Alexis Kestler
Hey there! Are you looking to earn passive income on your crypto? If so, you’re in the right place.
Staking your cryptocurrency is one of the easiest ways to put your assets to work and generate rewards over time. And Coinbase makes the entire process incredibly simple for beginners to start earning staking yields.
In this complete guide, I’ll walk you through everything you need to know about staking on Coinbase. I’ll explain what staking is, how it works, risks, rewards rates, requirements, steps to start, and much more.
By the end, you’ll have all the knowledge to begin earning yields on your crypto painlessly. Sound good? Then let’s dive right in!
What is Coinbase Staking?
Staking is the process of holding funds in a cryptocurrency wallet to support the operations of a blockchain network. Essentially it helps validate transactions.
By staking your crypto on Coinbase, you can earn rewards on selected coins between 1% to 5% annually. It requires no special skills – Coinbase handles all the technical validations for you in the background.
You simply hold the minimum amounts of supported assets in your Coinbase account. In return you earn a yield on your holdings like interest on a savings account.
It’s a set-it-and-forget-it way to passively earn income on crypto you’re holding long term anyway.
How Does Staking on Coinbase Work?
Behind the scenes, Coinbase stakes and delegates your funds to validator nodes that power blockchain networks.
These nodes confirm transactions through the consensus mechanism known as proof-of-stake. The more coins delegated to a validator, the more often they get to validate blocks and earn rewards.
Coinbase takes a 25% cut of all rewards earned and keeps the infrastructure running smoothly. The remaining 75% of rewards go directly to your Coinbase account daily.
So Coinbase handles all the technical aspects like setting up nodes, staking your coins to validators, and distributing rewards.
You simply hold a balance of supported crypto, and Coinbase gives you an easy way to earn passive income on your holdings.
Pros and Cons of Staking on Coinbase
Pros
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Easy and beginner-friendly – No need for wallets or technical knowledge. Just a few clicks to earn rewards.
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Instant liquidity – No lock up periods on staked assets or earned rewards. Withdraw anytime.
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Automatic rewards – Interest paid directly into your Coinbase account and compounds.
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Range of assets – Stake popular coins like ETH, ALGO, ATOM, and XTZ.
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Secure infrastructure – Coinbase handles all the validation work and nodes.
Cons
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25% commission – Coinbase takes a fairly high cut of your total rewards earned.
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Changing rates – Staking yields can fluctuate regularly based on network activity.
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Minimum balances – Must maintain a minimum amount of each asset to earn rewards.
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Custodial risk – Funds are stored by Coinbase, not in your own wallet.
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Limited assets – Only 4 cryptocurrencies are currently supported for staking.
The benefits clearly outweigh the drawbacks for most. The effortless process and automatic yields make staking compelling for beginners despite the 25% fee.
Advanced users may want to stake independently for higher yields and lower fees. But Coinbase removes all complexities, providing easy passive income on crypto.
Overview of Supported Cryptos on Coinbase
Coinbase currently supports staking for 4 major cryptocurrencies:
Ethereum (ETH)
- Minimum: 0.01 ETH
- Estimated APY: Around 5%
Tezos (XTZ)
- Minimum: 1 XTZ
- Estimated APY: Around 5%
Cosmos (ATOM)
- Minimum: 1 ATOM
- Estimated APY: Around 5%
Algorand (ALGO)
- Minimum: 1 ALGO
- Estimated APY: Around 4%
The estimated annual percentage yields (APY) for each asset represents the total rewards after Coinbase’s 25% commission.
The minimum balance required to earn staking rewards may increase in the future as demand rises. But for now, it’s possible to earn yields with small starting amounts of these top cryptos.
Step-by-Step Guide to Stake on Coinbase
Ready to start earning yield on your crypto? Just follow these simple steps:
Step 1) Sign into your Coinbase account
Step 2) Make sure your account is verified to Level 2 by submitting photo ID. This unlocks staking capability.
Step 3) Purchase or deposit the crypto you want to stake – ETH, XTZ, ATOM, or ALGO. Meet the minimum balance.
Step 4) Go to the page for the asset you want to stake and click “Earn rewards” to opt in.
Step 5) Confirm staking by clicking “Start earning”.
Step 6) Voila! Your crypto is now automatically staked with Coinbase and earning rewards.
Step 7) You can watch rewards accrue daily in your account under the “Rewards” section.
And that’s seriously all there is to it! In just a few clicks you can start earning passive crypto income on Coinbase.
Risks and Drawbacks of Staking on Coinbase
While Coinbase makes staking super easy, it’s not without risks and downsides to consider:
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Volatility risk – The value of your staked crypto may fluctuate up or down.
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Technical risks – Despite Coinbase’s security measures, staking operations could still fail.
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Custodial risks – Your staked assets are stored by Coinbase, not in your own crypto wallet.
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Changing rates – Declining rewards rates if more users stake assets on Coinbase.
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Taxes – Staking rewards are considered taxable income by the IRS if you‘re a US customer.
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Illiquidity – Staked ETH can‘t be withdrawn until Ethereum 2.0 launches (est. 2022-2023).
For most people, the risks are reasonable compared to the seamless rewards provided by Coinbase staking. But it’s worth understanding the potential downsides before opting in.
Advanced crypto users may prefer managing their own staking operations for higher yields, lower fees, and more control. But Coinbase simplifies staking for beginners.
Coinbase Staking vs Staking Independently
Here’s a quick comparison between staking on Coinbase versus setting up your own staking operations independently:
| Coinbase Staking | Independent Staking |
|---|---|
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For most beginners, Coinbase’s simplicity and automatic yields are preferable despite their 25% cut of rewards. But more advanced crypto stakers may favor controlling their own operations.
Taxes on Staking Rewards
One important aspect to note is staking rewards are considered taxable income by the IRS if you are a Coinbase customer in the US.
Here‘s how staking taxes work if you‘re a US user:
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Rewards are taxed as ordinary income based on their USD value when paid out to you.
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You must report staking rewards on your annual tax return and pay applicable taxes owed.
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If you later sell staked coins for a profit, capital gains taxes will also apply.
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Coinbase provides an annual 1099-MISC form if your total rewards exceed $600 in a tax year.
Always consult a tax professional to understand how staking impacts your taxes, and keep detailed records of rewards earned each year.
Staking ETH on Coinbase
Now let’s take a deeper look at staking the most popular crypto asset on Coinbase – Ethereum.
Overview of Staking ETH
- Deposit: ETH
- Staked Assets: ETH2
- Minimum: 0.01 ETH
- APY: Around 5%
- Lockup: No lockup period, except for converting back to ETH1 until Ethereum 2.0 launch.
Staking ETH is unique because it is converted to ETH2 when staked on Coinbase. ETH2 is required for validating on the new Ethereum proof-of-stake blockchain currently in development.
So your principal ETH is effectively locked until Ethereum 2.0 full launches, estimated sometime in 2022 or 2023. However, you can withdraw earned staking rewards at any time.
How ETH Staking Works
When you stake on Coinbase, your ETH converts to ETH2 and is delegated to the ETH2 network validators managed by Coinbase.
These validators confirm transactions on Ethereum 2.0, processing blocks and earning rewards. Coinbase receives the rewards and distributes 75% of them pro-rata to ETH stakers on the platform.
Staking ETH helps secure the Ethereum network by participating in transaction validation prior to the major upgrade. And you earn generous yields in return at around 5% APY.
Overall, staking ETH is a great option to support the Ethereum ecosystem while generating rewards on your holdings until ETH2 can be exchanged back to ETH1.
Staking Tezos (XTZ) on Coinbase
In addition to ETH, Tezos is another top choice for staking on Coinbase. Here’s an overview:
Overview of Staking XTZ
- Deposit: XTZ
- Minimum: 1 XTZ
- APY: Around 5%
- Reward Cycles: Every 3 days
- Lockup: No lockup period
The minimum of just 1 XTZ provides easy access to Tezos staking rewards. Actual yields fluctuate based on the number of reward cycles completed, averaging 5% annually.
Tezos uses proof-of-stake to enable on-chain governance where token holders vote on proposals to upgrade the network. Staking XTZ allows you to participate in the consensus process.
The Coinbase infrastructure handles voting on proposals based on votes proportional to each user’s staked XTZ. This maintains decentralization while avoiding the need to actively participate yourself.
In return you earn periodic rewards in cycles. Overall, staking XTZ is a simple process for both securing the network and generating a yield on your holdings.
Staking Cosmos (ATOM) on Coinbase
The interoperability focused project Cosmos also offers generous staking rewards to Coinbase users:
Overview of Staking ATOM
- Deposit: ATOM
- Minimum: 1 ATOM
- APY: Around 5%
- Lockup: No lockup period
Staking Cosmos requires just a single ATOM to be eligible for staking rewards. And like other assets, there’s no lockup period imposed.
By staking ATOM you help validate transactions on the Cosmos Hub, the central blockchain that connects other blockchains. Coinbase operates validator nodes, allowing you to simply hold ATOM to passively earn yields.
The ATOM network fees are low, allowing high annual returns up to 5%. Staking is an easy way to support the Cosmos ecosystem while profiting from its continued expansion.
Staking Algorand (ALGO) on Coinbase
The final asset available for staking on Coinbase is Algorand:
Overview of Staking ALGO
- Deposit: ALGO
- Minimum: 1 ALGO
- APY: Around 4%
- Lockup: No lockup period
Algorand offers a solid annual yield around 4% for staking ALGO. Rewards compound daily by automatically reinvesting earned interest.
Staking helps validate transactions on Algorand’s pure proof-of-stake blockchain. Minimal price volatility of ALGO also results in stable returns.
The 1 ALGO minimum provides accessibility for users big and small to earn yields on their holdings. Overall, ALGO staking provides steady, compounding rewards on a reputable blockchain.
Conclusion
That sums up everything you need to know to start staking crypto on Coinbase! Here are the key takeaways:
- Staking provides rewards up to 5% annually by helping validate blockchain transactions
- Coinbase makes staking easy by automating the technical validations
- Supported assets include ETH, XTZ, ATOM, and ALGO with varying yields
- You can start earning with small amounts like 0.01 ETH or 1 XTZ
- Rewards deposit instantly into your Coinbase account with no lockup
- Consider the risks and tax implications before opting into staking
I hope this guide gives you clarity on how staking on Coinbase works! The automated rewards provide an easy way into crypto passive income.
Let me know if you have any other questions. I’m always happy to help fellow Coinbase users maximize their returns.
Happy staking!
