What’s The Point of Crypto Staking?
Staking crypto is a new way to earn interest and rewards using crypto. In the past, the main way to make money with crypto was through asset appreciation. Essentially, you’d buy a coin and wait for the price to (hopefully) go up. With crypto staking, there is now an entirely new way to earn a return on your cryptocurrency investments.
What is Crypto Staking?
Crypto staking is a method used to verify transactions on the blockchain. When it comes to cryptocurrency, there are two main models used to verify transactions. These are “proof-of-work” and “proof-of-stake.” Proof-of-work selects people to validate transactions based on who answers a complex equation. This model works effectively but has been criticized for requiring lots of energy. On the other hand, proof-of-stake models select validators based on how many coins they own.
This is essentially how crypto staking works:
- You “stake” your crypto. This means that you agree not to sell it for a set period of time.
- The network uses your coins to help verify transactions. This makes sure that only legitimate transactions are approved.
- You receive interest in exchange for staking your crypto.
In this sense, crypto staking is a little bit like putting money in a savings account. When you put your money in the bank, the bank then uses it to make loans. At the end of the year, the bank pays you interest for using your money.
When you stake your crypto, the network uses it to verify transactions. Then, you receive interest.
On a slightly deeper level, it’s also a way to support the projects that you believe in. When you stake your coins, you are putting your faith in the network. By doing so, you build trust and help the network grow over time.
Now, let’s discuss if staking crypto is right for you and how to get started.
Why Should You Stake Crypto?
Just like any investment, there are pros and cons to staking crypto. The biggest benefit is that it creates passive income. The rate of interest that you can earn varies depending on how you choose to stake it. Interest rates are generally higher for lesser-known coins and lower for more established ones. In general, you can expect to earn anywhere between 5-20% from crypto staking. Considering that the average savings account pays .06%, this is a very attractive rate. If you don’t plan on accessing your crypto anytime soon, crypto staking can be a great idea.
The biggest downside is that staking is not available for all cryptos. For example, Bitcoin uses a “proof-of-work” model not “proof-of-stake.” Most of the coins that are stakeable are smaller, less established coins. This creates more risk.
Additionally, you also have to consider the volatility of the cryptocurrency. Cryptos can easily drop over 10% in the course of just one day. If this happens, it will erase any gains you earned from staking.
Before staking, the biggest question to ask yourself is whether you are invested for the long run. If you believe in the long-term future of the network, go ahead and stake! If not, then staking might not be the best idea.
With that in mind, let’s examine some of the best places to stake your crypto.
High Yield Crypto Staking
There are essentially three ways to stake your crypto. The first is to do it all yourself. This process involves selecting your coin and buying the appropriate software/hardware. A detailed layout of how to do to this would definitely require its own blog post (at least). However, this option is preferable to some because it gives you complete control. To many people, financial control is a central concept for cryptocurrency. If you don’t mind giving up just a little bit of control, there are two other ways to stake your crypto.
The second, much easier method, is to go through an exchange. If you already own cryptocurrency, there is a good chance that the exchange you use allows for crypto staking. This is because almost every major crypto exchange offers staking.
Here are a few good places to get started:
Please note that the interest rates and stakeable coins vary by exchange. Again, a detailed breakdown of each individual exchange would require its own article. However, a few of the most common stackable coins are Ethereum, Tezos, Cosmos, Polkadot and Solana. If you are interested in staking these coins then just about any exchange will do. If you want to get started staking, definitely be sure to research the pros/cons of each specific platform.
The final strategy is to use a staking-as-a-service provider. This strategy is a little bit of an in-between. Instead of a huge public exchange, it requires using a private company that takes your crypto and stakes it for you. This is a good middle-ground for between doing it yourself and using an exchange.
Should You Get Started?
At the end of the day, this answer will depend on your own financial goals and risk tolerance. For long-term holders, crypto staking is a great way to generate yearly interest from your cryptoassets. However, it can also leave you vulnerable to major price swings.
On the other hand, it also reduces your ability to trade. If you are someone who likes to buy/sell frequently then staking might not be the best idea.
I hope that you’ve found this article valuable! As usual, please base all investment decisions on your own risk tolerance and research.
About Teddy Stavetski
A University of Miami grad, Teddy studied marketing and finance while also playing four years on the football team. He’s always had a passion for business and used his experience from a few personal projects to become one of the top-rated business writers on Fiverr.com. When he’s not hammering words onto paper, you can find him hammering notes on the piano or traveling to some place random.