Staking cryptocurrency is a popular way of earning generous interest rates from your cryptocurrency holdings. Crypto staking is a significant aspect of the technology that underpins some cryptocurrencies. It helps to have a fundamental understanding of what blockchain networks accomplish. Here are more details of what is staking that you should know.
What is Staking?
Staking is a process of depositing your crypto assets on blockchains to earn passive income on their holdings. This keeps the blockchain consensus running and supports security.
You can think of staking as the crypto equivalent of depositing money in a high-yield savings account. When you put money in a savings account, the bank takes that money and typically lends it out to others. In return for locking up that money with the bank, you receive a portion of the interest earned from lending—despite a very small portion.
Likewise, when you stake your digital assets, you lock up the coins in order to participate in running the blockchain and maintaining its security. In exchange for that, you earn rewards calculated in percentage yields. These returns are typically much higher than any interest rate offered by banks.
Staking has become a familiar way to make a profit in crypto without selling coins. According to Staking Rewards, the total value of cryptocurrencies staked surpassed $280 billion in April 2022.
The mechanism of staking
Staking is only attainable through the proof of stake (PoS) consensus mechanism, which is a particular method used by certain blockchains to select honest users and verify new blocks of data being added to the network.
- Proof of Stake (PoS) is an environmentally friendly consensus of blockchain. This method is an alternative to proof of work, the first consensus mechanism developed for cryptocurrencies. Since proof of stake is much more energy-efficient, it has gotten more popular as attention has turned to how crypto mining affects the market. The PoS consensus creates a decentralized network of nodes or validators. They hold crypto to participate in verifying blocks to earn crypto rewards accordingly. The more crypto in the validators are staked, the bigger the rewards.
Some leading blockchains use PoS or PoS versions, including Solana, Cardano, Tezos, Polkadot, Avalanche, etc.
You may be acquainted with the names Ethereum and Bitcoin miners, as both blockchains use PoW consensus, which needs a high level of processing power. PoS, meanwhile, may save up to 90% of PoW power usage and grow in quantity more efficiently.
Then, PoS is the next-generation consensus that allows the blockchain to expand. It deals with many temporary obstacles of the PoW consensus while maintaining a high level of security and decentralization.
- Staking to reward
When stakers pledge their crypto assets, they receive staking rewards. The more you stake, the more crypto rewards you will earn.
Staking crypto on some blockchains, investors might be required to lock their tokens. Some don’t at all.
For instance, Staking KCS on KuCoin, where users will get the KCS bonus. But staking KCS on the exchange requires investors to lock their assets until the unlocking time. Besides, the amount of KCS as a reward is derived from the exchange’s profits, not from the creation of new blocks or transaction fees.
Benefits of staking
Staking crypto can yield investors dramatic returns if it’s done correctly.
- Investors can multiply their staking benefits.
It means that users may reinvest crypto earnings rather than store them in the wallet. However, blockchains with lock periods make this method inappropriate.
- It’s a cheaper fee to run a PoS node than a PoW miner.
To run a PoW miner, investors must first set up a high-performance computer machine to begin validating blocks and earning mining rewards. The PoW consensus requires a lot of processing power to scale, but the PoS consensus does not.
- Safety: Staking is performed safely because there is a backup.
- Juicy APRs can attract newbies’ interest to the ecosystem.
There is a user base war among blockchains. The blockchain with the most users has a better chance of surviving and thriving fast.
How to start staking crypto?
- Stage 1: Research some of the top cryptocurrencies in the market and select them with the staking mechanism. We will recommend the top 6 blockchain platforms below that give crypto via staking function. Remember to select the one that fits your investment taste.
- Stage 2: Have crypto ready in the wallets.
- Stage 3: Select crypto to begin staking. The rewards vary depending on the current state of the validator. Then choose and lock your crypto to the selected validators.
- Stage 4: Do the math and manage the stake.
Best Crypto Staking coins
As you know, crypto staking is only allowed on blockchains that use the PoS consensus with validators. For some newbies, selecting trustworthy blockchains is hard. As a result, we will show you Market Cap’s crypto staking blockchain list.
Ethereum 2.0 (ETH): 4.15% APR and 10.52% staked ETH.
Cardano (ADA): 5% APR and 71.72% staked ADA.
Solana (SOL): 4.87% APR and 73.75% staked SOL.
Avalanche (AVAX): 8.82% APR and 64.82% staked AVAX.
Polkadot (DOT): 13.97% APR and 53.36% staked DOT.
BNB Chain (BNB): 6.4% APR and 82.43% staked BNB.
In summary, Crypto Staking is a dispensable part of cryptocurrency to understand. Make sure that you understand the terms when you stake your coins. With more and more users holding their coins for longer periods, staking can be a great way to earn interest while doing so.
Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.