Are you putting your money to work?
Financial advisors will recommend various strategies to maximize earning potential. Some may tell you to invest in stocks, bonds, CDs, or even park your money in a high-interest savings account.
Similarly, you can put your cryptocurrencies to work, just like regular money.
One popular way to earn passive income from cryptocurrency is through what we call crypto staking. Crypto staking may sound complicated but don’t worry, we’ll teach you what it is and guide you on how to get started with this strategy.
- Why Stake Crypto In The First Place?
- Proof Of Stake Is Gaining Traction
- Moving Away From Proof Of Work Consensus
- Moving Towards Proof Of Stake Consensus
- How Does Crypto Staking Work?
- What Is Staking In Crypto?
- Not All Cryptos Can Stake
- What Exactly Do You Earn From Staking?
- What Kind Of Earnings Can I Expect From Staking Crypto?
- Popular Staking Coins
- Should You Stake Crypto?
- Where Can I Stake Crypto?
Why Stake Crypto In The First Place?
There are two primary reasons for staking crypto. The first is to earn interest in your crypto and the second is to help maintain the security of the blockchain.
However, the vast majority of people who stake crypto are in it to gain interest in their crypto holdings. There is a minority that stakes solely to contribute to the advancement of blockchain technology.
Think about it this way. You can either spend your money in a local mom-and-pop bakery because you love their jelly donuts or because you want to help out small businesses. Either way, you’re contributing towards the cause and benefiting from it at the same time.
When you stake crypto, you’re helping the blockchain become more robust. At the same time, you are benefiting from it by gaining more crypto.
Staking as a means for earning rewards or an income is somewhat of a recent occurrence. If we go back to just five years ago, people weren’t staking to earn. The technology was still being established and mass adoption didn’t come until only a couple of years ago.
Staking grew tremendously alongside the rise in overall cryptocurrency popularity in recent years. New cryptocurrencies are popping up left and right and we are seeing more of them being based on proof of stake (PoS) based blockchains.
If there was a good time to get started with crypto staking, right now, before the masses join, would be it.
Proof Of Stake Is Gaining Traction
Currently, there is a global shortage of graphics cards and it’s becoming increasingly difficult to buy one. People are buying them for cryptocurrency mining rigs which make them even harder to find.
These miners use computing power from these graphics cards to solve complex puzzles and equations on the blockchain. Doing so helps validate the data and stabilize the blockchain network.
However, the main reason why they mine is that they can earn cryptocurrencies from mining. With a single Bitcoin trading at around $60,000 currently, it isn’t hard to see why people are mining in droves.
Moving Away From Proof Of Work Consensus
First-generation blockchains like Bitcoin use the computing power from these miners to secure their networks. These blockchains are designed to run on proof of work (PoW) consensus mechanisms which are becoming dated by today’s standards.
Remember earlier in the year when Elon Musk announced that Tesla will no longer be accepting Bitcoin as a form of payment for automobiles? Excessive burning of fossil fuels was the main reason behind his decision.
The production of Bitcoin contributes to the global pollution problem because these mining operations need massive amounts of electricity to run.
Moving Towards Proof Of Stake Consensus
The latest generation of blockchains is built on proof of stake (PoS) consensus mechanisms. They were created because of the need to make blockchain validations more efficient and environmentally friendly.
Ethereum founder Vitalik Buterin said, “Proof-of-stake is a solution to the [environmental issues] of Bitcoin—which needs far less resources to maintain.”
Ethereum is going through a hard fork right now which means they are migrating away from PoW and upgrading their network into a PoS system.
How Does Crypto Staking Work?
Blockchains are plentiful and the differences can be tough to spot. However, they all have a central focus: to create an online system where data and documentation can be recorded, tracked, and retrieved without the ability to be edited or corrupted.
Blockchains started out with PoW systems, but we are seeing more and more using PoS systems. Staking is just one of the many benefits that came from this technology.
But what is crypto staking it and how does it work?
What Is Staking In Crypto?
Crypto staking is a process where you commit your holdings to a platform for a period so that it can be used to help secure transactions on the blockchain.
This is only possible if the crypto that you are staking is run on a PoS blockchain. As a staker, you would have to set aside your crypto to the blockchain or crypto platform that allows staking. You will then be a part of a pool of stakers that are in there for the same thing: to confirm blocks of transactions.
Make sure to check all the staking rules and terms because they aren’t created equal. Some will require that your crypto is locked up for a set period while others allow you to unstake your coins at any time.
Understand that once your crypto is staked, you can’t do much with them. You’re able to add more to the staking pool but you can’t sell or trade any from the existing pool.
The blockchain protocol will choose who gets to validate the blocks, but it isn’t a guarantee that it will choose you. However, the more you stake the better your chances are of being chosen as a validator.
The end goal of staking is the same with mining, which is to validate transactions on the blockchain. Without these validations, the blockchain wouldn’t be secure and the network would be pointless.
Not All Cryptos Can Stake
The latest and greatest blockchains are using proof of stake consensus mechanisms to verify blocks of data. Staking is a feature in these blockchains that use proof of stake models. So when you hear of crypto staking, you’ll know that they are most likely talking about cryptocurrencies that are using the PoS model.
Some of the popular POS blockchains include Cardano, Solana, and Algorand. When staking crypto, you would be using the cryptocurrencies from the PoS blockchain to stake and earn rewards. The cryptocurrencies used in our examples are ADA, SOL, and ALGO respectively.
What Exactly Do You Earn From Staking?
As with any traditional investment type, the more you put in the more you stand to gain.
Cryptocurrencies work in the same way. For example, if you have a portfolio of stocks and you wanted to increase your holdings in Apple stock, you would simply buy more stock. You now have additional Apple stocks that can multiply your potential earnings.
Let’s say you bought some Cardano (ADA). You could buy some and increase your holdings as the market is pushing the price in an upward trend. In these examples, you would be increasing the value of your stock or crypto positions when the market is strong.
When it comes to staking, you would gain additional crypto as a form of reward. Some platforms will allow you to obtain voting rights as a form of reward. Voting helps align interests amongst token holders and the developers of the crypto or blockchain. As you can see this is similar to being a Class A shareholder of a stock.
What Kind Of Earnings Can I Expect From Staking Crypto?
When you stake crypto, you are locking up your crypto in an account that allows for your holdings to earn rewards or accrue interest. This sounds similar to a high-yield interest savings account, right?
They are similar but there are some key differences.
The concept for a high-interest savings account is straightforward. You deposit a certain amount of money into this account and expect to grow it over time. The annual percentage yield (APY) is typically 0.06% on average for these types of accounts.
Although uncommon, you can find some accounts offering up to 0.70% APY. Taking the latter and applying it to a $1000 initial deposit, in one year you will have earned a whopping $7.02!
You can maybe get a value meal with this, but with inflation and rising costs across all spectrums, this is hardly anything to celebrate.
Crypto staking on the other hand have APYs that range from 5% on average up to 30%. Some cryptocurrencies and staking platforms will offer much higher but we found that liquidating may come at a risk. Simply put, stick to popular cryptos that have the best liquidity. You’ll be able to earn way more than you can ever earn through a high-interest savings account.
Popular Staking Coins
Let’s take a look at the top staking coins in the market today. The rewards yield change from time to time so make sure you do your due diligence before choosing to stake any.
Tezos is another staking blockchain similar to Ethereum. It prides itself as a blockchain that can continuously be upgraded without a need for a hard fork or major overhaul. You can expect an APY of up to 6% when staking XTZ.
Cosmos is often referred to as the “Internet of blockchains”. The developers of this project set out to allow blockchain interoperability. The vast majority of blockchains are unable to communicate or transact with each other. However, the team is focused on addressing this global problem. A 7-8% yield is expected when staking ATOM.
Similar to Ethereum, Cardano is a powerhouse amongst blockchains today. Frequently in the top 5 cryptos by market cap, Cardano prides itself as being the only peer-reviewed blockchain. That means their blockchain technology is as robust and foolproof as it gets. Maybe this is why you can frequently see APYs in the 7% territory.
Should You Stake Crypto?
Crypto staking or any type of crypto investing comes with risk. The risks are greater than what you may encounter when investing in the stock market or other financial securities.
However, cryptocurrencies are becoming relevant in the eyes of investors all over the world. Although you may find price volatility in the short term it could be worth your while in the long term.
Staking provides a way to earn interest in your crypto holdings. One drawback is that the crypto is sitting there dormant and it can’t be used for any other type of strategies like trading or arbitrage. If you’re fine with parking your cryptos in an account for several months to a year, then it could be worth taking a look.
Understand that investing in cryptocurrencies is high-risk in nature. Because of this, you shouldn’t be allocating any more than 5% of your portfolio.
Where Can I Stake Crypto?
Okcoin is one of the most popular crypto exchanges in the world, and was founded in 2013. They’ve got headquarters in San Francisco, California.
You can buy, sell, and trade all sorts of crypto including Bitcoin, Ethereum, and more, either on your desktop or through their mobile apps (available for both iOS and Android).
You can also stake your crypto using this platform, which is not something that all crypto exchanges allow you to do.
Check out our full review of Okcoin.
Finblox is a crypto platform founded by fintech entrepreneurs Peter Hoang and Dmitriy Paunin, and it currently boasts more than 15,000 community members.
The app strives to be a reliable crypto earnings platform, mainly by simply holding crypto in specialized Finblox accounts to earn you some passive income. It’s essentially a high-yield savings account that allows you to earn interest on your deposited crypto funds.
Finblox does not charge any fees for its services, and it offers a wide range of features to its users. You get access to Defi protocols, staking, and more.
The platform operates through a mobile app that allows users to manage their crypto on the go.
Check out our full review of Finblox.