Staking is fast becoming one of the popular cryptocurrency investment strategies in the industry. It has become an alternative to the initial mining process with huge limitations and special equipment requirements. Instead, the crypto staking process is less stressful to the investors and involves no cryptographic puzzles to crack.
Moreover, several cryptocurrency networks operate with the Proof-of-Stake consensus mechanism, which requires the staked tokens to validate transactions. In return, the protocols will reward the stakers for providing their crypto coins.
So, if you are wondering whether staking can make you more money, the answer is yes, it can. This article explains how you can make more money by staking your tokens. Also, you will learn the proper ways to stake the best cryptocurrencies that you can stake to maximize your profits. Keep reading.
Table of Contents
- 1 What Is Staking?
- 2 How Does Staking Work?
- 3 What To Consider Before Staking
- 4 How Much Can I Earn From Crypto Staking
- 5 Benefits Of Staking
- 6 Risks Associated With Staking
- 7 How to Stake Cryptocurrencies
- 8 Best 5 Cryptocurrency Coins To Stake
- 9 Conclusion
What Is Staking?
Crypto staking allows users to earn passive income as a reward for locking their crypto tokens. The staking process is similar to the conventional cash deposits in banks where customers are paid interest.
Also, staking is the process that facilitates the validation of transactions in a blockchain. It ensures the delegation of the staked crypto coins to the governance and running of the network as it removes the coins from circulation within the period of lock-up. By staking your coins, you can’t access them until the expiration of the staking time.
How Does Staking Work?
Staking is only possible by using cryptocurrencies that operate with the Proof-of-Stake (PoS) consensus mechanism. Some of the blockchains running on the PoS mechanism include the new version of Ethereum, Polkadot, Cardano, Polygon, etc. Such networks validate transactions and maintain the security and operations on the blockchain using the liquidity that the staked tokens provide.
Unlike blockchains with the PoS mechanism, some blockchains such as Bitcoin operate on the Proof-of-Work (PoW) mechanism. Transaction validations are consummated through solving cryptographic puzzles. So, you can’t stake cryptocurrencies running with the PoW mechanism.
The staking process starts with the investor having the right crypto coins that can be staked. Then, by using coins on PoS protocols, you will lock up your holdings for a given period according to the protocol’s directions on staking.
Usually, the network will have validators responsible for validating transactions through the management of a node. As they do so, it will activate new blocks added to the blockchain.
While some networks operate strictly on rigid staking, some may offer a flexible type of staking. With your former, stakers can’t access their tokens unless the staking time is completed. Also, you will earn higher interest. But the flexible staking process will give your access to your holding once you satisfy their conditions for that. However, your rewards are pretty low with this type of staking.
What To Consider Before Staking
Though staking has some benefits for the stakers, it also comes without some risks. You must understand the tenets in the staking process to curtail potential fund loss.
Below are some factors to consider before staking your crypto coins.
- The price-performance of the crypto token for staking.
- The network, crypto exchange, or liquidity pool to use.
- Period for staking and unlocking.
- Staking rate of the platform used.
- Type of staking process to engage – whether rigid or flexible staking.
How Much Can I Earn From Crypto Staking
The earning from crypto staking is not static but varies based on some factors. In general, your staked tokens can earn you up to a 5% to 20% increase. Note that staking rewards are always in paid in crypto coins as well.
Here are some factors that can affect your crypto staking earning:
- Cryptocurrency Token Used
While some new cryptocurrencies may offer you higher staking interest, you may lose your funds by staking with such tokens. This is because they have low market value, and most investors don’t buy them either for price speculation or a long-term investment. Also, they are susceptible to drastic price fall with time.
You may find it difficult to sell with such cryptocurrency at the end of your staking period. So, you should always research and use prominent crypto coins for staking.
- Number of Staked Tokens
Earning from staking is directly proportional to the number of tokens you stake. Therefore, the higher the staked number, the bigger the rewards you will receive at the end of the staking period.
Also, some networks will appoint validators from investors with a higher number of staked coins. You will have a greater chance of becoming a validator if your locked crypto tokens are more significant.
- Fees From Staking Platforms
Though it will be a reward for your staked tokens, the charge from the staking platform you used to cut deep into it, some platforms could charge higher fees for staking through them. Therefore, you must know the applicable staking fees on any crypto staking platform before using it.
- Stalking Rates
The staking rate does a long way to determine how much money you can make by staking the crypto token. Some networks will offer higher rates for staking their coins. However, you will need to consider the price value of such crypto as it could be a disadvantage if they lack quality market value.
Benefits Of Staking
Staking your crypto tokens comes with some benefits.
- Earning Passive Income
The opportunity to earn more income from crypto holdings is the most popular reason many individuals engage in staking. With the added tokens, the user can make more money without doing extra work. So, utilizing your unengaged tokens can earn you more tokens in the range of 5% to 20% of its value.
- Supports the Security and Operations of Blockchains
With the upcoming blockchains running on the consensus mechanism of Proof-of-Stake (PoS), they require the staking process. This helps them to maintain the security of the network. Also, the staking process enables transaction confirmation and validation on the blockchains.
This means that the networks could only add new blocks to the blockchain when the token holders provide enough liquidity through staking. So, staking maintains the operations of protocols built with the PoS mechanism.
- Network Participation
Through the staking process, the investors become fully involved and committed to maintaining the network. This gives them the participatory right in the network. Hence, they now have voting rights and can influence other decisions concerning the platform’s operations.
- Aids Growth of Stakers Holdings
The rewards of staking are usually in crypto coins. As an investor engages in the process, he will receive more coins as his incentive. This will invariably increase the number of his crypto tokens over a period without more stress. All he has to do is to lock his crypto coins and subsequently grow his holdings through the staking process.
- Eco-friendly Process
Staking doesn’t require some special equipment and machines that run with electricity, unlike Proof-of-Work mining. The latter uses fossil fuel to power that releases carbon contaminants into the atmosphere. So, there is no threat of environmental pollution associated with the staking process. It is more eco-friendly than the mining process.
Risks Associated With Staking
While staking your crypto coins, your attention should not only be on what you can earn. In addition, there are staking risks on your crypto holdings.
- Price Volatility
The significant risk with staking is the volatile attribute of cryptocurrency. The prices of crypto tokens are constantly fluctuating. So, even with a high staking rate, you may end up losing some funds if the cost of the coins crashes.
- Duration of Rewards
The duration of rewards could be a risk to investors. This usually happens in cases where the networks take a more extended period in releasing the staking rewards of their customers. Hence, the investors will invariably lose time to invest their holding into a new staking process.
It’s recommendable that you go through platforms and crypto networks that avail of their staking rewards daily. This will help you circumvent the risk associated with delays in reward durations.
- Staking Period
The period for your crypto staking has its part to play. Also, it depends on the staking that you choose to engage in. By going for rigid staking, you can’t access your tokens until the expiration of the staking period. Where you breach the staking process to withdraw your tokens, there will be a penalty from the crypto protocol.
Alternatively, you may decide to use the flexible staking process that will allow you to access your funds whenever you need them. Furthermore, some networks have a waiting period during the unlocking process of the staked crypto coins. Therefore, understanding the staking period and its unlocking will remove some eventualities in your staking process.
- Crypto Theft or Loss
Stakers stand the risk of losing their tokens in events of theft from hackings and fraud. These are primarily applicable to staking from a private wallet, crypto exchange, or network platform. The primary strategy that investors could use against this use is staking through hardware wallets.
- Validator Risk
A validator is in charge of managing the validating node within a network. The node comprises other stakers called delegators that will depend on the performance of this validator to earn rewards on the staking process. His responsibilities include the confirmation and validation of transactions in the node. Also, he must be knowledgeable on the operations of the node had should have the necessary means that you maintain a 100% uptime.
When the validator fails in his operations, he not only poses himself but other delegators within his node to a possible loss. Disruption in his uptime and lack of validating knowledge are potential risks through a validator.
How to Stake Cryptocurrencies
You can only get the best from your crypto staking when you know how to stake crypto the right way.
Here are the steps that could help you in staking your crypto.
Study the Cryptocurrency Before Staking
You should research and study a cryptocurrency deeply to understand its staking techniques. Also, you must own a Proof-of-Stake (PoS) crypto coin for you to stake. They are the only digital assets that support staking.
Since there are lots of PoS coins available in the cryptocurrency ecosystem, it may be pretty challenging to choose your crypto coin. So, you should not limit your choice to cryptos with high staking rates and rewards. Your research will help you balance the market price value and the staking rates.
Purchase the Coins for Your Staking
When you are sure you have the right information about a crypto coin, you can buy the assets for the staking experience. This will require the use of a crypto exchange or brokerage to consummate.
Also, buying the coins through an exchange that supports staking could be the best option for you. This will enable you to initiate your staking process without delay. However, you will need to be careful not to use a platform that neither stake nor allow users permission to transfer their crypto coins to other exchanges for staking.
Select Your Staking Platform
Once you’ve got your coins, you will have to choose the platform to use for your staking. You could stake it from your private wallet, where you are solely responsible for protecting your private keys to avoid unauthorized invasion. There is the option of using a suitable crypto exchange to lock up your holdings for the given period. Also, you may use a hardware wallet for the staking process.
Prepare Crypto Tokens to Facilitate Your Staking
Most protocols have no specific number of crypto coins that you must stake. However, the general concept is that your earnings will increase with a higher number of staked coins. Also, being a node validator depends on staking more crypto coins. For instance, you will be an Ethereum node validator by staking a minimum of 32 ETH.
Prepare Your Needed Hardware
If you are staking as a node validator, you will have to be in charge of managing the operations of the node. This means that you need the proper hardware that maintains an uninterrupted internet connection always. Using a desktop computer may be helpful, but it will accrue more electricity costs. Alternatively, going for virtual private servers will enable you with cloud computing.
Best 5 Cryptocurrency Coins To Stake
Making more money with your crypto holding through staking demands the use of suitable cryptocurrencies.
Below are the best five cryptocurrency coins that you can stake.
1. StakeMoon – SMOON
Running as a DeFi protocol, StakeMoon supports the long-term holding of crypto tokens through its incentives to such users. The protocol is built on the Binance Smart Chain and is reputable for its combined staking and liquidity provision technologies.
StakeMoon achieves its goals by employing two fundamental patterns
- The protocol places a 15% tax rate on all its selling transactions. This aim is to discourage daily trading of SMOON, the StakeMoon native token.
The SMOON token holders on the network receive 10%, while the remaining 5% goes to the liquidity pool. This serves as part of the dividends for holdings on the platform.
- Also, StakeMoon facilitates staking by rewarding users for long-term holding of its coins. This is because the protocol could validate its transaction with the assistance of the staked coins.
Besides distributing the 10% for stakers, they will also be incentivized with fees generated from senders of transactions on the platform. Furthermore, by staking on StakeMoon, you will receive yield from the staking pool. The protocol maintains no minimum redemption time for the locked tokens.
Moreover, there is no requirement for Bitcoin accounts before interested users stake their SMOON coins. Once you have an exchange account, you can buy SMOON tokens using your Visa or Mastercard. Then, you are good to go by engaging in the staking process.
2. Ethereum – ETH
Ethereum is the leading blockchain that introduced smart contract technology. Though it previously operated as a Proof-of-Work model, the network has shifted to the Proof-of-Stake mechanism with the development of its Ethereum 2.0 version. Hence staking on the Ethereum blockchain started in 2020.
Due to the popularity of Ethereum, several investors prefer to stake with its token Ether (ETH). Though there’s no specific number of ETH that a staker must have, staking a minimum of 32 ETH will make you a validator on the blockchain. This means that you will be validating transactions on a given node on the network. Furthermore, your good node management will enable the addition of new blocks to the blockchain for enhanced performances and security.
All stakers on the Ethereum network will receive rewards at the end of the staking process for providing liquidity on the blockchain.
3. Polygon – MATIC
Polygon is a decentralized blockchain that facilitates the connection and operation of several other networks that are Ethereum-compatible. This blockchain runs on a Proof-of-Stake consensus mechanism.
The operability of Polygon ensures high scalability for transactions while still charging low fees on gas. So, Polygon is one of the major competitors for Ethereum. As a result, several investors are moving from Ethereum to the Polygon Network.
MATIC, the Polygon’s native token, supports the operation of the blockchain and can be staked to earn more money. The rewards to the stakers come as additions to their MATIC holdings. The staking process of the token helps the blockchain validate and confirm transactions and maintain the security on the network.
Staking on the Polygon network can either be as a delegator or validator. The validators will manage the running of a node on the blockchain.
4. Cardano – ADA
Cardano is a DeFi blockchain and the first PoS founded on a peer-reviewed study. Through its combined pioneering technologies, the blockchain facilitates DApps and systems’ sustainability and security.
The native token, ADA, is the governance token on the network. So, by staking ADA, the users will receive more ADA coins as their rewards. Also, the staking process inculcates the investors as participants in the functionality of the network. This gives them voting rights and decision participation. However, the participatory right depends on the number of ADA coins used in the staking process. Moreover, staking pools remains your better means for staking ADA.
5. Polkadot – DOT
Polkadot is a decentralized blockchain that facilitates the interoperability of other blockchains. It functions with the Nominated Proof-of-Stake (NPoS) consensus mechanism.
You can stake Polkadot’s native token DOT to earn some rewards. The staking process helps in the smooth operation of the network by confirming transactions and maintaining security. Users can stake either as a nominator or validator on the blockchain. Besides the validator’s commission rate, staking on the network gives 10% as the annual yield.
Going through this article gives you a clear explanation on can staking make me more money. By staking your crypto coins, you will earn more income. Also, it gives you the opportunity of participating in the governance of a blockchain.
Despite its benefits, crypto staking could pose some risks to investors. So, you must study a cryptocurrency properly before venturing into its staking. But with our reviewed best cryptocurrencies, you can maximize your holding to make more money through staking.