Are you new to the crypto community or online space? If you are, then chances are you must have heard about terms like staking, yield, or even coins like stakemoon. Staking is a way to make more money from crypto without being fully engaged. Instead, it’s a passive income opportunity that many investors utilize in the industry.
So, if you are not fully into crypto but want to make profits from time to time, then staking is a concept you must understand. But people who are new to crypto often ask questions like “what is staking?”, “what’s proof of stake?”, “can I stake all coins?.
Do you have such questions? In this article, you’ll learn everything to know about staking, and at the end of this article, you’ll determine if it is possible to stake any coin you want.
Table of Contents
What is staking in crypto?
There are several ways to own any crypto coin you want. You can either buy the coin, mining, Stake and earn or engage in yield farming. Staking in crypto involves adding funds (or a portion of your cryptocurrency) to a digital wallet and locking or keeping them there for a certain period to support validating transactions for PoS (Proof of Stake) blockchains.
After the staking period, stakers earn rewards, and these rewards are primarily in the form of additional tokens or coins. So, it’s a way to expand your crypto portfolio or make more income using your coins.
How does staking work in crypto?
We stated earlier that mining is a means to earn or get rewarded with more tokens or coins, just like staking. But even though staking is similar to mining, it’s also different from mining. In mining, there is something called proof of work, and blockchains operating with PoS require mining to add new blocks to the blockchain whereas, in proof of stake protocols, chains validate and add new blocks through staking.
PoS and PoW can confirm blockchain transactions without needing a financial institution such as a bank. The significant difference between proof of work and proof of Stake is their energy consumption. But what does staking have to do with adding new blocks?
Staking involves validations that can lock up their coins so that the protocol can randomly choose them at specific intervals to create a block. Since the coins are chosen randomly, it invariably means that those who have a more significant stake are more likely to be selected as the next block validator than those who have low stakes.
This means that with staking, more blocks can be created without relying on specialized mining hardware like the ASICs (Application-specific integrated circuits). In ASIC mining, you will require a significant investment in hardware. But in staking, you are not investing in any hardware. Instead, you are directly investing in cryptocurrency.
Hence, proof of Stake validators is selected based on the number of coins they stake rather than competing for the next block using computational work. The Stake, which is the coin is holding, is what incentivizes validators to maintain security, and as such, if they fail to do that, then the entire Stake might be at risk.
Even though every proof of Stake blockchain has its staking currency, don’t be surprised if you are not rewarded with the currency you staked. That’s because some networks adopt a two-token system, and in that system, the rewards are paid in the second token.
What’s proof of Stake?
Proof of Stake is a newer consensus mechanism that increases efficiency and speed while reducing fees. It’s no wonder many people prefer staking coins, and some networks are now migrating to the proof of stake consensus mechanism (a typical example is Ethereum).
Proof of Stake majorly reduces costs by not allowing miners to solve complex mathematical problems, which is an energy-intensive process. Instead, the transactions within the blockchain are being validated by people who invest in the blockchain through staking. The proof of Stake works by choosing validators based on their quantity of holdings in the associated cryptocurrency.
A blockchain transaction can only be recognized when appended to the blockchain. Validators often carry out the appending, and as a form of reward, most protocols offer coins or tokens to the validators. Therefore, if the blockchain remains secure, it should have a mechanism to prevent malicious users or groups from overtaking the majority of validation. For example, proof of Stake can stay protected by requiring that validators have some amount of blockchain tokens which means that potential attackers will have to possess a significant fraction of the token to mount an attack.
Can I Stake all coins?
The short answer is no—you can’t stake all coins. The first thing you’d realize is that some coins require mining while others require staking, and all that is dependent on whether the coin uses a proof of work or proof of stake consensus mechanism. That’s why coins like Bitcoin don’t require or allow staking.
Cryptocurrencies like Ethereum 1.0 and Bitcoin use a consensus mechanism known as proof of work. Through PoW, the network will throw a massive amount of processing power to solve problems such as validating transactions between people on different sides of the planet. Miners can validate the transactions by competing against other miners to be the first to solve a cryptographic puzzle, and the winners will be privileged to add the latest block of verified transactions to the blockchain and get rewarded with crypto for being able to solve the puzzle.
How To Stake Coins
Staking coins in cryptocurrency is pretty easy, and it can be done in three easy steps:
- Learn about the cryptocurrency you want to stake
Before you can stake any coin, you must ensure that it’s a proof of stake cryptocurrency; otherwise, you won’t be able to stake the coin. The good part is the validation of the stake model is becoming more and more popular because it’s more efficient.
Several coins are running on the proof of stake model. Hence, it would help to choose the proper crypto when carrying out the staking process. Many people mistake selecting a cryptocurrency simply because of the enormous rewards. Who wouldn’t want to buy a cryptocurrency that’s offering 100% or more in yearly staking rewards? The downside is some of those poor investments do plunge in price.
This means that, before you buy a cryptocurrency you want to stake, make sure that you have done your research on the coin and you are confident that the coin will perform well in the long run.
- Buy the cryptocurrency you want to stake
Now you have a good idea of the type of crypto you can stake; you’ll have to buy one or several cryptos before you can begin the staking process. To do that, an easy to go around it is buying from a cryptocurrency exchange that has a built-in staking feature.
Note that not all cryptocurrency exchange platforms offer to stake; hence, you’ll have to be sure that the forum you want to use to buy the crypto provides it. Otherwise, you will be in a bit of a fix since some of those platforms won’t let you transfer the crypto you bought to other platforms.
Don’t know which cryptocurrency exchanges to buy crypto from? Try:
The above-listed exchanges also offer staking for some of their cryptos, which means buying and staking are just a few clicks away. Additionally, with those cryptocurrency exchanges, you’ll be able to transfer your cryptocurrency to other platforms.
- Stake the cryptocurrency through an exchange pool
Finally, the staking process depends on the crypto you bought and the cryptocurrency exchange you purchased it from. If you could buy it from an exchange that supports staking, you will likely find a staking option or page in your portfolio. If you need help doing it, go through the discussions help section.
An alternative route you can use is through staking pools. Staking pools consist of crypto funds that investors worldwide have pulled or gathered together to earn more staking rewards. If you’d rather stake through a pool, then you’d need to transfer your crypto to a crypto wallet afterward; you can select a staking pool and then send the crypto using your wallet.
Top Cryptocurrencies to Stake
Don’t know which proof of stake coins to go for? Here are some of my suggestions.
1. StakeMoon – SMOON
StakeMoon runs on the DeFi protocol and supports the long-term holding of crypto tokens by giving out incentives to users who hold. The protocol is built on the famous Binance Smart Chain and is well known for combining liquidity provision and staking technologies.
SafeMoon can achieve all its goals by following two basic patterns.
There is a 15% tax fee penalty on all its selling transactions. 10% from the 15% tax fee penalty is distributed to the token holders, while the remaining 5% goes to the liquidity pool. The liquid collection serves as dividends for all holdings on the platform.
SMOON encourages staking by rewarding users who hold the coin long-term. They do that because, with the help of those users (staking), they can validate transactions on the platform.
Aside from the 10% tax fee penalty, stakers also benefit from fees generated from senders on the platform. In addition, staking on StakeMoon offers stakers the opportunity to benefit from the staking pool by receiving yield. The protocol also has no redemption time for the secured or locked tokens.
Also, some coins may require Bitcoin accounts before users can stake the coin. Don’t worry; that’s not the case with SafeMoon. As long as you have an exchange account, you will be able to buy SafeMoon using either your Master or Visa cards.
2. Tether (USDT)
There are stable and unstable coins. If you are constantly worried about your coin depreciating after you have staked on that coin, then you should try a stable coin. There are also a lot of stable coin coins, but Tether (USDT) was chosen due to its large trading volume. Because it has a large trading volume, it makes it possible for the user to easily and effortlessly swap USDT for other good tokens.
3. Ethereum 2.0
Ethereum 2.0 is one of the hottest staking options today, and it’s not difficult to guess why. It’s simply because Ethereum is the second-most popular cryptocurrency to date. When you stake or invest in Ethereum 2.0, you’ll become one of its early validators, and you also get to help the system flourish.
Staking on ETH 2.0 is not cheap, and you’ll require a minimum of 32 ETH coupled with the ETH 1 mainnet client. It isn’t cheap, but it’s worth it. Suppose you followed the explosion of the DeFi industry back in 2020. In that case, you’ll know better when we say that more growth can be attributed to the potential rewards you gain from yield farming protocols operating as ERC20 tokens.
4. Tezos (XTS)
Tezos uses a slightly different consensus mechanism: the liquid proof of Stake (LPoS), a version of Proof of Stake. Dating back to 2018, when the coin was born, it caused a significant storm in the crypto space as it quickly became the most extensive initial coin offering (ICO), having over $230 million in investment.
Tezos calls its staking process baking, and its native currency is XTS. So if you are baking, you’ll be rewarded with the native coin. However, if you try to be greedy and carry out malicious activities, you’ll be penalized by having your bake confiscated.
Just like Ethereum, there is a minimum amount of Tezos you must hold before you’ll be able to bake on Tezos. The minimum amount of XTZ coins you should hold before you can stake is 8000, and you’ll also have to run a full node.
Don’t have that much? Do not worry; small coin holders can add small XTZ quantities and share in the baking rewards with third-party services. For example, Tezos is an excellent proof of stake coin and has an APY on XTZ baking ranging from 5% to 6%.
5. Algorand (ALGO)
Algorand aims to drive or initiate low-cost cross-border payments. Algorand also operates under the proof of stake protocol, and as such, the network requires stakers for transaction processing and security. Algorand also requires users to run full nodes.
Third parties support ALGO delegations and annual staking rewards on the platform range from 5% to 10%. The percentage you’ll receive at the end of the year is influenced by the platform you used when staking.
6. Polygon (MATIC)
This is another proof of stake crypto that connects Ethereum-compatible networks. The project increases the scalability of transactions but still collects lower gas fees. That’s why many investors have embraced the web more than even Ethereum.
Thankfully, you can stake MATIC, the native coin on the blockchain, to earn passive income. The rewards for your staking activities come as an additional token to you. You can participate in the staking process as a validator or delegator.
One of the reasons to Stake on Polygon is that the speed of transactions is fast. Also, the coins serve as a way to secure the entire network. Moreover, you’re helping build the web into a more substantial base for your future earnings. But to Stake on Polygon, make sure you have a wallet compatible with ERC20 such as MetaMask pr MyEtherWallet.
Today, if you should go online, you’d realize the number of platforms willing to give you access to thousands of cryptocurrencies. Hence it becomes essential that you select one that meets your needs. Staking crypto isn’t a daunting task; in fact, it’s more of a straightforward process, especially now that many exchanges have incorporated it into their platforms.
After deciding the crypto you want to buy, what’s next is to research how staking works on the crypto you have chosen. Doing that will help you select the best staking method that’ll work best for you and also the one that offers the most rewards.