What Is Staking and How Does It Work

For investors seeking to generate returns on held assets, staking offers a compelling solution.

In staking, assets that you would otherwise just be holding can be transformed into sources of income. Staking allows you to participate in security operations on the blockchain and get rewards for contributions. Today, we’ll discuss the core principles of staking, so you can note it for yourself.

What Is Staking?

Within the cryptocurrency space, staking has become a popular concept. But what is crypto staking? Staking crypto means committing your crypto holdings to a blockchain network for a set period. It helps to secure a certain network and get rewards in exchange. It's similar to earning interest on a savings account, but with cryptocurrency, there's the potential for higher rewards.

You can't stake all cryptocurrencies, only those built on a Proof of Stake mechanism, such as Ethereum, Solana, and Cardano. With PoS, users help secure the network by committing their coins for a set period. As a reward for participating in this process, users get additional tokens. Find out if your chosen cryptocurrency has a staking option before investing.

Crypto staking can be worth it, specifically if you plan to hold tokens for the long term. Here are the benefits that staking can bring you:

  • Passive Income
  • Supporting The Network
  • Potential For Increased Crypto Value
  • High Yields

How Does Staking Work?

Crypto staking works by locking your crypto assets to support the security and operation of a blockchain network. In exchange, you will be granted a token bonus.

To put it simply, if you own a crypto that allows staking, you can lock part of your holdings and get returns over time. The reason you get rewards is because you commit your crypto assets for the good of the blockchain. Blockchain puts your tokens to work and essentially helps secure the network. It all works through a PoS system. And in return, you gain rewards paid out in the crypto you staked.

Ever heard of Crypto Earn? Wondering how it's different from staking? We'll clear things up for you. Crypto Earn involves lending your cryptocurrency to third parties for profit, with rewards distributed from the profits earned. In contrast, staking rewards you for validating transactions on a particular PoS blockchain, keeping crypto in your possession.

Can I Stake Bitcoin?

Bitcoin's popularity makes many crypto investors consider staking it. Unfortunately, Bitcoin can't be staked.

You can't stake Bitcoin because it doesn't support PoS technology, but it works in alliance with another one called Proof-of-Work. Unlike staking, PoW involves miners competing with computers to solve complex puzzles. The winner gets rewarded with more BTC.

How To Stake Crypto?

Staking may seem confusing for newbies, but it's actually quite straightforward. There are the steps to stake crypto:

  • Choose a Staking-Friendly Crypto
  • Pick a Staking Platform
  • Transfer Your Crypto
  • Delegate or Run a Validator Node
  • Start Earning Rewards

There are multiple ways to stake crypto. The easiest option is a crypto exchange as it requires minimal effort. For potentially higher returns, consider staking pools, but be prepared for more involvement. There’s also liquid staking that keeps tokens tradable but also adds some complexity to the process.

You should consider crypto staking as a tool to diversify your investment portfolio and generate returns, but not as your only approach to cryptocurrency integration. It can be a valuable addition alongside other investment methods.

Are There Risks In Staking?

Crypto staking is considered safe with a cautious approach, but that doesn't mean there are no risks. It's important to weigh the pros and cons before starting. The risks of crypto staking include:

  • Lockup Periods
  • Price Volatility
  • Technical Vulnerabilities
  • Slashing risk

You can lose money staking crypto if the value of the tokens you stake fluctuates. Also, some platforms lock your tokens, and if it happens when the market takes a downturn, you could end up selling them at a loss when the lockup period ends. There’s also a thing called slashing that occurs if validators show malicious behavior and some of the staked tokens get destroyed as a result.

We’ve talked more about the safety of staking in this article

How to Make Profit by Staking Crypto

How Much Can You Earn Staking Crypto?

Staking rewards are the bonuses you get in exchange for locking up your tokens. It's one of the instruments used to thank people for their part in network security and motivate people to stake.

The main terms you should learn when it comes to staking are APY and APR. APY shows the rate of return you can expect on your staked tokens, considering compound interest. In simpler terms, a higher APY leads to potentially bigger profits. APR is a key indicator of the rewards you’ll earn for staking in a certain timeframe. It changes daily and it can be different from the actual rewards you’ll get.

The amount you can earn staking cryptocurrency is influenced by the token you are staking, its quantity, the crypto platform you use and the staking duration. The average APY for crypto staking is from 2% to 6%. Crypto calculators can help you predict your future profits. These online tools factor in everything we've discussed to give you an estimated earning potential.

Staking your tokens limits their availability for trading. To regain full access, you'll need to unstake them. Unstaking means releasing your crypto from the staking process.

The Best Staking Crypto

The best cryptocurrencies to stake are those with attractive rewards, strong and secure networks, and significant market capitalization. But there's no universal answer to this, so we've gathered up the most popular tokes for staking:

NameTickerAverage RateStaking Market Cap
EthereumTicker ETHAverage Rate 4.06 %Staking Market Cap $100.35b
SolanaTicker SOLAverage Rate 7.4%Staking Market Cap $50.59b
CardanoTicker ADAAverage Rate 3%Staking Market Cap $10.38b
PolygonTicker MATICAverage Rate 5.08%Staking Market Cap $2.55b
CosmosTicker ATOMAverage Rate 16.9%Staking Market Cap $2.06b
TronTicker TRXAverage Rate 4.1%Staking Market Cap $5.36b
PolkadotTicker DOTAverage Rate 11.7%Staking Market Cap $5.08b
TezosTicker XTZAverage Rate 5.9%Staking Market Cap $687.38m
AvalancheTicker AVAXAverage Rate 8.4%Staking Market Cap $7.68b
Binance CoinTicker BNBAverage Rate 7.4%Staking Market Cap $93.62b

Make sure to read about the strategies for maximizing staking returns.

Selecting The Right Staking Crypto

With a vast array of tokens available for staking, picking one can be a daunting task. There are the main things to keep in mind:

  • Cryptocurrency Type: Make sure the crypto uses PoS technology. Otherwise, you won’t be able to stake it.
  • Return Rates: The rates vary significantly, so research the APR each token provides.
  • Coin Supply and Inflation: Opt for coins with a limited supply to maintain the value of your holdings over time.
  • Staking Flexibility: Some platforms lock your holding while others keep them liquid. It’s best to pick a more flexible option.

How To Start Staking?

The first step to staking crypto is finding a suitable wallet. Cryptomus can be a convenient option to try. To start staking, you'll need to:

  • Go to the Cryptomus website
  • Click on Services, Personal use, then Staking
  • Choose the cryptocurrency
  • Pick a validator
  • Enter the amount and staking duration
  • Start staking

Make sure you’re aware of the things that may impact your staking profit. The main things you need to consider are:

  • Fees: Always check what fees the platform is charging to avoid unpleasant surprises.
  • Taxes: In the US, staking crypto is considered taxable, and the same goes for the UK. Consider your location, see if this applies, and consult a tax advisor if needed.
  • Security: Protect yourself and your digital assets with strong passwords and 2FA, and never share personal information with anyone.

Crypto tax rules are complex. Get clear answers with our easy-to-follow guide.

Staking Tips To Maximize Rewards

Now, when you understand staking basics, let’s explore strategies to maximize rewards and ensure a smooth experience. The key tips include:

  • Choose A Reputable Platform: Opt for the platforms with strong additional security features and 2FA.
  • Diversify Your Stake: Consider staking various tokens to reduce risks and maximize rewards.
  • Compounding: Pick a platform that automatically reinvests your rewards.
  • Monitor Suspicious Activity: If you suspect unauthorized access or login attempts, make sure to contact the support team.
  • Keep Your Software Updated: It lets you benefit from the latest security patches.
  • Use Staking Calculators: They help to estimate potential staking rewards and even pick a platform that matches your needs.

We hope this guide has helped to familiarize yourself with the principles of staking and how best to choose a token to begin your first stake. While appreciating these facts, it is important for you to take note of the risks and select platforms and tokens wisely. Please, share your staking experience down in the comments!

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