August 2, 2023
13 min read
While the cryptocurrency market is having cool-down staking crypto can be a great way to earn passive income by partaking in network operations and helping different projects with enhancing their security and decentralization. Crypto staking is a long-term investment strategy that offers lucrative rewards at times.
First, let's start with the definition. Staking happens when a user locks up their own crypto assets in order to earn rewards - gaining more of the same coins or tokens. The staked amount, method, and duration differ based on the project and blockchain used. Once your coins are staked you won't be able to use the staked funds for the amount of time that you select in your staking contract. Popularity of crypto staking has been on the rise, because of the lucrative passive rewards that it offers in order to increase your crypto holdings.
Crypto staking involves users depositing their digital assets into a designated account or blockchain network, thereby helping to authenticate transactions while earning rewards. To participate, users must secure a specified quantity of cryptocurrency and typically need a unique wallet for staking. The locked cryptocurrency is used to validate transactions on the blockchain, with the validation and rewards process differing across cryptocurrencies and blockchains, usually tied to the network's consensus mechanism, like Proof-of-Stake (PoS) or delegated Proof-of-Stake (DPoS). Stakers receive additional tokens as rewards, with the amount varying based on the specific blockchain and cryptocurrency, and these rewards can be substantial for early staking adopters.
Staking pools are collective cryptocurrency resources where several users pool their assets to improve the probability of earning rewards. These pools even permit users with less than 32 ETH to participate, thus removing the need for deep technical expertise. Before you can join a staking pool, you usually need to move funds into a crypto wallet. Once you've accumulated sufficient funds, you can choose a staking pool and contribute by transferring coins from your wallet. But remember, staking pools take a slice of your earnings as commission, which means you won't pocket the entire reward. Some folks also argue that these pools could become overly costly and hold undue influence over a blockchain.
1. Understand Staking
Before you leap into the world of staking, familiarize yourself with its concept and operations. Crypto staking allows you to earn passive income by holding coins in a wallet and supporting the operations of a PoS-based blockchain. However, staking also involves risk, as the staked coins are often locked for a certain period and their market value can fluctuate.
2. Delve into the Crypto Project
Behind every staking coin is a project with unique goals and strategies. When selecting a staking coin, it's crucial to conduct an in-depth analysis of the project's utility, its development team, roadmap, and community engagement. A solid project usually has a robust and transparent development team and an active community and offers practical solutions that are demanded by the market. Don't forget to do your own research.
3. Evaluate Profitability
Profitability, often presented as an annual percentage yield (APY), is a major factor in choosing a staking coin. Staking rewards can significantly vary across cryptocurrencies, so be sure to compare the potential earnings.
4. Assess Long-term Potential
The long-term potential of the coin plays a vital role in your staking decision. A staking coin might promise high returns, but if its market value plunges, your investment could be at risk. Look for coins with solid use cases, innovative technology, and the potential for growth in the long run.
5. Understand Risks Involved
Every investment comes with risks, and staking is no exception. Market volatility can lead to a decrease in the value of staked coins. There's also the risk related to the project's failure or technical glitches in the staking platform. Always be ready to absorb some level of risk, and remember, higher returns typically come with higher risks.
6. The Staking Process and Requirements
The staking process and requirements vary across different cryptocurrencies. Some might require you to hold a minimum quantity of coins, lock your coins for a specific period, or run specific nodes. Make sure you understand and are comfortable with the staking protocol of the coin.
7. Liquidity Considerations
Your staked coins are often locked and cannot be sold immediately. If you need quick access to your investment, staking may not be the best option. Always consider your personal financial situation and liquidity needs before diving into staking.
8. Prioritizing Security
Finally, security is paramount in the world of cryptocurrency. The platform where you stake your cryptocurrencies should be reliable and secure. Hardware wallets or trusted staking platforms are often good choices.
Staking rewards are incentives for participants who stake (lock up) their cryptocurrencies in a network. These rewards can be seen as similar to interest in a traditional bank account.
Here's how it works: In a proof-of-stake (PoS) blockchain, stakers validate new transactions and secure the network. Instead of using computational power to mine new blocks (as with Bitcoin and proof-of-work systems), a PoS system relies on the number of coins a participant is willing to "stake" or lock up as collateral.
When a participant stakes their coins, they are essentially showing that they have a vested interest in the network and its good behavior. In return for this staking, they have the opportunity to earn rewards.
The rewards can come in various forms. Most often, they are:
The specific rate of return from staking rewards can vary greatly depending on the network and the amount of the cryptocurrency being staked. Some networks may offer a fixed rate, while others might adjust the rate based on the total number of coins currently being staked in the network.
Ethereum, the second-largest cryptocurrency by market capitalization, offers several different options like smart contracts, decentralized applications, NFTs and the ability to create new cryptocurrencies. In 2021 Ethereum initiated a significant upgrade called Ethereum 2.0 and moved from PoW to PoS consensus mechanism in order to improve its network congestion, high gas fees and scalability issues. Proof-of-Stake mechanism, also known as the Beacon Chain, introduces validators who lock up their Ethereum as "stake" to secure the network and validate transactions.
Staking involves depositing a minimum stake of 32 ETH to enable validator software, granting you the responsibility of storing data, processing transactions, and contributing new blocks to the blockchain. Staking Ethereum can be done via three options: staking through a crypto exchange, staking pools, or running your own node(s).
Solana is a purpose-built blockchain platform that provides a foundation for hosting decentralized and highly scalable applications.
Staking Solana involves token holders assigning their SOL tokens to validators, increasing the validators' voting weight. This act, known as "delegating," does not transfer ownership or control of the tokens, and token holders maintain control at all times. Validators earn trust as they accumulate stake delegations, and the network reaches consensus through Proof of Stake by weighing votes based on the proportion of stake delegated to each validator.
Cardano (ADA) is a decentralized blockchain that utilizes a proof-of-stake (PoS) consensus mechanism, offering improved efficiency compared to traditional proof-of-work (PoW) networks.
Ada, the native cryptocurrency of Cardano, is rewarded to users who contribute to the blockchain by participating in staking pools and performing work on the network.
Binance coin (BNB) is the cryptocurrency that was created by the Binance crypto exchange. With a market cap of 36 Billion it offers a 5.0%* yearly yield on staking their token.
By staking your BNB, you allow the exchange to temporarily utilize your tokens to support the operations of the Binance blockchain network, contributing to the security and functionality of the Proof-of-Stake (PoS) network. By keeping your assets staked, you actively participate in verifying transactions, enabling decentralized governance, and enhancing the network's resilience, earning rewards in the form of crypto tokens as an incentive for your long-term commitment.
Polygon symbolized as MATIC, is both a cryptocurrency and a technology platform designed to facilitate connectivity and scalability among blockchain networks. Originally introduced as Matic Network in 2017, Polygon has been dubbed "Ethereum's internet of blockchains.
Staking MATIC can be done via: staking through a crypto exchange, where you lock up your tokens on the exchange or delegate your tokens directly to a public validator. Liquid staking is another approach that allows you to stake funds and earn rewards while still maintaining access to those funds, avoiding lockup periods. Lastly, if you have the necessary resources, you can run your own validator node by renting a cloud server.
The Tron network places emphasis on providing media creators and consumers with increased autonomy, with its TRX token playing a central role. TRX holders have the ability to directly support creators and developers, connect with a variety of DeFi applications, and participate in governance through staking.
By staking TRX with a Super Representative validator, users contribute to network security and earn rewards. Exchange staking offers a straightforward method to earn staking rewards while staking with a validator enables the accumulation of energy, an essential component for smart contracts. Liquid staking can significantly enhance returns for participants.
The Cosmos blockchain utilizes a proof-of-stake consensus mechanism and rewards stakers with the native token, ATOM.
Staking is essential for transaction validation on proof-of-stake blockchains, and Cosmos enables staking rewards for users who contribute their ATOM tokens to support blockchain validation. With staking APYs as high as 22%, Cosmos provides various staking options, such as centralized exchanges, delegating to validators, and running your own validator.
Hedera Hashgraph or Hedera is a decentralized public network that aims to provide a secure and scalable platform for the development of decentralized applications (dApps) and enterprise solutions.
In order to stake Hedera (HBAR), users can delegate their tokens to a network of trusted validators who secure the network and participate in consensus. By staking HBAR, users can contribute to the network's security and governance and earn staking rewards in return for their participation.
Kava is a decentralized finance (DeFi) platform built on the Cosmos blockchain that aims to provide various financial services, including lending, borrowing, and earning interest on digital assets. It offers a cross-chain infrastructure that enables users to interact with different cryptocurrencies.
To stake Kava (KAVA), users can delegate their tokens to validators on the Kava network, who secure the network and validate transactions. By staking KAVA, users can earn staking rewards and participate in the governance of the Kava platform.
NEAR is a blockchain platform designed to enable the development and execution of decentralized applications (dApps). It focuses on scalability, usability, and cost-efficiency to provide a seamless user experience.
To stake NEAR tokens, users can delegate their tokens to validators on the NEAR network who participate in securing the network and validating transactions. By staking NEAR, users can earn staking rewards and contribute to the governance and security of the NEAR ecosystem.
Zilliqa is a blockchain platform that aims to provide scalability and security for decentralized applications (dApps) and enterprise solutions. It utilizes sharding technology to achieve high throughput and transaction speed.
To stake Zilliqa (ZIL), users can delegate their tokens to one of the network's staking providers who validate transactions and secure the blockchain. By staking ZIL, users can earn staking rewards and actively participate in the network's consensus and governance processes.
Band Protocol is a blockchain-based data oracle that links real-world data and APIs to smart contracts across different blockchains. The protocol operates on BandChain, a Cosmos-SDK-based blockchain that ensures compatibility with various smart contracts and blockchain development frameworks.
By utilizing the native $BAND token, BandChain employs delegated Proof-of-Stake for securing the decentralized oracle network and facilitates settlement for transaction fees.
MultiversX, formerly known as Elrond, is a blockchain platform designed to support the development of the metaverse frontier. The network implements sharding technology for state, network, and transactions simultaneously, offering a scalable solution.
The native token of the MultiversX network is EGLD, which serves various purposes such as trading, staking, delegating, paying transaction fees, and participating in governance.
Osmosis is an advanced automated market-making (AMM) protocol developed on the Cosmos SDK. It provides developers with the ability to create and deploy customized AMMs by offering flexible options for curves, fees, and other parameters. The protocol also incorporates a governance mechanism that allows liquidity providers to participate in the decision-making process for their pools.
Staking Osmosis involves lending them to custodial providers or using decentralized lending platforms. You can also run your own validator, which involves participating in nework's consensus and validating transactions. Additionally, you can provide liquidity to decentralized exchanges or delegate your tokens to a validator.
Atomic Wallet is a non-custodial decentralized wallet. AWC is Atomic Wallet's native token that offers one of the highest staking rewards. Besides staking you can also buy, swap, exchange, and convert cryptocurrencies.
To start staking you can install AW wallet, obtain AWC and navigate to the staking section, where you can initiate the staking process.
Terra Classic is a public blockchain protocol designed for algorithmic stablecoins. By utilizing open market arbitrage incentives and decentralized Oracle voting, the Terra protocol aims to create stablecoins that mimic the value of various fiat currencies.
Staking Terra Classcic can be done via lending your LUNC to a custodial provider or via a DeFi lending protocol, run your own validator or delegate tokens to a validator.
Flare Network is a decentralized blockchain network that aims to bring smart contract functionality to networks that do not natively support it, such as Ripple's XRP Ledger. It achieves this by integrating the Ethereum Virtual Machine (EVM) to enable smart contracts on the Flare Network.
ICON (ICX) is a blockchain platform that focuses on interoperability, aiming to connect various independent blockchain networks. As the native cryptocurrency of the Icon network, ICX allows users to participate in staking.
Staking ICON involves delegating your tokens to a representative node through a supported wallet or staking platform. By staking ICX, you contribute to network security, consensus, and governance while earning staking rewards in return.
Tezos is a decentralized blockchain platform that enables the creation and execution of smart contracts. Its unique self-amending mechanism allows for network upgrades without requiring hard forks.
To stake Tezos (XTZ), you can delegate your tokens to a baker (validator) through a supported wallet or delegation service, enabling you to participate in the proof-of-stake consensus and earn staking rewards. Delegating your XTZ tokens involves entrusting them to a baker who will validate transactions on your behalf, and you will receive staking rewards based on your delegation.
Komodo is a blockchain platform that offers privacy, security, and interoperability features. It enables developers to create their own independent blockchains and launch decentralized applications (dApps).
Komodo's native cryptocurrency, KMD, can be staked to earn rewards and contribute to the security and governance of the network. By delegating your KMD, you participate in the proof-of-stake consensus mechanism and receive staking rewards for your contribution to the network.
VeChain is a blockchain platform that focuses on supply chain management and business processes. It aims to enhance transparency and traceability by utilizing blockchain technology. VeChain's native cryptocurrency, VET, can be staked to earn VTHO, the fuel for executing transactions and smart contracts on the VeChainThor blockchain.
By staking VET, you contribute to the network's security and stability while earning rewards in the form of VTHO tokens.
*APYs are subject to change
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