Crypto staking is a method where one locks their crypto assets in order to earn more rewards and profits on their holdings. Essentially, blockchain networks verify transactions through staking. If we look at it from the perspective of an investor, crypto staking can make you rich without actually buying more cryptocurrencies. Staking crypto is a great way to earn passive income with your own existing crypto holdings. Read more
Each time there is a new block to be added or votes are being accepted to form a consensus on adding a new block to the blockchain, some of the user’s own cryptocurrency assets are on the line. It is also a good way to encourage users to follow the rules. Thus, when a user puts more cryptocurrencies at stake, the more likely they are to earn transaction fee rewards. But remember that there is a possibility of ‘slashing’ where a user may lose their crypto at stake if the proposed block turns out to be fraudulent.
Proof-of-stake or PoS is a consensus mechanism using which blockchains are able to verify transactions. In PoS, the number of coins is crucial for determining the probability of validating a new block.
PoS was made as yet another consensus mechanism that would be an alternative to proof-of-work (PoW). PoS is a popular consensus mechanism that is gaining popularity because of how efficiently it works and the possibility of earning rewards via crypto staking.
PoS is not like PoW when it comes to energy consumption. It is very sustainable and does not demand a lot of computing power to validate the transactions. Crypto investors put their coins at stake as collateral to validate different blocks.
Blockchain participants get rewards for crypto staking. Each blockchain will have a number of crypto rewards set aside for the validation of these transactions. Typically, participants receive crypto rewards when they are selected for validation. In a nutshell, staking lets investors make more money with their crypto assets. The rate of interest on these can vary from network to network but they could bring at least 20-30% more income for a crypto user annually.
Ways to Stake Crypto
Choosing a cryptocurrency that uses the PoS model is imperative to be able to stake crypto. There are many different ways to stake crypto assets:
Through an exchange
You could opt for an exchange to stake your crypto assets. An online exchange will have the expertise when it comes to crypto-related matters. If you exchange provides staking services, they may also ask for a commission.
Join a staking pool
A lot of investors avoid using exchanges because most of them do not offer access to a variety of tokens. Hence, they may opt to join a staking pool that is generally run by another user. This requires you to connect your tokens through your crypto wallet with the validator’s staking pool. Before joining a staking pool, make sure you spend some time doing a thorough background research of these validators and then understand how the PoS blockchains operate.
Be a validator
Validators are the ones who own staked coins. They are randomly chosen to validate the block and is nearly the same as mining when we talk about it in the context of consensus mechanisms like PoW. The most obvious and perhaps the most effective method of crypto staking that could make you rich is to become a validator. Typically validating a block requires more than a single validator. Once a certain number of them verify the block’s accuracy, it is finalized and added to the blockchain.
Can crypto staking make you rich?
How does one actually make money with crypto staking?
Let’s look at it this way. It is essential that you are familiar with the practice of mining and trading crypto. Staking could bring great rewards without the risks that follow mining and trading.
Thus, crypto staking can make you rich. In simple words, you have to buy and hold on to some crypto tokens and transfer them to a mining pool. The reward you earn will come to you as transaction fees that would be based on how much you’ve staked and for how long.
Things to consider when increasing your staking profit
Usually, you end up making more profit through crypto staking as you go on to stake more tokens. However, one has to look at a few more things when it comes to increasing profits.
- Coin value: Be wary of coins that have high inflation rates. You could earn large rewards at first but given the volatility of the coin, you would have very little to almost no profit.
- Make sure that the tokens you stake have fixed supplies. Limited circulation of crypto tokens maintains a healthy demand in the market while keeping the prices from fluctuating too much.
- The demand for a cryptocurrency depends a lot on the actual applications of the coin. When it has many real-world applications such as for online payments, the demand will be steady and so will the rates.
Best crypto to stake
Not all cryptocurrencies can be staked. The most popular cryptocurrency Bitcoin (BTC) cannot be staked as it uses PoW to validate transactions. Typically, only the cryptocurrencies that use PoS as the consensus mechanism can be staked.
Ethereum allows great returns on staking. This is because it has been one of the most important altcoins in the market. In fact, ETH comes second only to BTC in terms of its overall market share. Staking Ethereum brings an average annual return of nearly 5-17%.
Similar to Ethereum is Cardano which is a smart-contract platform as well. Cardano is a virtual currency that fuels the network’s PoS mechanism. Several reputed exchanges allow staking ADA which brings returns that are as much as 24%.
EOS is used to back decentralized programs like ETF. EOS can also be staked and the rewards can be averaged at 3.2%.
Cosmos is known as the internet of blockchains. It lets a number of blockchains work with one another by facilitating interoperability. Different platforms allow staking of Cosmos (ATOM) which brings nearly 7% yields on average annually.