Staking is a process by which cryptocurrencies verify their transactions. During the process, some crypto assets are locked for some time to support blockchain operations.
By supporting blockchain, one becomes an active participant in its operation. Staking helps to participate in a crypto ecosystem by supporting it with network security and lending cryptocurrency while earning rewards. In this way, crypto can be used to generate passive income.
All cryptocurrencies do not allow staking. Cryptocurrencies such as Ethereum, Tezos, Cosmos, Solana, etc. allow one to stake a part of their tokens.
Staking allows the validation process without intermediaries like banks as the staked crypto is part of the validation process.
Some cryptocurrencies like Bitcoin do not allow staking as it relies on Proof of Work(PoW) instead of Proof of Stake(PoS).
Proof of work is an energy-intensive alternative that can result in bottlenecks due to miners competing to solve puzzles thus resulting in high activity.
How does staking work?
As the first step, the coins are pledged to the cryptocurrency protocol. Depending on the amount of coins committed, validators are chosen to confirm the blocks of transactions.
Whenever a new block is added to the blockchain new coins are minted and staking rewards are distributed.
A cryptocurrency that uses the proof of stake model is needed for staking. By utilizing popular cryptocurrency exchanges the amount required can be staked.
Staking crypto does not change the ownership of the coins. It is just like lending money for a specified period. The owner is free to unstake his crypto provided the coins are staked for a minimum amount of time.
How to stake crypto
Learn more about different proof of stake cryptos including their working process, staking rewards, and staking process with one another.
Decide on the cryptocurrency to own and buy it from cryptocurrency apps and crypto exchanges.
After crypto is purchased, it will be stored in an exchange where the buying has been done. If the exchange has its staking programs, crypto can be directly staked on the exchange.
Otherwise, the funds need to be moved to the blockchain wallet which is also known as a crypto wallet. Cryptocurrency can be stored safely in wallets whether it is a software wallet or a hardware wallet.
Once the wallet is secured, deposit the crypto by selecting the type of cryptocurrency. In the exchange account withdraw the crypto by copying and pasting the wallet address to transfer crypto from the exchange account to the wallet.
The staking pool
The staking pool is generally used by traders to enhance the chances of earning staking rewards. The various factors that should be considered for selecting staking pools are:
Reliability: Pick staking pools close to 100% uptime as rewards can be only earned when servers are working
Fees: The staking fees must be reasonable, approximately between 2% to 5%
Pool size: As smaller pools are less likely to be chosen and larger pools can become oversaturated, for most investors mid-size pools are the best.
Once the pool is selected the crypto can be staked through the wallet.
Benefits of staking crypto
- It helps to earn a passive income on the amount staked.
- No additional equipment as in the case of crypto mining is required.
- It helps maintain the security and efficiency of the blockchain
- Much more environmentally friendly than crypto-mining
Risks of staking crypto
- The volatility of cryptocurrency is huge. Sometimes the passive income from staking may not compensate for the fall in the value of the currency.
- In most cases, staking requires a lock-in period. During this time the staked assets cannot be traded. During this waiting period, the value of the crypto may crash leading to a big loss.
- Investors should be careful about the high rates offered by crypto projects for staking, as the prices may end up crashing.
Best staking options in the cryptocurrency world
Dogeverse: This multi-chain meme coin offers an impressive 584% annual yield through its staking platform.
Solana (SOL): Known for its high throughput and low fees, Solana is an overall top choice for staking.
Cardano (ADA): As a long-term staking coin, Cardano has gained significant attention.
Ethereum (ETH): It remains a solid PoS staking crypto with a large user base.
Binance Coin (BNB): Binance Coin, native to the Binance exchange, provides an excellent exchange staking option.
Factors like lock-up terms, security, and supported coins must be considered when choosing a staking platform
Conclusion
Staking provides an excellent chance to generate income and enhance blockchain security and efficiency.
Factors such as annual yields and security are very important in choosing staking options as staking has risks of market volatility and lock-in periods.
Still, staking is a very important aspect of decentralized finance which requires investors to navigate opportunities and challenges.
