One way to start building wealth is to earn passive income while still holding onto your original investment.
Crypto staking is the equivalent of dividends or putting your money into a high-yielding savings account. While this might sound complicated, read on to find out what crypto staking is, how to stake your crypto, and how to maximize your earnings.
What Is Crypto Staking?
Crypto staking is a process that involves holding onto a stakable cryptocurrency and participating in the validation of transactions on the blockchain. When you stake your crypto, you are essentially holding onto it and helping to secure the network in exchange for a reward. This reward, called a staking reward, is paid out as additional cryptocurrency.
Staking is an alternative to mining, a complex process involving specialized hardware to solve intricate mathematical puzzles and validate transactions on the blockchain. Staking is a more energy-efficient and less resource-intensive way to earn rewards on a blockchain.
Which Coins Are Stakable?
Not all cryptocurrencies can be staked. Some examples of stakable cryptocurrencies include the following:
- Cosmos (ATOM)
- Tezos (XTZ)
- Ethereum 2.0 (ETH)
To stake your cryptocurrency, you must have a wallet compatible with the staking process and meet any other requirements set by the specific blockchain.
What Is Proof of Stake?
Proof of Stake (PoS) is a consensus mechanism some blockchains use to achieve distributed consensus. In a PoS system, the probability of a person being able to validate a new block and earn the associated reward is proportional to their stake in the network or the number of coins they hold.
Proof of stake(PoS) is an alternative to Proof of Work (PoW), the consensus mechanism used by blockchains like Bitcoin. In a PoW system, the creator of a new block is chosen through a randomized “mining” process, in which computers compete to solve a complex mathematical puzzle. The first one to solve the puzzle gets to create a new block and earn the reward.
Ways You Can Stake Your Crypto
- Pool staking: Pool staking involves joining a group of individuals who pool their resources to stake their coins. This can be a good option for people who don’t have enough coins to meet the minimum threshold for solo staking or don’t want to go through the technical setup required for solo staking.
- Delegated staking involves delegating your coins to a third party, such as a validator or staking service, who will stake them on your behalf. Delegated staking is less hands-on than solo or pool staking, but it also typically comes with a lower reward.
Benefits of Staking Your Crypto
There are several benefits to staking your cryptocurrency, whether you’re a long-term investor or a novice,
- Passive income: One of the primary advantages of staking is the ability to earn passive income. By holding onto and supporting the network, you can receive a share of the transaction fees and newly created coins as a reward without buying any more.
- Increased security: When you stake your cryptocurrency, you are helping to secure the network by validating transactions and thereby adding new blocks to the blockchain. This can help to make the network more decentralized and resistant to attack.
- Influence on the network: Some staking systems allow stakers to vote on important decisions related to the development and governance of the network. This can give you a say in the project’s direction and might allow you to influence its future.
- Potential for price appreciation: If the value of the cryptocurrency you are staking increases, the value of your staked coins will also increase. This can lead to significant returns if the price of the cryptocurrency rises significantly.
- Simplicity: Staking is generally easier than mining, which requires specialized hardware and a lot of energy. All you need to stake your cryptocurrency is a wallet and the coins themselves.
Here Are the Steps To Stake Your Crypto for Passive Income
- Choose a stakable cryptocurrency: Choose a cryptocurrency that offers staking rewards. Not all cryptocurrencies have a staking system in place. Make sure to research and choose a cryptocurrency that fits your investment goals and risk tolerance.
- Set up a wallet: To stake your cryptocurrency, you will need a wallet compatible with the staking process. This will typically involve setting up a wallet with a validator client to connect to the blockchain and participate in the staking process.
- Purchase the cryptocurrency: Once you’ve settled on a stakable cryptocurrency and set up a compatible wallet, you will need to purchase the cryptocurrency. This can be done through a cryptocurrency exchange or by another person.
- Deposit your cryptocurrency into the wallet: After purchasing, you will need to transfer it to your staking wallet. Double-check the wallet address before sending the funds to avoid any mistakes.
- Stake your cryptocurrency: Once your cryptocurrency is in your staking wallet, you can begin the staking process. This typically involves simply holding onto the cryptocurrency and allowing the wallet to validate transactions on the blockchain. The exact procedure will vary depending on the cryptocurrency and wallet in use.
- Collect your staking rewards: As you participate in the staking process, you will earn staking rewards in the form of additional cryptocurrency. These rewards will be automatically deposited into your wallet and can be withdrawn or re-staked as desired.
Here are a few ways that you can maximize your earnings through staking your cryptocurrency:
- Choose a platform with a high return on investment (ROI): Look for platforms that offer a high ROI and compare the fees associated with each one to find the best option.
- Stake a large number of coins: The more you stake, the larger your share of the rewards will be. However, remember that staking many coins may also increase your risk.
- Choose a cryptocurrency with a strong track record: Look for cryptocurrencies with a strong track record of stability and growth. These coins are more likely to appreciate, which can lead to additional earnings through price appreciation.
- Run your node: Running your node requires more effort, but it can be more profitable in the long run. It can also give you more control over how your tokens are used and staked.
- Monitor your staking rewards and reinvest or cash out as desired: Keep an eye on your staking rewards and consider re-investing them to increase your overall holdings or cashing out and using the earnings for other purposes.
It’s important to note that staking does come with some risks, as the value of your staked cryptocurrency will be subject to market fluctuations.
Additionally, the amount of staking rewards you earn will depend on the cryptocurrency you are staking and the overall rate of return for stakers on the specific blockchain. However, for those willing to take on these risks, staking can be a great way to earn passive income from your cryptocurrency holdings.