What is cryptocurrency staking?
Staking cryptocurrency means you are holding cryptocurrency to verify transactions and support the network. In exchange for holding the crypto and strengthen the network, you will receive a reward. You can also call the an interest. With staking you can generate a passive income by holding coins. Besides that you receive a reward, you can earn extra when the coin increases in value. Not all cryptocurrencies support staking. In this article we will explain everything about the staking process and which cryptocurrencies can be staked.
How does cryptocurrency staking work?
It sounds very simple; just hold some crypto and receive a reward, but there is a lot more involved. With the Proof-of-Work mechanism, new blocks need to be mined for verification of transactions. Bitcoin is one of those coins. With the Proof-of-Stake mechanism, new blocks are produced and verified by staking. This means that you don’t need special computers to solve difficult math problems, what the case is with mining. Staking is all about how many coins you are holding. The amount determines your reward. A user who has secured more of a certain coin is more likely to be chosen as the new block validator.
Besides the fact that with staking, you provide support and strengthen the network, it also increases scalability.
What are the conditions for crypto staking?
It is important that the blockchain uses the Proof-of-Stake mechanism. In general, the following rules apply most of the time:
- The wallet has to be online 24/7.
- The wallet must support staking.
- Usually the coins have to mature for a couple of days before you receive a staking reward.
- There may be a minimum amount.
Different rules apply for each blockchain. It is therefore advisable to find out specifically for each coin which rules apply. You can choose to leave a computer connected 24/7 to the internet, purchase a VPS or use a service that offers staking. With the first two methods you manage your private keys yourself, with the last method usually not. Several cryptocurrency exchanges offer support for the staking of coins, including Binance and Coinbase.
- Stake your coins automatically in your Binance wallet and receive a 20% cashback on all trades
With the staking of cryptocurrency you will receive a reward. This is usually a fixed percentage per year. The percentage is an indication and could theoretically change. It is possible to receive rewards individually or using a pool. In a pool, multiple coin holders put their coins together to increase the chance of validating a block. As a result, the revenues can also be higher.
Which cryptos can be staked?
We have highlighted some popular staking coins below. The interest rates are on an annual basis and may have changed by the time you read this.
- Tezos (~7% interest rate)
- Komodo (~5% interest)
- QTUM (~4% interest rate)
- Decred (~9% interest rate)
- ICON (~19% interest rate)
- ZCoin (~14% interest rate)
- PIVX (~9% interest rate)