What is Staking in Cryptocurrency, And How Does It Work?

The opportunities to make profits for crypto holders are increasing, with digital assets becoming more streamlined and familiar to the common people. The traditional way of earning money is to hold your digital assets and sell them when the price of that asset appreciates. The other way to make profits from cryptocurrencies is staking.

Staking enables you to earn passive income from your digital assets without selling them. Do you know what is staking? If not, we will explore this concept deeply in this blog. The idea of staking is similar to NFT staking.

What Does Staking Crypto Mean?

Staking is when crypto holders deposit their assets holding to a specific platform to support the operations of the blockchain network. The users lock their crypto holdings for a particular period, and they get rewards in the form of cryptocurrency for doing so. The Proof-of-Stake (PoS) consensus technique is used by several blockchains.

Network participants that want to help the blockchain by validating new transactions and creating new blocks must “stake” a certain amount of cryptocurrency. Staking ensures that only valid data and transactions are introduced to a blockchain. Participants seeking a chance to authenticate new transactions offer to stake quantities of cryptocurrency as a type of insurance.

They may lose some or all of their stake if they inappropriately validate defective or fraudulent data. However, if they authenticate correct, legitimate transactions and data, they will be rewarded with extra cryptocurrency. Staking is part of the consensus mechanisms of popular cryptocurrencies Solana (SOL) and Ethereum (ETH).

How Does Staking Work in Cryptocurrency?

The staking process is not as complicated as it seems to many people. Let’s explore step by step how you can start staking.

1. Buy a Cryptocurrency That Uses Proof of Stake

The initial phase for staking crypto is researching and purchasing crypto assets that utilize the Proof of Stake (PoS) consensus mechanism. Not every crypto uses the PoS mechanism to validate transactions. Let’s see some crypto assets that utilize the PoS for transaction validation.

• Cardano
• Ethereum
• Polkadot
• Solana

You should know about the smart contracts, Staking Platform, and crypto assets you can use for staking purposes.

Importance of Proof of Stake (POS)

Each blockchain network has its consensus mechanism by which it records transactions. Some blockchains like Bitcoin use the resource-intensive mechanism Proof of Work (PoW), while others implement Proof-of-Stake. In PoW, miners get new coins for verifying the transactions.

In PoS, transaction verification is done by staking. New coins are generated for verifying the transaction and distributed among validators. PoS blockchain can reduce carbon emissions massively. The more you stake, the more chance you have to become a validator in the network.

2. Check the Minimum Staking Requirements of the Cryptocurrency

After choosing the right currency for staking, you should look for the platform where you can stake it. Most famous exchanges like Binance, Coinbase, Kraken, and many more offer the opportunity to users to stake the crypto. You must check whether you have a sufficient amount that meets the minimum staking requirement or not.

3. Fund Your Crypto Wallet

Find out which wallet can be utilized to stake your crypto assets. Once you have found it, transfer your crypto coins to that wallet.

4. Get a Device and an Uninterrupted Internet Connection

For staking crypto, you must have constant access to the internet. A simple laptop or Raspberry Pi will be enough to fulfill your hardware requirements.

5. Start Staking on a Crypto Exchange or Join a Crypto Staking Pool

Staking can be performed on a crypto exchange or through a staking pool. Crypto exchanges have millions of users worldwide, meaning they hold more crypto coins. This much crypto holding increases their chance for staking rewards. In Staking pools, many people deposit their assets in a pool through a smart contract to make passive income. You can choose either of these options to start staking.

What is Meant by Cold Staking?

Cold staking operates similarly to conventional staking, except that your holdings are kept offline in a hardware wallet. When you begin staking offline, you will be rewarded for each block you contribute to the network. Cold staking saves you from threats and attacks of hackers.

You will no longer receive incentives when you withdraw your tokens from the hardware wallet. Large investors who want to protect their funds during the staking procedure select this strategy. However, not so many platforms are offering cold staking to the people. Tezos blockchain is using a similar method to cold staking, which allows users to earn incentives for keeping their assets liquid.

Where to Stake Cryptocurrencies?

As we have discussed earlier, many cryptocurrency exchanges and staking pools can be used for staking cryptocurrencies. Let’s look at these staking platforms:

Check out which providers made the cut before we get into our reviews of the finest bitcoin staking platforms on the market right now.

1. DeFi Swap — The Most Profitable Crypto Staking Platform
2. eToro — The Top Crypto Staking Platform in the United States
3. Crypto.com — The Most Flexible Crypto Staking Platform
4. MyCointainer — Some of the Finest Crypto Staking Rewards Available
5. Coinbase — is a popular exchange that also provides cryptocurrency staking services.
6. Binance — is a fantastic platform for high staking rewards.
7. LooksRare — Stake LOOKS and earn up to 221 percent APY.
8. BlockFi — is the best cryptocurrency staking platform for stablecoins.
9. Nexo — It offers 8.5% APY for BTC holdings.
10. Kraken — Best On-Chain Staking Platform With High Yields

What are Crypto Staking Rewards?

Staking rewards are an incentive provided by blockchains to participants. Each blockchain has a predetermined number of cryptocurrency incentives for validating a block of transactions. You obtain crypto incentives when you stake crypto and are picked to validate transactions.

Sometimes users earn rewards in the same asset they stake, and some platforms pay in their native token or coin. If you want to start staking, you might want to look for platforms offering high APY (Annual Percentage Yield).

How is Staking Rewards Calculated?

The criteria for calculating rewards can vary from blockchain to blockchain. Each platform has its own rules to decide what APY they should offer users. These are some examples:

• how many coins does the validator stake
• how long has the validator been actively staking for
• how many coins does blockchain have for staking
• he pace of inflation
• additional elements

Staking payouts on several other networks are determined as a fixed percentage. Platforms provide users with the APY as compensation for inflation. Inflation encourages users to spend their coins rather than keep them, which may increase bitcoin adoption. However, using this methodology, validators can compute the exact staking payout they might expect.

Some may prefer a predictable payout schedule versus a stochastic probability of earning a block reward. Such public information can encourage crypto holders to participate in the staking for passive income.

What is a Staking pool?

A staking pool can be a collection of crypto holders’ pool resources to increase their chances of becoming a validator in the blockchain network for rewards. They gather their staking power and split the profits in proportion to their contributions to the pool.

Setting up and managing a staking pool can require significant effort and expertise. Staking pools are best effective on networks if the entry barrier (technical or financial) is reasonably high. The pool owner charges a small amount from the pool participants for managing the pool.

Why Don’t All Cryptocurrencies Offer Staking?

You need to understand the basic working of blockchain to answer why few currencies offer staking. Blockchains utilize a validation method to verify the transactions and append them to the chains of blocks. Most networks use the energy-intensive verification mechanism known as PoW. Only blockchains with the PoS mechanism can offer staking to their users.

In the crypto world, we have only a handful of blockchains in the crypto world that work on the PoS mechanism. That’s why only a few currencies in the crypto ecosystem offer staking operations.

Cryptocurrencies You can Stake

Let’s explore a few crypto assets that you can stake to create passive income for yourself:

• Cardano: Cardano is environment-friendly and works on the PoS mechanism.
• Polkadot: Polkadot is a crypto protocol that allows various blockchain networks to connect with each other.
• Solana: Solana is known for its fast transactions and low fees.
• Ethereum: Ethereum is still not fully transitioned to PoS, but it’s trying to convert its consensus mechanism.

These are a few examples of digital assets that you can try. However, you can find many other assets that can be staked.

Advantages of Staking Crypto

Staking crypto offers several advantages. Let’s look at some of these advantages:

• Passive Income: If you do not need to sell your cryptocurrency tokens in the near future, staking allows you to earn passive revenue. You would not have received this income from your cryptocurrency investment if you had not staked it.
• Support Your Favorite Project: Staking also contributes to the security and efficiency of the blockchain projects you support. By staking some of your coins, you enhance the blockchain’s resistance to attacks and its ability to conduct transactions.
• Easy to Start: There is no complex process involved in the staking which means anyone can start very quickly. You just need to have the right crypto assets in enough quantity to get started.

Potential Risks of Staking Crypto

There are a few crypto risks that each person should be aware of:

• Cryptocurrency values are volatile and can decrease rapidly. If the price of your staked assets plunges significantly, the loss may outweigh any interest you earn on them.
• Staking may compel you to lock away your coins for a set period. You cannot do anything with your staked assets during that time, including selling them.
• To unstake your cryptocurrency, you may have to wait seven days or longer.
• The main risk is that staked asset might lose its price. If someone offers unbelievable high returns, the price dump can happen sooner than you realize.

Getting Started with Crypto Staking

Is Staking Crypto Worth It? Can You Make Real Money in it?

The short answer is yes, you can make real money by staking. I think it is the best way to utilize your digital assets because you can make passive income without selling. But, you must be careful of the projects offering too much APY. Such projects’ asset price often plunges, and you lose your hard-earned money.

Can You Stake Bitcoin?

Bitcoin blockchain doesn’t allow you to stake because it is developed on the Proof of Work mechanism. However, many platforms offer interest for staking your bitcoin holdings.

Can You Stake on Coinbase?

Yes, the users of the crypto exchange Coinbase have the opportunity to stake their assets for passive income. Your staked amount is locked in the liquidity pool, and you earn a percentage as a reward for staking.

Is Staking Crypto Safe?

Without a doubt, staking crypto is a valuable feature in cryptocurrencies. Staking reward is similar to the stock dividend you receive for holding the right stock for a certain period. However, crypto assets are volatile in price. For example, if you are receiving 10% APY for staking, the coin loses 50% of its value. You will be at a loss even after receiving a 10% dividend.

But, this volatility can be good for you. Consider the above-given example, but the price appreciates 50%. You will get more than you can imagine. Therefore you must spend a lot of time researching the project you want to invest in.

Closing Thoughts

We have focused on the question, “what is staking?” there’s much more in the crypto ecosystem. The whole space has become a sector of innovation. Investors with long-term plans can leverage staking to make good APY without selling their assets. Each user must carefully review the terms of the staking platform before depositing their assets.

However, you should be careful in this sector because once your assets are gone, there’s no guarantee of retrieval. You should work with platforms that are regulated and have high-security standards. If you find something fishy, act cautiously.