Crypto staking is a way to earn passive income, and it is the equivalent in the crypto world of earning interest or dividends while keeping your assets. Staking is a way to earn more cryptocurrency by using the coins you already own to verify that transactions on a blockchain network are correct.
Even though this sounds hard, most people can do it right from their digital wallets. Some crypto exchanges also offer “staking” programmes, in which they take care of the technical details in exchange for a cut of the profits. However, in the U.S., these kinds of deals are getting more and more attention from regulators.
Generally, the returns you can get from staking crypto are higher than those from a savings account. But there are risks when you bet. You’ll get staking rewards in crypto, a volatile asset whose value can decrease.
Some crypto needs to be locked up for a certain amount of time. And if the system doesn’t work as planned, you could lose some of the cryptocurrency you put up as a penalty. Still, staking can also be a way to grow your crypto portfolio with assets you plan to keep for a while. Crypto staking is also a more energy-efficient way to run a crypto network than the way Bitcoin and some others do it, which is by mining.
Which cryptocurrencies support staking?
Crypto staking is a key part of the technology that makes some cryptocurrencies work. But you should know that not all crypto networks use staking.
Proof-of-stake cryptocurrencies, as they are called, are likely to allow staking. Here are just a few:
• Ethereum (recently shifted from proof-of-work)
• Cardano.
• Solana.
• Shiba Inu.
Proof-of-work cryptocurrencies are created through mining, which requires expensive computers and a lot of electricity. Most of the time, they don’t like betting. Some types of proof-of-work cryptos are:
• Bitcoin.
• Litecoin.
How does staking work?
To understand what is staking crypto, it helps to know what blockchain networks are and how they work. Here are some things you should know.
Blockchains are “decentralised,” meaning there is no middleman, like a bank, to verify new activity and ensure it matches a record of past activity kept by computers across the network. Instead, users put together “blocks” of recent transactions and send them to be added to a permanent record of the past. Users whose blocks are accepted get a cryptocurrency transaction fee.
Crypto Staking is a way to keep this process from being hacked or going wrong. When users propose a new block or vote to accept a proposed block, they put some of their cryptocurrency at risk. This makes it more likely that people will follow the rules.
Most of the time, a user’s chances of getting transaction fee staking rewards to increase as the amount at stake increases. But if a user’s proposed block turns out to be wrong, they can lose some of their stakes. This is called “slashing.”
Advantages of staking cryptocurrency
As with any investment, staking crypto has pros and cons. First, let’s look at the pros:
Passive income: If crypto is around for a long time, you can grow your crypto portfolio by making investments that don’t require much time. You won’t have to keep an eye on the validations of your crypto. Instead, the money you make from staking will show up in your portfolio as crypto.
High returns are possible. Crypto staking is a good way for investors to get returns that are on the high side. Even though the exact amount you can earn depends on several factors, staking will likely earn you more than a crypto savings account.
The process is taken care of by Crypto Exchange: Crypto staking is based on a complicated system in the background. But when you use a crypto exchange, you hand over any problems to someone else. You can sit back and watch the money come in.
What kind of returns can you get from staking?
The staking rewards are different depending on the cryptocurrency, conditions (like demand on the blockchain network), and the method you use. But the rates that exchanges offer can give you an idea of what to expect.
Binance.
In September 2022, the US thought that ATOM, its highest-yielding cryptocurrency, would have an annual yield of 13.5%. Coinbase, on the other hand, was giving a 5.75% annual yield for Algorand staking.
The average yield on savings accounts that NerdWallet has looked at is about 0.5% APY. The Federal Deposit Insurance Corp. says that the average interest on savings accounts in the U.S. is 0.35% APY.
Is staking a good idea?
Not everyone may want to stake. Before deciding whether to stake your cryptocurrency, think about a few things.
Will you need to use the cryptocurrency you staked?
For crypto staking, you might have to give up your assets for a certain amount of time and be unable to sell or trade them. If you think you might move your cryptocurrency at the last minute, carefully read the terms before you stake it.
Remember that cryptocurrency is a volatile asset. Crypto staking can make your investment returns more predictable. Still, if the market value of your cryptocurrency drops by 20% while you’re staking it, for example, the staking rewards you’re getting seem like they could be better.
Will the project work?
Ultimately, whether or not you stake your cryptocurrency may come down to how sure you are that it will be a good long-term investment. If you think the Ethereum network is valuable, the price changes from day to day might not make you want to sell. One way to get short-term value from a cryptocurrency investment you want to keep is to stake it.
Have you looked into other ways to make money while you sleep?
Crypto staking is a way to make passive income that doesn’t require you to do anything daily after you make an initial investment. Staking may be a good option for some cryptocurrency owners, but there are many other ways to make money without doing anything. It is also a good idea to look into some of those options.
Other common types of passive income are dividends from stocks, interest on bonds, and income from real estate. There are ways to make money with crypto that don’t involve staking, such as lending programmes and decentralised finance (DeFi) apps.
