As per a recent blog post, the firm will soon introduce a staking facility that will allow customers to set aside a portion of their holdings to be funnelled into the new-look Ethereum network, where it will be used to keep the system well-oiled and secure.
The exchange claims participants could earn interest of up to 7.5% on the amount staked, but will be unable to sell or transact using the allotted Ether for the moment. However, there will be no staking minimum, so users can pledge as little or as much as they like.
The upcoming Ethereum 2.0 staking service will build upon similar facilities introduced in 2019 that allow Coinbase users to earn rewards on their Tezos and Cosmos holdings.
Ethereum 2.0 staking with Coinbase
For anyone new to the world of cryptocurrency, it might be a little puzzling that Coinbase is choosing to offer staking services for Ether but not Bitcoin, the world’s largest cryptocurrency. The reason lies in the fundamental differences in the way the two underlying blockchain systems operate.
The Ethereum network recently began a transition that will overhaul its consensus mechanism, which is designed to incentivize network maintenance and ensure data cannot be tampered with.
With Ethereum 2.0, the network will switch from Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus, which is generally considered to be a more effective and energy-efficient means of maintaining the network.
A basic way to describe the difference is that, in a PoW system (used for Bitcoin), one unit of computational power equates to one unit of mining power. Under PoS, however, one unit of staked value secures one unit of mining power.
According to data from Dune Analytics, more than three million ETH (worth circa $5.4 billion at current market rates) has been committed to the Ethereum 2.0 deposit contract to date.
Typically, Ethereum 2.0 stakers are required to pledge a minimum of 32 ETH (almost $60,000), pricing many people out of contention. But Coinbase will allow its customers to contribute as little ETH as they like, in exchange for 25% commission on any rewards earned.
The main caveat is that if the price of Ether were to fall, users will not be able to limit their losses by selling their holdings. For many individual investors, then, Ethereum 2.0 staking is effectively a long-term bet on the future of the project and an increase in value of the underlying currency.
Staking via Coinbase also means that holders of Ether will not be able to transfer their funds to a non-custodial wallet, over which they have full control, as opposed to the custodial wallet provided by the exchange itself.