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What Is Staking in Cryptocurrency?

The crypto you lend serves as collateral on blockchains that use PoS (proof-of-stake) methods. Your funds serve for confirming transactions or prolonging loans. You get tokens or interest as a reward for your contribution. Learn more from this step-by-step guide.
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Staking is an exciting crypto investment option that becomes more popular every day. The basic idea is simple – you lend the digital assets with the goal of acquiring a specific benefit. 

The crypto you lend serves as collateral on blockchains that use PoS (proof-of-stake) methods. Your funds serve for confirming transactions or prolonging loans. You get tokens or interest as a reward for your contribution.

How Crypto Staking Works

Staking crypto is a passive investment option. If you plan on holding PoS currencies, this opportunity can help to profit during that time. The process starts by staking the chosen crypto and locking the tokens into the selected blockchain. 

The network will use tokens to achieve consensus (PoS) and validate transactions.  You can be a validator, which requires a high investment. For example, it takes over 30 ETH to become a validator on the Ethereum 2.0 network. The alternative is delegation, which involves joining pools created by validators. Once the predicted time frame for staking expires, you can get your reward.

Step By Step Guide for Staking Crypto

As we mentioned, becoming a validator requires high amounts of crypto. That’s why we’ll focus on delegation, which is a chance for smaller investors. Here is a step-by-step explanation on how to stake crypto:

  1. Pick the desired wallet. You’ll need a wallet that supports PoS cryptos, such as Ethereum. We have the list of the top crypto wallets currently available.
  2. Weigh different options. Apart from different crypto coins, you can also find various staking programs available. Check out our crypto exchange reviews and learn about the different features offered by each platform. The offers vary on the interest, minimum amount required, lock-up duration, etc.
  3. Acquire the desired crypto funds. Once you pick the desired staking option, get those crypto funds. You can trade another crypto you have or use fiat money to buy tokens.
  4. Pick the pool and finalize the staking deal. It’s time to choose the staking pool and pick the amount to invest. Once you are happy with all the terms, finalize the deal.
  5. Be patient and wait to reap the rewards. Many deals are tempting, and you can profit significantly if you pick the right offer.

Pros and Cons of Staking Crypto

Each investment option comes with benefits and risks. It’s up to you to outweigh them, but we’ll try to help by giving an overview.

Here are the pros of staking crypto:

  • Earn passive income. Apart from choosing the offer and agreeing on a deal, you don’t have to do anything to earn from staking.
  • Use multiple tokens. Depending on the platform, you’ll find staking is available with different coins.
  • No large investments are necessary. You don’t have to buy pricey computer hardware or invest large sums. Staking is a good opportunity for beginners.
  • Potential value increase. If the value of the crypto you picked goes up in the future, you could earn even more with the return on your staking investment.

Now, here are some drawbacks of this investing option:

  • Crypto coins are volatile. Nobody can guarantee that a coin won’t lose value over time.
  • You need to give your crypto away. It’s temporary, but you can’t assess your coins during the duration of the staking deal.
  • Potential taxes. If you earn with this investment, your gains might be taxable.

Popular Crypto Staking Coins

How to select the right coin to use for crypto staking? It’s mandatory that tokens support PoS, which means Bitcoin isn’t an option. Here is which coins you could try:

  • ADA. Many call Cardano the main competitor of Ethereum. The network and coin are both on the rise and can be a good investing opportunity.
  • ANKR. Anks offers node hosting solutions. This platform launched in 2017 and has one of the biggest market caps among staking coins.
  • BNB. It stands for Binance coins. Since this is a reputable crypto exchange, it offers good deals for staking this token.
  • DOT. It’s short for Polkadot, and it’s famous because one of the Ethereum co-founders launched it.
  • ALGO. Algorand aims to keep decentralization and security while optimizing the blockchain scalability issue. The idea is exciting, and it can be a fine choice for staking.

 

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