What Is Staking In Crypto? A Beginner’s Guide

Staking is a process that allows individuals to participate actively in securing and maintaining a blockchain network. By staking their cryptocurrency holdings, users can help validate transactions and create new blocks while earning rewards in return. This practice not only enhances the security and decentralization of the network but also provides an opportunity for investors to earn passive income. By staking in crypto assets, individuals can contribute to the growth of the blockchain ecosystem while reaping the benefits of their participation.

Understanding cryptocurrencies can sometimes be challenging, especially with new concepts emerging regularly. One such term is “staking”. If you’ve been pondering the question, “What does staking mean in the realm of cryptocurrency?”  then this beginner’s guide is for you. We’ll cover the steps for staking in crypto, the best crypto staking coins in 2023, and the benefits of staking in crypto.

What Is Staking In Crypto?

Staking in crypto has gained significant popularity as a way for individuals to actively participate in the blockchain ecosystem while earning passive income. It plays a crucial role in the consensus mechanism of certain blockchain networks, such as Proof of Stake (PoS) and Delegated Proof of Stake (DPoS).

In a PoS-based blockchain, the staking process involves users locking up a certain amount of their cryptocurrency in a designated wallet, commonly known as a staking wallet. By doing so, they contribute to the network’s security and consensus protocol. The more coins a user stakes, the higher their chances of being chosen to validate transactions and create new blocks. This mechanism is often based on a random selection process weighted by the number of coins staked.

Stakers are typically rewarded with additional cryptocurrency for their participation in maintaining the network. These rewards can be in the form of newly minted coins or transaction fees generated within the network. The exact reward structure varies depending on the specific blockchain protocol.

Staking in crypto offers several advantages to participants. First, it provides a way to earn passive income by holding and staking their cryptocurrencies, potentially yielding higher returns compared to traditional savings accounts. Second, staking in crypto helps to secure the blockchain network by encouraging token holders to act honestly and maintain their stake in the system. Lastly, staking in crypto allows users to actively contribute to the growth and development of the blockchain ecosystem, fostering decentralization and community engagement.

It’s worth noting that staking does come with risks. The value of the staked cryptocurrency can fluctuate, potentially affecting the overall investment. Moreover, there may be certain requirements, such as minimum staking periods or penalties for early withdrawal, depending on the blockchain network.

Also Read: What is Crypto Staking? One Way to Earn Passive Income

Steps to Stake Crypto

Staking in crypto may sound complex, but it can be quite simple when broken down into step-by-step instructions.

Step 1: Research Staking Coins

Before you can stake, you’ll need to decide on the cryptocurrency you wish to stake. Some popular coins for staking include VICS, Ethereum 2.0, Polkadot, and Cardano.

Step 2: Purchase Coins

Once you’ve selected a coin, the next step is to purchase the desired amount from a cryptocurrency exchange.

Step 3: Transfer to a Compatible Wallet

After purchasing, transfer your coins to a wallet that supports staking. This could be a hardware wallet, a software wallet, or even a staking platform.

Step 4: Start Staking

Once your coins are in a suitable wallet, you can start the staking process. This usually involves selecting an option to ‘stake’ or ‘delegate’ your coins within the wallet interface.

Step 5: Monitor Your Staking Rewards

Once staking, monitor your rewards regularly. These will typically be added to your wallet automatically.

Step 6: Unstaking

If you decide to stop staking, you can often ‘unstake’ your coins. However, there may be a waiting period before you can transfer or sell these coins.

Step 7: Report Earnings

Finally, remember that staking rewards are often treated as income for tax purposes. Be sure to report these earnings on your annual tax return.

Best Crypto Staking Coins In 2023

In 2023, some of the best crypto staking coins offer competitive staking rewards and have strong underlying blockchain networks.

1. RoboFi

RoboFi is a blockchain-based DeFi platform that offers a diverse range of staking services for multiple cryptocurrencies. Users can stake cryptocurrencies like VICS, Ethereum (ETH), and more on the RoboFi platform. Through these staking services, users can earn rewards on their staked assets.

The rewards obtained from RoboFi staking vary depending on the specific cryptocurrency being staked and the duration of the staking period. Generally, longer staking periods yield higher rewards, while shorter periods provide more flexibility and liquidity. This allows users to select a staking strategy that aligns with their investment goals and risk tolerance.

Besides staking rewards, RoboFi also offers other DeFi services, including decentralized exchanges and liquidity pools. These services enhance users’ access to cryptocurrency markets and enable them to earn rewards through various methods. Overall, RoboFi presents a comprehensive platform that encompasses a range of DeFi services, providing cryptocurrency holders with opportunities to generate passive income from their investments.

2. Snapbots.io

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.

3. Polkadot

Polkadot is a multi-chain platform that facilitates interoperability and information sharing among different blockchains. It allows independent blockchains, known as parachains, to connect and communicate with each other, providing scalability, security, and enhanced functionality to the network as a whole.

Through staking DOT tokens on the Polkadot network, users can actively participate in securing the network and earn staking rewards. They can become validators or nominate validators who are responsible for validating transactions and creating new blocks. By staking their tokens, users contribute to the network’s consensus mechanism and have the ability to influence the platform’s governance by voting on proposals and decisions.

Polkadot’s interoperability and staking mechanism create an ecosystem where different blockchains can collaborate effectively. This enables developers to leverage the strengths of various chains and build innovative decentralized applications (dApps) that can benefit from the shared resources and capabilities offered by the Polkadot network. Ultimately, Polkadot aims to foster a scalable and secure environment for blockchain interoperability, empowering users to actively participate in network operations and governance.

4. Cardano

Cardano serves as a blockchain platform meticulously crafted to deliver a robust and scalable foundation for the creation of decentralized applications (dApps). Its primary objective is to ensure heightened security while facilitating the development of dApps. Its primary goal is to address scalability and security concerns within the blockchain space. By staking ADA, users can potentially become slot leaders and contribute to the creation of new blocks while earning rewards in the form of additional ADA tokens.

What sets Cardano apart is its commitment to a research-driven approach, incorporating peer-reviewed academic research and formal methods. This approach ensures the development of robust and rigorously tested protocols. Cardano strives to strike a balance between scalability and sustainability, aiming for high transaction throughput, low fees, and energy efficiency. By providing a secure and scalable platform and offering staking opportunities for ADA token holders, Cardano aims to foster the growth and adoption of decentralized applications, contributing to the advancement of the broader blockchain ecosystem.

5. Cosmos

Cosmos is a decentralized network of independent blockchains that can seamlessly interoperate with one another. This interoperability allows for the transfer of assets and data across different chains within the Cosmos ecosystem.

Staking ATOM tokens on the Cosmos network provides users with the opportunity to become validators or delegate their tokens to validators. By doing so, they contribute to the security and governance of the network while earning staking rewards.

Validators play a crucial role in maintaining the consensus protocol of the Cosmos network by validating transactions and creating new blocks. Meanwhile, token holders who delegate their ATOM tokens to validators also contribute to the network’s security while earning rewards for their participation.

Additionally, stakers have the ability to participate in the governance of the Cosmos ecosystem by voting on proposals and decisions that shape the future development and direction of the network. Overall, Cosmos offers a decentralized and interoperable framework where staking ATOM tokens allows users to actively engage in network security, governance, and earn rewards for their contributions.

6. Tezos

Tezos is a self-amending blockchain platform that allows stakeholders to govern the protocol’s upgrades. Through its liquid proof-of-stake (LPoS) consensus mechanism, users can stake XTZ tokens on the Tezos network to secure the platform and earn rewards. This active participation in the network helps maintain its integrity and security.

By staking XTZ tokens, users become part of the decentralized governance process of Tezos. They can propose and vote on protocol upgrades and amendments, shaping the platform’s evolution. The self-amending nature of Tezos eliminates the need for hard forks, enabling seamless and efficient upgrades to the protocol. This inclusive governance model, combined with the LPoS consensus mechanism, ensures that stakeholders have a direct say in the development and direction of the Tezos blockchain while earning rewards for their contributions to network security.

Also Read: 13 Best Crypto Staking Platforms in 2023

Benefits of Staking Crypto

Staking in crypto refers to the process of holding and actively participating in a proof-of-stake (PoS) blockchain network. Unlike proof-of-work (PoW) systems, where miners solve complex mathematical problems to validate transactions and secure the network, proof-of-stake relies on validators who hold and “stake” their cryptocurrency as collateral. Here are some of the benefits of staking in crypto:

1. Earn passive income

Staking in crypto allows you to passively earn additional cryptocurrency rewards by holding and staking your tokens. The more tokens you stake, the more rewards you can potentially earn. It provides a consistent income stream without the need for active trading.

2. Support the security and operation of blockchain networks

By participating in staking, you actively contribute to the security and consensus mechanism of the blockchain network. Your stake helps validate transactions and secure the network, making it more resilient against attacks and enhancing its overall integrity.

3. Participate in network governance through voting rights

Stakers often gain voting rights, allowing them to participate in the decision-making processes of the blockchain network. This empowers stakers to influence protocol upgrades, network parameters, and other important decisions, fostering a more democratic and inclusive ecosystem.

4. Opportunity for investment diversification

Staking crypto provides an opportunity for diversifying your investment portfolio. Instead of solely relying on price appreciation, staking crypto allows you to actively participate in the growth and success of different blockchain networks. By staking across various networks and cryptocurrencies, you can spread your risk and potentially earn rewards from multiple sources

Conclusion

Staking in crypto has emerged as a lucrative and participative way to enhance the blockchain ecosystem. Understanding what staking is, how to stake crypto, and the best coins for staking can help you make the most of this opportunity. As with all investments, it’s important to do your research and understand the risks involved. 

In addition, staking provides a unique opportunity for individuals to actively contribute to the security and decentralization of blockchain networks. By staking their cryptocurrency holdings, users help validate transactions and maintain the integrity of the network, earning rewards in return. This active involvement in the blockchain ecosystem promotes a sense of ownership and community participation, fostering a more inclusive and decentralized financial landscape. Moreover, as the popularity of staking continues to grow, innovative staking platforms and services are being developed, offering users a wide range of options to choose from based on their preferences and investment goals. So, seize the opportunity, educate yourself, and embark on your staking journey to explore the potential benefits and rewards that this exciting space has to offer. Happy staking!