Have you been thinking of making money and more money at the push of a button? The answer might be closer than you think – crypto staking! So, how exactly does crypto staking work? Is staking crypto worth it? Let’s dig in.
Over the last couple of years, the crypto world has been growing rapidly, attracting the interest of governments, businesses, and individuals. Some opt to day-trade while others prefer mining. However, these two require in-depth knowledge of blockchain and the crypto field, which is never easy for many people. The easier and more straightforward method is crypto staking.
In this post, we delve deeper into crypto staking to demonstrate what it is and how it works. More importantly, we will help you answer the big question, “is staking crypto worth it?”
What is Crypto Staking?
Crypto Staking is the process of locking your coins for some time on the crypto network. Well, it is like depositing cash in a fixed bank account and committing it for some time, say 12, 24, or more months. We must indicate that the idea of crypto staking is pretty new, and not all blockchain platforms support it. It is only used by cryptocurrencies that use the proof of stake model (PoS) instead of proof of work (PoW).
When you commit the coins to the network, you get rewarded with a part of the transaction fees paid by people using the blockchain for various purposes, such as sending funds. The reward might also be in the form of new coins, implying that the selected network uses staking to release new coins into circulation.
Staking can be broken down into two main methods; decentralized staking and centralized staking. The decentralized staking option locks your crypto coins on the blockchain by acting as a node to help with governance and confirmation of transactions. To do this, you need to designate your computer to serve as a node, lock the crypto coins, and ensure the computer is connected to the network without downtime. Well, these conditions are pretty tough for most people, making them opt for the second method, the decentralized staking.
Unlike decentralized staking, the centralized method means that your coins are pooled together with others to increase the chances of getting selected to confirm transactions. One of the common methods of crypto staking is through decentralized finance (DeFi) platforms. However, the rewards that are issued to the pool have to be shared among all the stakers based on the amount they hold.
When observing the definition of staking, you might be wondering, “if it is the same as yield farming?” Well, they use the same concept but are pretty different. Staking uses validators who lock their crypto coins based on PoS consensus protocol but yield farming uses lending pools that help token holders to earn returns in the form of interest and fees. In both cases, you reap a lot when the value of the coins increases.
Proof of Stake (PoS) Consensus Protocol
At the heart of the staking process is the consensus protocol referred to as proof of stake (PoS), and it is important to understand it to be able to answer the big question, “Is crypto staking worth it?”
How Does Proof of Stake Work?
Proof of stake (PoS) is a standard consensus algorithm used in the blockchain network. It works with random validators on the community of users who commit their coins by locking them to the selected blockchain network. Users who lock their stakes (validators) are incentivized through new tokens, coins, or part of the transaction fees.
PoS is seen as a better option than the proof of work (PoW) protocol used in Bitcoin blockchain. Instead of using arbitrary computation, the way PoW works, PoS rewards validators to incentivize them. Therefore, it uses less energy and offers coin holders an opportunity to earn passive income.
Validators on PoS systems are selected to create the next blocks based on several attributes, such as the amount locked on the network and time. To simply put, having a significant stake gives you a more immense opportunity to be selected to confirm the next block, which means more rewards.
Delegated Proof of Stake (DPoS) Protocol
DPoS is another version that advances the proof of stake concept. It was developed by the founder of BitShares, Dan Larimer. It differs from the standard PoS protocol, which selects validators randomly by introducing the idea of delegates. Therefore, what validators do is to select the witnesses who help to validate the transactions. The focus of validators is to get voted as witnesses to help forge the next block for a reward.
Blockchains that use DPoS also rely on delegates, picked the same way witnesses are selected. However, delegates help maintain the network and suggest developments and changes that should be implemented in the network.
Using Staking Pools to Stake Your Crypto Coins
To stake crypto coins on your own, one of the requirements is that you need to run a full node, which is pretty complex. For example, most people find it challenging to maintain their computers on the network 24/7 for months because even a short misconnection can interrupt your earning. This is why you should go for the more straightforward option of using a staking pool. The pools offer you an opportunity to stake your coins without the tough logistics of turning into a full node. You can relax as experts ensure the staked coins reap maximum returns.
Benefits of Crypto Staking
There are many benefits of staking your crypto coins. The most notable of these benefits is that it earns you additional tokens or coins. By staking your coins, you get a chance to forge new blocks and add them to the blockchain. In return, you are rewarded with new coins, tokens, or part of transaction fees. It is an excellent way to make good returns instead of leaving the coins to sit idle on your wallet. Here are other benefits to anticipate from staking.
1. Staking Helps to Increase the Value of Crypto Coins
Like fiat currencies, the value of any crypto coin, especially the top ones, is based on the forces of demand and supply. Therefore, staking the coins means locking them from the market, ultimately cutting down the supply. So, if a lot of stakers lock their coins, the amount that will be removed from circulation can help to push the price up. By the time you unlock your coins, they will have a higher value compared to when you staked them. Call it a double win; you get rewarded for forging new blocks, and the coins appreciate in value.
2. You Get Voting and Participating Rights
How would you like to help advance blockchain technology and the crypto economy? One of the best ways is participating in their governance. When you stake the coins, it gives you the opportunity to help with the network governance as a delegate. You get the voting rights, and you will be called upon for consensus. For example, the nodes that were on Ethereum when the decision to shift from proof of work (PoW) to proof of stake (PoS) was made through a vote. So, start staking now to get counted when the cryptocurrency makes the next big step.
3. An Excellent Way to Diversify Your Investment Portfolio
There is a wise saying that “you should not carry all your eggs in one basket,” and there is nowhere this notion applies well as in the investment. Whether you are a fan of investing in stocks or forex, it will be an excellent idea to diversify with crypto staking. Here, you simply buy your coins and stake them with an appropriate pool to enjoy some returns when the value grows.
These are only some of the benefits to anticipate. However, we must indicate that there is one disadvantage that you need to know. Although the rapidly growing crypto space is pushing the value of cryptocurrencies up, the risk of a drop still looms. If you notice the price of the selected crypto is falling after staking, there is a danger of seeing the value plummet helplessly because the coins have already been locked. Therefore, it will be a good idea to start by studying the latest trends and stakes at the right time.
The Main Coins that You can Stake
As you can see, crypto staking comes with dozens of benefits that you should not miss. So, is staking crypto worth it? Yes, it is, but you need one more thing: identifying the coins that you can stake.
Unlike ten years ago, when most cryptos were based on proof of work (PoW), most projects today use Proof of Stake protocols. So, let’s look at the top proof of stake (PoS) coins that you should consider:
1. Ethereum (ETH)
Today, one of the top staking options is Ethereum (ETH), the second most popular coin. To start staking ETH, you will require a minimum of 32 ETH and Eth2 mainnet clients. However, you can stake even with a lower amount and without requiring serving as a node by working with a good staking pool.
2. Tezos (XTZ)
Tezos was created in 2018 and generated a significant storm in the crypto world for being the first coin to run an ICO of the biggest initial coins (ICO) with $230 million. It uses the liquid proof-of-stake (LPoS). To start staking Tezos, you are required to have a minimum of 8,000 XTZ coins and a full node. Again, you do not have to worry about the logistics of staking XTZ if you go for a staking pool.
3. Algorand (ALGO)
The primary goal of ALGO development is to drive inexpensive cross-border payments. As a PoS-based coin, you are required to run a full node to be able to stake. Staking rewards on Algorand ranges between 5-10% annually. To enjoy a higher return on investment, you should consider using a staking pool because it provides a higher chance of winning more transactions.
These are a few of the cryptos that you should target for crypto staking, but they are not the only ones. Others include Cosmos, Komodo, ICON, QTUM, and Zcoin.
How to Stake Your Cryptocurrencies
To start crypto staking, you only need to follow the following steps:
- Select the crypto coin to stake: The most important step is selecting the right proof of stake coins to stake. For example, many people now prefer to buy and stake ETH coins.
- Get an appropriate wallet: If you do not have crypto coins already, start by acquiring an appropriate crypto wallet. This is the location from where you will send your coins to the pool and also receive them back after the locking period is over.
- Select a good staking pool: The best staking pool is the one that has a good reputation in the crypto market. For example, does the pool refund the stakers on time? Does it pay all the agreed dues? With a committed pool, you are sure of making impressive returns.
- Open an account with the selected pool and send your coins: After choosing the preferred pool, read the terms and conditions, and create an account. Make sure to select the preferred time frame and send your coins to the pool. From there, all you need is to wait for your coins to work for you.
Crypto staking can be an excellent method for you to earn some passive returns from your crypto coins instead of allowing them to lay fallow in your wallet. Since you are not selling the coins, they will still earn you more value if the value increases. You also get the opportunity to participate in the governance of the selected cryptocurrency network. If you are new to the cryptocurrency world, we must indicate that the entire industry can be pretty challenging. It can be pretty complicated, from choosing the coins to selecting the right wallet and the entire staking process. This is why you need to have an expert on your side. Visit hi for all the crypto-related assistance that you require.