What Is Crypto Staking? Crypto Passive Income Explained (Strategies + Reward)
Crypto Guides
Crypto Guides
May 25, 2023

What Is Crypto Staking? Crypto Passive Income Explained (Strategies + Reward)

What Is Crypto Staking? Crypto Passive Income Explained (Strategies + Reward)

Most peoples intro to cryptocurrencies is simply buying and selling, or maybe even mining. However, there’s an entirely different investment strategy that is making waves in the crypto investment world. What we’re referring to is the concept of crypto staking.

What is Crypto Staking?

Staking is a way of earning rewards for holding certain cryptocurrencies.

When we talk about staking cryptocurrency, staking is used to verify transactions and generate incentives for those who participate. The process of staking cryptocurrencies entails pledging your crypto assets to support and confirm a blockchain network. Cryptocurrencies use the proof-of-stake methodology to handle payments; hence this feature is available. This more energy-efficient one can now replace the original proof-of-work model. Computing power is needed to solve mathematical problems to provide proof of work.

It's possible to make money by staking your cryptocurrency, especially if the return rate is high enough for you. You must have a firm grasp of how crypto staking works before you begin. Now we will tell you how staking can become a passive source of income.

How To Stake Your Crypto

It is possible to start staking cryptocurrency using a variety of techniques, each of which necessitates a particular amount of technical expertise, financial resources, and study commitment on your part. To verify transactions on your own computer, you'll need to decide whether you want to "assign" your cryptocurrency to someone else or if you want to check transactions on a public network. Users can typically lend their cryptocurrency staking tokens to other users in order to obtain a percentage of the benefits for verifying transactions, which is common practice on cryptocurrency staking networks.

To make things as simple as possible, you can have your tokens staked for you through an internet service provider. Several well-known cryptocurrency exchanges offer staking services for a charge, which can be paid in bitcoin or other cryptocurrencies.

It is possible to use a "staking pool" instead of an exchange if you are not confident in the decision-making of the exchange or cannot find an exchange that supports the token in question. You'll need to know how to utilize a cryptocurrency wallet in order to connect your tokens to the validator's pool. There are links to information on how to examine validators on the official websites of numerous Proof-of-Stake blockchains, as well as information on how they operate on their own websites. According to a data engineering lead at the Boston analytics firm Flipside Crypto, the track record of a prospective validator is a vital factor to take into consideration. If you want to see if a pool operator has ever been penalized for mistakes or misbehavior, you can look at publicly available information to see if they've been punished in the past.

Another element to examine is the number of fees or commissions that are charged to the client. While a well-established pool is excellent, you may not want to choose the largest available option. Being a decentralized system, Blockchains should be able to withstand the accumulation of too much power in the hands of a single organization. In order to foster the decentralization of an ecosystem, as experts point out, "users frequently delegate to validators with reduced voting power."

Setting up a staking infrastructure on your own can be a daunting task. This necessitates the use of appropriate computer gear and software, as well as the acquisition of the entire history of transactions from a blockchain. Getting started in this field can also be highly expensive. The fact that you stake through a pool or an online service provider does not obligate you to achieve these requirements.

Cryptos You Can Stake

Staking is now supported by many important cryptocurrencies, including Bitcoin and Ethereum. Depending on whether or not it is linked to a "proof-of-stake" blockchain that applies the previously specified incentive mechanism, it is feasible what a cryptocurrency will be eligible for staking. Some cryptocurrencies are more likely than others to be supported by the staking capability offered by popular cryptocurrency exchanges, which may make the process simpler. Staking is currently enabled for most Algorand holders on Coinbase's platform, which is the largest crypto exchange in the United States and the largest cryptocurrency exchange globally. According to Coinbase, users can expect a yearly return of 4 percent if they follow these instructions.

Ether, also known as ETH, is the biggest cryptocurrency that supports staking and the native token of the Ethereum blockchain. It is also the second-largest cryptocurrency by market capitalization.

The following is a list of major cryptocurrencies that support staking:

  • Ethereum
  • Solana
  • Cardano
  • Polkadot

Many cryptocurrencies do not support the practice of staking. Bitcoin, the most valuable cryptocurrency, features a one-of-a-kind system for confirming transactions. Bitcoin is the most valued cryptocurrency by a long shot. The technique, known as "proof of work," is based on energy-intensive crypto mining, which requires users to put in a significant amount of effort before submitting a new block and reap the benefits. However, there are other exchanges and financial institutions where it is possible to earn income on bitcoin and other digital assets without staking, such as Coinbase.

Advantages Of Crypto Staking

The following are the advantages of cryptocurrency staking:

  • An easy approach to earn income on your cryptocurrency assets is to use this service.
  • Crypto staking, unlike crypto mining, does not necessitate the use of specialized hardware.
  • You're doing your part to keep the blockchain safe and secure.
  • It's better for the environment than cryptocurrency mining.

Staking is a great way to earn extra cryptocurrency, and interest rates can be extremely high. It is possible to earn more than 10% or 20% every year in some instances. To put it simply, it's a great way to put your money to work. In addition, proof-of-stake-based cryptography is all you need to get started. The blockchain of the cryptocurrency you're investing in can also benefit from staking. To authenticate transactions and keep the network working efficiently, many cryptocurrencies rely on staking by holders.

Risks In Crypto Staking

There are a few things to keep in mind when staking crypto:

  • Cryptocurrency values are highly volatile and might fall at any time. If the value of your staked assets falls significantly, the interest you earn on them could be wiped altogether.
  • You may be required to keep your coins locked up for a specific period if you want to stake them. For the duration of that period, you are unable to sell your staked assets.
  • A seven-day or longer unstaking period may be required if you wish to remove your crypto from staking.
  • With crypto staking, the biggest risk is that the price falls. Keep this in mind for those who come across high stake reward rates in the cryptocurrency market.

Many lesser crypto companies, for example, offer high returns to tempt investors, but their prices eventually plummet. If you're thinking about investing in cryptocurrencies but you'd rather avoid taking on too much risk, you might want to consider cryptocurrency stocks. It is still yours, but it must be undertaken to be traded again. Find out how long the unstaking process takes and whether there is a minimum lockup period, so you don't experience any unpleasant surprises.

Final Thoughts

It's best to stake your cryptocurrency if you don't intend to trade it shortly. With no effort on your part, you'll earn more cryptocurrency. You can't stake it if you don't have any crypto. In light of the potential profits, it's well worth your time to look into cryptocurrencies with staking. Consider the merits of each cryptocurrency before deciding which one to invest in. You must also feel that cryptocurrency is a viable long-term investment to make financial sense. Both cryptocurrencies and crypto investors have benefited from the proof-of-stake approach. After watching this video we hope you're better prepared to look into cryptocurrencies that support staking.

So which cryptocurrencies are you most excited to stake with? Do you think it’s a solid passive income strategy?