What is cryptocurrency staking?
Staking cryptocurrency means that 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 it an interest. With staking you can generate a passive income by holding coins. Besides that you receive a reward (in the form of extra tokens), 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 to verify the 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 (unless you use cold staking).
- 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.
Which platforms offer crypto staking?
There are more and more exchanges that offer staking solutions. You usually receive your rewards when you keep your coins in your exchange wallet. Keep in mind that most exchanges that offer this service charge a small percentage of your profit. By staking at an exchange you become a member of a very large staking pool.
The following exchanges offer staking:
- Stake your coins automatically in your Binance wallet and receive a 20% cashback on all trades
- Crypto.com (earn up to 18% p.a.)
- ChangeNOW (earn up to 25% APR)
The only disadvantage is that you do not receive the full profit yourself and you do not manage the private keys.
With crypto staking 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.
What are the advantages of staking?
More and more investors are choosing for crypto staking:
- Generate a passive income; holding a certain crypto is sufficient to earn extra coins and you don’t have to trade (risky).
- Low entry; anyone can join and you don’t need expensive equipment.
- Simple and easy to use; the platforms offering staking have made it very easy to get started.
- Energy efficient; staking is better for the environment than mining.
Luckily it is nowadays also possible to do cold staking. Cold means that it is not connected to the internet, just like cold wallets. With cold staking an user can stake his crypto using a hardware wallet or another cold wallet. The advantage of this is that the funds are safe, because the wallet is not connected to the internet. You need physical access to your wallet to manage the funds. Unfortunately, not all cryptocurrencies and networks support cold staking.
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.