In the world of cryptocurrency investing, there are two common approaches that investors consider: mining crypto or purchasing it directly from a crypto exchange. However, there is another viable option for those interested in cryptocurrencies, known as crypto staking or staking coins. This alternative allows the crypto-curious to acquire assets in their crypto wallets.
Although “staking” is a relatively recent addition to financial terminology, it is crucial for individuals interested in crypto investing to comprehend its concept, functionality, and the cryptocurrencies it can be utilized to obtain.
While learning about cryptocurrency staking may seem like a step beyond understanding how to buy Bitcoin or navigate a crypto exchange, it can expand your knowledge and transform you into a more informed investor.
This article will guide you through the fundamentals of staking, as well as the platforms available for investors to stake their coins.
Crypto staking involves locking up cryptocurrency holdings to earn rewards or interest. Cryptocurrencies operate on blockchain technology, where transactions are verified and recorded on the blockchain. Staking refers to the process of validating these transactions on a blockchain.
Depending on the cryptocurrency and its underlying technology, these validation processes are known as “proof-of-stake” or “proof-of-work.” Both processes contribute to achieving consensus, which confirms the accuracy of transaction data.
However, consensus requires active participants. Staking occurs when investors hold or lock up their crypto holdings in their crypto wallets, actively participating in the consensus mechanisms of blockchain networks. Stakers play a role in approving and verifying transactions on the blockchain.
As a reward for their participation, stakers receive rewards specific to the network they are staking on. The nature of these rewards varies depending on the network.
An analogy to understand crypto staking is depositing cash in a savings account. The depositor earns interest on their money while it remains in the bank. Similarly, staking coins can be likened to earning interest on your investment.
Crypto staking is primarily a passive activity for investors. When an investor stakes their crypto holdings, they essentially leave them in their crypto wallet. The network then utilizes these holdings to create new blocks on the blockchain. The probability of having one’s holdings selected increases with the amount of crypto being staked.
When a new block is created, the investor’s holdings are used to validate the information included in that block. Since the coins already contain data from the blockchain, they can serve as validators. As a reward for allowing their holdings to be used as validators, the network grants rewards to the staker.
To initiate crypto staking, an investor should follow these five simple steps:
Step 1: Choose a cryptocurrency or coin for staking
To begin staking cryptocurrency independently, investors need to decide which coin they want to stake and purchase it.
Step 2: Understand the minimum staking requirements
Each cryptocurrency may have specific minimum requirements for staking. For instance, Ethereum (ETH) currently requires a minimum of 32 ETH (approximately $47,000 at the time of writing) to start staking.
Step 3: Download the software wallet for the chosen coin
Select and download a suitable crypto wallet to store the coins for staking. This often involves visiting the official website of the respective cryptocurrency and obtaining the corresponding wallet.
Step 4: Determine the hardware requirements
Staking crypto requires a consistent and uninterrupted internet connection. A regular desktop computer is typically sufficient for the task, but some users might opt for a Raspberry Pi to reduce electricity costs.
Step 5: Initiate the staking process
Once the hardware is determined and the software wallet is downloaded, investors can begin staking their chosen cryptocurrency.
Tip: For certain cryptocurrencies like Tezos and Cosmos, if investors hold the native tokens in a wallet provided by platforms like Coinbase, the staking process can be automated. The exchange handles the staking on the backend, and users only need to hold the coins in their wallets.
Please note that staking procedures and options may vary depending on the specific cryptocurrency and wallet providers. It’s advisable to refer to the official documentation and guidelines provided by the respective cryptocurrency networks or platforms for accurate and up-to-date information.
Lower energy consumption
PoS networks are significantly more energy-efficient compared to PoW platforms. While mining machines require constant electricity supply and consume substantial power, validator nodes can be run on an average computer.
Simpler rewards acquisition
Earning rewards through crypto staking and mining differ greatly. Almost anyone can stake a small amount of crypto on a crypto exchange and generate some form of yield. On the other hand, becoming a miner often demands a larger commitment. It involves acquiring expensive specialized hardware and dedicating time to learn its operation.
No need for specialized equipment
Anyone can become a validator using a regular computer, as long as they have sufficient funds and can maintain a consistently running node. Conversely, mining requires specialized hardware.
Compared to PoW, PoS is a relatively new concept. Developers and users have had less time to thoroughly test its security capabilities, raising some concerns. While PoW networks benefit from a high hash rate that provides robust encryption, the level of security provided by PoS networks remains unclear. In theory, an adversary with significant resources could potentially gain control over a PoS network relatively easily.
Vulnerability to takeovers
PoS networks can be controlled by individuals who hold a substantial number of tokens. Unlike attacking a PoW network that would require amassing considerable computing power, taking control of a PoS network only requires financial resources. Additionally, PoS coins are often pre-mined, meaning the entire supply is initially created by a small group of people. Users must trust that the core developers did not retain a significant number of coins for themselves, and that an external third-party won’t acquire enough coins to seize control of the network. Moreover, it is widely known in the industry that founders of crypto projects frequently distribute a significant portion of pre-mined coins to insiders.
Increased centralization risk
Blockchain technology was originally designed to promote decentralization. However, in some cases, PoS networks can inadvertently become more centralized due to the higher cost associated with becoming a validator compared to a miner. For instance, Ethereum (ETH) plans to transition from PoW to PoS, requiring 32 ETH (approximately $51,000 as of July 2022) to become an ETH validator. As a result, many centralized exchanges have opted to become validators of PoS coins, sharing staking rewards with their customers.
Not too long ago, the concept of proof-of-stake consensus was relatively novel, and opportunities for staking coins were scarce.
An increasing number of projects now employ PoS, and certain exchanges have simplified the process of earning crypto through staking.
Below is a compilation of prominent proof-of-stake coins, along with their average annual yield presented as a percentage of the staked cryptocurrency amount:
RoboFi is a decentralized finance (DeFi) platform that operates on the blockchain. It offers users a range of staking services for multiple cryptocurrencies. Some of the cryptocurrencies supported by RoboFi for staking include VICS, Ethereum (ETH), and others. By utilizing RoboFi’s staking services, users can earn rewards on their staked assets.
The rewards provided through RoboFi staking can vary based on the specific cryptocurrency being staked and the duration of the staking period. Generally, longer staking periods result in higher rewards, while shorter periods offer more flexibility and liquidity. This allows users to select a staking strategy that aligns with their investment goals and risk tolerance.
In addition to staking rewards, RoboFi offers other DeFi services such as decentralized exchanges and liquidity pools. These services aim to enhance users’ access to cryptocurrency markets and enable them to earn rewards through various methods. Overall, RoboFi is a comprehensive platform that provides a range of DeFi services and opportunities for cryptocurrency holders to generate passive income from their investments.
SnapBots.io is an artificial intelligence (AI) research firm that focuses on the application of AI, decentralization, and robotics in the financial industry. They aim to help users gain yield from their passive cryptocurrency holdings.
Their services seem to be designed to be simple and easy to use, with an emphasis on mitigating risk. They offer features such as a crypto wallet and staking, which allows users to earn rewards by participating in the network of a particular cryptocurrency.
SnapBots also appears to be involved in crowdsourcing and provides educational content on topics like the differences between centralized exchanges (CEX) and decentralized exchanges (DEX), the concept of liquidity pools, the rise of non-fungible tokens (NFTs), and the importance of trading psychology.
Positions itself as the “internet of blockchains,” aiming to connect disparate blockchains to facilitate interchain transactions, commonly referred to as “interoperability.”
ATOM staking is supported by Coinbase, Binance, and Kraken and offers an annual yield of approximately 21%.
Serves as a smart-contract platform akin to Ethereum but with a multi-layered architecture. It consists of a layer for ADA coin transactions (the digital currency powering the Cardano proof-of-stake network) and another layer dedicated to decentralized application (dApp) development.
Cardano prides itself on utilizing scientifically tested theories derived from peer-reviewed research during its development process. ADA staking has historically provided yields of up to 4%.
A relatively new cryptocurrency launched in August 2020. It shares similarities with Cosmos, as it aims to facilitate interoperability and support “parachains,” which are distinct blockchains created by different developers.
Investors should keep in mind that while the aforementioned yields may appear attractive compared to traditional financial markets, they also come with higher risks, as the value of these coins can rapidly depreciate.
There exists a plethora of platforms that enable users to commence staking coins swiftly.
Familiar names in the crypto investment realm, such as Coinbase and Kraken, offer staking capabilities to their users. On these exchanges, investors must actively opt in to participate in staking and reap the associated rewards.
For those seeking specialized staking services rather than traditional exchanges, there are “staking-as-a-service” providers available. Examples of such platforms include MyContainer, Stake Capital, and Staked.
It is crucial to acknowledge that each of these platforms will offer distinct features, regulations, and fees. It is prudent to invest time in researching a few options to ensure that your objectives align with a specific platform before taking the plunge.
Earning crypto through staking cryptocurrency is accessible to anyone. However, it’s important to note that staking alone is unlikely to make someone wealthy unless they possess a substantial amount of proof-of-stake coins.
Staking rewards share similarities with dividend payouts in the stock market, as both offer a passive income stream. By simply holding the right assets in the appropriate location for a certain period, users can earn rewards without active participation. The longer the duration of staking, the greater the potential for profit, thanks to the concept of compound interest.
Nevertheless, unlike dividends, proof-of-stake coins possess specific variables that influence the amount of staking rewards users are likely to receive. To identify the most profitable staking coins, users should conduct thorough research into factors such as:
Furthermore, it is crucial to consider the fiat currency value of the staked coin. Assuming the value remains stable or increases, staking can potentially generate profits. However, if the coin’s price decreases, profits could diminish rapidly.
Staking presents a valuable opportunity for crypto holders to leverage their assets and earn additional rewards. It can be likened to generating interest on cash savings or earning dividends on stock holdings, providing an additional avenue for returns.
In essence, staking involves coin holders allowing their cryptocurrencies to be utilized in the blockchain validation process. In return for their participation, the network rewards them with incentives. This process not only contributes to the security and efficiency of the blockchain but also offers crypto investors the potential to generate further returns on their holdings. Staking thus serves as a mechanism to actively engage with and benefit from the crypto ecosystem.
Robofi is a Defi platform that envisions a marketplace for revolutionary Dao crypto trading bots. Through its IBO (Initial Bot Offering) system, community members can maximize their earnings in an easy, simple, and secure way. We create a safe and transparent environment based on blockchain technologies that help developers bring crypto trading bot platforms to the market. In addition, individuals will have easy access to these bot applications, thereby generating more earning opportunities. RoboFi ecosystem is fueled by the VICS token.
VICS token has a distinctive and enticing concept. VICS is the BEP-20 token, built on the Binance smart chain. It is a core utility token in the RoboFi ecosystem, the reliable crypto trading bot marketplace. One important utility is to own the governance token of DABots and participate in an IBO (Initial Bot Offering) to receive additional incentives. VICS is available on major exchanges for trading.
I'm Carina, a passionate crypto trader, analyst, and enthusiast. With years of experience in the thrilling world of cryptocurrency, I have dedicated my time to understanding the complexities and trends of this ever-evolving industry.
Through my expertise, I strive to empower individuals with the knowledge and tools they need to navigate the exciting realm of digital assets. Whether you're a seasoned investor or a curious beginner, I'm here to share valuable insights, practical tips, and comprehensive analyses to help you make informed decisions in the crypto space.