Crypto Staking Guide

Although most crypto investors start their journey buying and trading coins on a central exchange, advanced investors and users quickly discover that crypto staking can be one of the best ways to accumulate cryptocurrencies. 

The passive income method of crypto staking is often called “staking”. It can be daunting to learn about a new concept in crypto. However, staking provides the essential knowledge that will allow you to understand the potential of your investments and how to use them to generate passive income over time. 

Crypto staking, at a high level, uses your digital assets to generate returns over time (similar to dividends or interest). These returns are often greater than those in traditional finance. But, these returns almost always come from highly volatile crypto assets. There is a risk to be aware of before you lock up your assets in a high-interest staking pool. 

 

What is Crypto Staking? 

To participate in the operation of a blockchain-based proof-of-stake system, a stake is an activity in which a user locks his or holds funds in a cryptocurrency wallet. It’s similar to crypto mining because it helps a network reach consensus and rewards users who participate. 

Staking gives you the ability to validate transactions. This is reflected in how many coins are “locked” within a wallet. Stakers can be incentivized to add transactions or find new blocks on a blockchain, much like they are mining on a PoW-based platform. Other than the incentives, PoS blockchain platforms can be scaled and offer high transaction speeds. 

 

What is Proof-of-Stake? 

Two primary methods that blockchains can validate transactions and guarantee security are Proof-of-Work (PoW), and Proof-of-Stake (PoS). 

The Proof-of-Stake blockchain ( such as Ethereum 2.0 or Solana) uses validators for verifying transactions and maintaining consensus within a blockchain network. Incentives are provided to users who run validator nodes, stake their coins, and earn interest. Validators with staked assets are randomly assigned the validation responsibility in PoS. The size of staked assets can influence the chances of being selected. After the activity and transactions are reviewed, the reward is paid to validators. 

Each chain has its own requirements for validators. Investors can pool or group their tokens in many cases to take part. These are called “staking pools” and allow individual investors to invest in crypto and get rewards over time. 

PoS is well-known for its superior energy efficiency and lower entry barriers. It also has higher scalability than PoW. The Ethereum PoS Model also provides stronger support for Shard Chains, which is one of the most promising scaling options. 

 

Staking: The pros and cons 

There are almost no disadvantages to staking cryptocurrency as it is a passive investment. It is important to take into account the block rewards you earn by staking the coins you own as well as the volatility of cryptocurrency. If the value drops, so does your staking interest. Tap allows you to choose between fiat or stable coins in order to avoid any disagreement. 

Investors can stake coins to participate in the trustless, decentralized process that allows cryptocurrency blockchains to work. The benefits of participating in the blockchain’s inner workings are more than just learning about them. Over time, each staker accumulates rewards, which are typically paid in the native blockchain token. 

Because of the alternative to holding tokens in a wallet or exchange, long-term investors prefer staking them. These assets can earn interest by putting their money to work during their hold period.  

You might wonder, however, if staking crypto is safe. Here are some risks associated with staking cryptocurrency:     

  • Hacking/cyberattacks on the protocol or exchange are possible – this is why some crypto investors hold hardware wallets. 
  • There is a possibility of the coin losing value, particularly in volatile market conditions. You cannot liquidate your holdings if the price drops during the staking period. 
  • If your validator nodes hold staked tokens, they may be punished. 

 

How do I get started?     

Now that you are familiar with the basics of stakestaking, the real question is how do I get started? 

It is not as difficult or overwhelming as you might think. Most large cryptocurrency exchanges, such as Coinbase, are accessible to everyday users. You can also access the website of the project. The process described below is only a starting point. To become a full validator, you will need to invest more and have technical knowledge beyond what this article covers. 

 

How to stake crypto in just 3 steps 

To start staking, you must first choose the crypto you want to stake and purchase the cryptocurrency of your choice. For cash, you do not need anything else than your current balance. 

Here’s a quick summary of the process: 

Step 1: Decide the crypto to stake 

Step 2: Buy crypto 

Step 3: Submit cryptos to a Staking Pool 

 

As mentioned previously, the Proof-of-Stake consensus method must be used to determine which cryptocurrency can be staked. You can also compare fiat values over time and staking payout rates to research the token for investment. 

Coinbase, a popular cryptocurrency exchange, allows you to purchase and stake your coins in just a few clicks. Depending on which token you are using, you might be able to use a decentralized exchange like Uniswap. 

Remember that if you purchase the token from a non-centralized exchange, you will need a crypto wallet to support it. The most popular crypto wallets will vary depending on which coin you are purchasing, but the official website often contains links to reliable software wallets. Although hardware wallets are possible to use for staking, they may require additional software like Ledger. 

To stake on a cryptocurrency exchange such as Coinbase, you simply need to select the “Buy and Stake” option or go to the “Interest” section after purchase to commit to tokens. The process can be simplified by using a central exchange. This comes at the cost of a lower APR. An exchange can help reduce concerns about validator select risk and counterparty risk. 

There are many options available depending on where your crypto is purchased and held. Many wallets offer staking. You will need to create an account for staking, and then choose a validator to join the staking pool. To reduce counterparty risk, ensure that you thoroughly investigate any validator before delegating tokens. 

 

Closing thoughts 

You can earn rewards by staking using your crypto assets or coins. It is similar to earning interest on your cash savings or dividends on stock holdings. 

Stakers are allowed to use their cryptocurrency/cash in the validation process of the blockchain and are paid by the network. Staking could be a way for cryptocurrency investors and currency holders to earn returns. 

Remember that crypto staking is a high-risk investment. It is important to do your research thoroughly and make wise investments. Have fun with crypto staking.

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