectivity that allows you to purchase tokens and download over 1,000 compatible decentralized apps directly to your device’s hardware. While the relatively high price may be too expensive for some users, the Ledger Nano X is our top pick when it comes to security considerations. it’s easy to stake ethereum with ledger wallets because you can add your hardware wallet to your metamask account.
trezor model t
the trezor t is another option for offline cold storage, providing greater security than online wallets. Trezor Model T is ideal for users who need to manage their crypto on the go but aren’t comfortable with a hot wallet that requires an internet connection to use. The Model T features a unique touch screen design, giving you access to your tokens without connecting to the internet. The Model T also supports a wide range of tokens, including Ether and other ERC-20 offerings.
exodus differentiates itself by supporting tokens on various blockchains, including ethereum, bitcoin, and tezos. the wallet is a free software wallet that helps investors conveniently store, earn interest and use their digital assets. It is available for both desktop and mobile devices, and Exodus has several apps built into its wallet that make it easy to use your digital assets. The wallet supports major cryptocurrencies like bitcoin, ethereum, and dogecoin, as well as over 150 digital assets. Unlike most software wallets, exodus also allows investors to buy and sell crypto directly from their wallet.
zengo is a mobile application wallet that provides a full set of features to its users. zengo is designed to be easy to learn for crypto beginners, but also offers access to defi products for more advanced users.
zengo wallet is custodial, which means zengo handles your private keys for you in case you lose access to your wallet. while many new users find this useful, others prefer to take custody of their own private key to ensure maximum security.
zengo offers 1-click customer support, which is another great advantage for beginners and experts alike. All in all Zengo is a great hot wallet for defi users and interest earners alike. just remember, hot bags are the equivalent of an everyday carry, while cold storage bags are more like a safe for bags you don’t want anyone to have access to.
If you want to trade your cryptocurrency frequently, you’ll probably want to keep most of your ethereum tokens in your trading account. This is because every time you move any cryptocurrency from your brokerage account to a digital wallet, you will lose a small amount of cryptocurrency to speed up the transaction. This gas fee goes to proof-of-stake validators on the ethereum network who verify your transaction and make sure you have enough ether in your wallet to complete the transaction you request.
There are dozens of cryptocurrency brokers offering access to ether trading and investing. Some of the factors you’ll want to consider when comparing brokers may include:
- the cryptocurrencies beyond ether that your broker offers access to
- its trading platform and analysis tools you can use to explore opportunities
- evaluators and stock and cryptocurrency charts options
- access to investments and trading of additional assets (such as stocks or precious metals)
- security features (such as 2-factor authentication, multi-sig technology and encryption)
- commissions, account maintenance fees and transfer fees
risks of staking ethereum and earning interest with cryptocurrencies
The dangers of earning interest on crypto depend almost entirely on the defi platform. however, you risk losing direct control of your funds with almost all of them. Many investors have fallen into the trap of chasing the highest apys while losing sight of the risks that come with crypto betting. for example, liquidity pools with volatile altcoins can be extremely risky due to impermanent loss. Simply put, the impermanent loss is the difference in value you would have if you only held the crypto instead of staking it in a liquidity pool. the code behind dapps can also be buggy, allowing cyberattacks and other ways to lose your deposit. this type of loss is usually called a smart contract failure, and while it’s rare for well-audited applications, it’s always possible.
A defi platform provides some similar services to legacy financial institutions, but it should be noted that it lacks consumer protections commonly associated with bank accounts. Cryptocurrency, a form of digital currency, is innately volatile and therefore presents the risk of wildly fluctuating prices. Unlike fiat money in a bank, digital currency is not legal tender in most countries and is not backed by any government.
Betting on ethereum 2.0 also has risks associated with it, but is generally safer than betting on defi platforms. These risks include pool depletion where a maliciously acting pool of validators is punished by burning a portion of the ethereum staked in it. this is rarely a problem, as any half-decent group makes sure this never happens to them.
There are two types of government protection for consumer funds held by banks or brokerages: The Federal Deposit Insurance Corporation (FDIC) protects against the loss of your insured deposits if the bank fails; The Securities Investor Protection Corporation (SIPC) protects against the loss of cash and securities held at a financially troubled brokerage firm, but not against the decline in value of your securities. cryptocurrency funds are not fdic or sipc protected.
Crypto interest is not a risk-free product and, unlike money in a bank account or certificate of deposit, principal loss is possible. If cryptocurrency prices drop or a security breach occurs, the profits earned from earning interest could be wiped out. therefore, do not invest more in crypto interest accounts than you can afford to lose.
is it worth betting on ethereum?
Betting on ethereum and earning interest on secure platforms can be an amazing move because it’s basically “free money”. Of course, there are risks involved in depositing your money on any crypto interest earning platform, especially those with mediocre security. however, the risks can be minimized with applications like yearn that have been audited multiple times. if the platform is secure, you could also try to earn 5-30% interest on your tokens.