Staking in cryptocurrency has been an exciting endeavor within the past decade. Being one of the recent developments in the crypto sector, crypto staking arises as an effective alternative to mining in cryptocurrencies. It provides several advantages to users from far and wide. Also, it gives users a better chance to scale, diversify, and access other profitable crypto coins.
As we’ve established, we have also outlined other important detail for you in this article. What is crypto staking? What is the PoS algorithm? What are the five best cryptocurrencies to stake in 2022? We have answered all those in the following sections. Find them below!
Table of Contents
- 1 What is Staking in Crypto?
- 2 What is PoS Algorithm?
- 3 How To Earn Passive Income From Cryptocurrencies
- 4 Dangers of Staking
- 5 Top 5 Best Cryptocurrencies For Staking in 2022
- 6 Conclusion
What is Staking in Crypto?
Crypto staking involves you depositing your crypto assets in a liquidity pool. In exchange for that, you get rewarded or incentivized with some portion of the tokens as “interests.” Staking describes you delegating some tokens to a blockchain’s governance model. Thus, locking them away from circulation for an amount of time. It is a process whereby a protocol locks up a portion of an investor’s total stored tokens. This way, both the blockchain and the investor profit from the transaction in many different ways.
One of the ways is that it causes the token’s price value to appreciate by limiting the circulating supply. Then, using a PoS (Proof of Staking) system, the native token can control the network. Furthermore, the staking process occurs through a staking pool, similar to the fiat currency interest-bearing savings. Like the savings account, the participant can earn from 5-20% annually in return for staked crypto.
Now that we’ve understood what Staking is, let’s consider what we mean by the Proof of Staking algorithm in the next segment.
What is PoS Algorithm?
The Proof of Staking (PoS) algorithm is one of the available consensus algorithms. Blockchains use consensus mechanisms to validate transactions within their networks. This is because, in a blockchain, all the nodes within that network must concur with the current state of the blockchain and the valid transactions.
It’s worthy to note that cryptocurrencies use various consensus mechanisms, and the PoS is one of the most famous. The Proof of Stake is renowned for its high effectiveness and incentivizing structure towards stakers.
Staking incentivizes participants with some rewards that the blockchain offers for them. For example, every blockchain keeps many crypto incentives for validating transaction blocks. So when participants stake in a crypto blockchain and their coins are chosen to validate transactions, they get some crypto rewards.
One of the oldest and most famous consensus mechanisms is the PoW (Proof of Work) consensus mechanism. In the Proof of Work algorithm, participants use external mining electrically powered devices to solve cryptographic puzzles and get rewarded. However, the Proof of Work algorithm has some challenges.
First, the PoW consensus algorithm consumes much power while the mining process continues. An example is the PoW algorithm used to mine Bitcoin. Research shows that Bitcoin consumes more energy than several countries.
Second, these additional external mining devices are much more expensive to purchase and maintain. Then, using a different mining device makes the PoW consensus algorithm less efficient and bulky. This makes the PoW consensus inefficient.
Like the Proof of Work consensus mechanism that incentivizes participants to work in the network, the PoS rewards participants. Although, the Proof of Staking consensus algorithm rewards users for investing in the blockchain by providing them with additional coins. The participants can either restake the coin or swap it for other coins.
It’s also important to understand that validators can stake the tokens themselves, or others can delegate them with their nodes. Either way, the participant who stakes their coin in the pool still earns from their Staking. But, all stakers don’t make the same amount of token rewards. This is because the amount of compensation you earn depends on the number of tokens you stake into the network.
How To Earn Passive Income From Cryptocurrencies
Cryptocurrency provides users several advantages over fiat currencies and central banks. So, How Will Staking Make Me Profits? Let’s consider that briefly.
- Choose The Cryptocurrency You’re Staking With
The first step in earning a passive income from cryptocurrency is discovering the crypto asset to choose from. As we’ve already stated, there are many blockchains you can choose to stake with, each with its requirements, minimum lock period, and interest rates. In this article, we have outlined some of the most profitable cryptocurrencies you can stake with.
So, if you’re ready to stake your funds and earn passive income, then choose any of the following coins we have listed below to proceed.
- Discover The Minimum Amount Of Coins Needed To Stake
As we have already said, there are various cryptocurrencies you can use to stake your funds and earn passively from. Each has its unique minimum amount of tokens that can be staked. So, ensure to check them out before heading over to proceed with the staking process.
- Create A Cryptocurrency Wallet
You need to create storage for your coins when you’re done doing that. To do this, head over and download any wallet compatible with the given token you want to stake. Trust Wallet, MathWallet, Atom Wallet, etc., anyone that supports the coin you’re staking. When you download it, then install it and create an account in the wallet.
- Create An Account in an Exchange
If you’re choosing to stake your coins in an exchange, you should download the exchange app on your smartphone and install it. Then, create an account in the exchange app and fill out all the required details. After that, the platform will send you an email to confirm your account creation. You can now stake on the exchange from your smartphone or web browser when you’ve sorted that out.
- Stake Your Coins In The Liquidity Pool
Once you have finished with that, you can now stake the coin. Navigate to the ‘earn’ section in an exchange and click it. It will direct you to another page. Select the ‘Deposit’ button to deposit your desired coins. One great advantage of crypto exchanges over every other staking method is that it allows you to review the transaction terms before finalizing the deposit.
After staking your coins, you’d start receiving your income the next day. The profit of this is that you can continue earning your coins, as it’d keep accumulating until you decide to stop.
Dangers of Staking
1. Lock-up Tenures
Some crypto assets demand you to lock your tokens in the network for some time. This increases the effectiveness of your Staking and accrues more interest for you. But, while your fund is locked in the web, you cannot touch it. Also, any event on the blockchain can affect your locked funds are you’re now vulnerable and unable to make any changes until the lock period is over.
2. Defaulting Penalties
When staking your crypto assets in any other medium apart from an exchange, especially when setting up your nodes. If you make a mistake in this process, you can attract penalties on your nodes known as “Slashing.” Slashing usually occurs when validators default or perform dishonestly.
3. Transaction Fees
Another risk associated with Staking is the case of transaction charges. Again, this is possible, especially when you stake via a crypto exchange. Although it’s important to note that the fees differ according to the exchanges, they’re usually a small percentage of your staking incentives.
4. Crypto Volatility
One significant risk in staking crypto is that cryptocurrencies are very volatile. So, you can’t entirely trust their prices to be the exact amount or much more effective than you deposited it when you’re withdrawing your interests. Therefore, this volatility and price instability is something that should have you rethink some of the crypto assets you want to invest in.
5. Validator Forgetting to Pay Interests
Last, we have already highlighted that staking in crypto is synonymous with saving in your local bank accounts. This is sometimes true in the case of withdrawing your interests from some liquidity pools. What do we mean? In simpler terms, when you are staking in a pool, you may need to be proactive and follow up on your interests, as it’s possible that your validator.
Top 5 Best Cryptocurrencies For Staking in 2022
The Stakemoon cryptocurrency is a recent and innovative digital asset developed and hosted on the Binance Smart Chain. During its ICO on October 20, 2021, the Stakemoon protocol accumulated over $500,000 and was deployed on the PancakeSwap DEX (Decentralized Exchange. Stakemoon is a liquidity-developing and autonomous staking protocol that implements advanced technology to benefit both users and crypto-assets deployed on it.
Interestingly, Stakemoon introduces a 15% taxation policy to scare off short-term traders from the protocol. The entire fund goes to incentivizing the whole blockchain and rewarding token holders. 10% of the tax is redistributed to the coin token holders, while the remaining 5% is locked back in the liquidity pool.
This implies that the Stakemoon token holders get dividend payments as frequently as possible, alongside their staking incentives. Therefore, the Stakemoon protocol provides incentivizes all its holders efficiently.
Also, it aims at providing a platform for autonomous Staking, whereby the token holders don’t need to do much. All you need to do is store the coins in your Bitmart exchange wallet, and you’d begin to earn the tokens daily. One great feature of Stakemoon over others is that the development team says that the protocol will provide an annual return of 50% when staking with Bitmart.
2. Ethereum 2.0
Initially deployed using the Proof of Work consensus mechanism, Ethereum recently deployed to the Proof of Staking consensus mechanism. Thus, introducing Staking for users to earn passively from. Ethereum, the second-biggest blockchain globally by market capitalization and the largest dApp blockchain, recently introduced the PoS algorithm. Also, it’s essential to note that, since its entrant to the PoS mechanism, Ethereum has received more than $21.3 billion in Staking, according to CoinDesk.
Only transporting from mining to staking in the last few months, Ethereum has shown us what unique possibilities lie in staking in crypto. For example, the protocol allows users to earn more than 15% from staking rewards. But it’s also important to highlight that the amount you receive depends on the number of tokens staked.
In addition, since Ethereum 2.0 is still in its developmental stage, you’d have to wait until the second phase is deployed before you can access your interests on staking. Several crypto exchanges support Ethereum 2.0 staking, providing different staking rewards. But, the token provides an average of 4.5% annual returns for staking in the blockchain, which is comparatively larger than some fiat savings.
However, to stake in Ethereum, you’d need a minimum of 32 ETH. If you can’t afford that, let’s check out the next coin.
The Solana blockchain arose in 2021 as a modernized, more efficient, and cooler version of the Cardano and Ethereum. It appeared as another Ethereum “killer.” In contrast to Ethereum, Solana facilitates more than 50,000 transactions per second, making the blockchain super-fast. Another advantage of the Solana coin is that it charges very affordable transactions. So, you don’t have to worry about high transaction charges on the network.
One of the things to note is that Solana is a wise alternative for staking if you’re pondering it. Also, it uses the modernized Proof of History consensus algorithm that facilitates these ultra-speed transactions.
However, since Solana hasn’t yet deployed their unique wallet, you can still purchase the token on any leading exchange. Moreover, it supports wallets like Atom Wallet, Trust Wallet, and the Exodus wallet. But, mainly, you can access the Solana blockchain on the Sollet.io online web platform.
Solana offers 6.6% in annual returns on investments, which is a whopping amount. It also has a 5-days locking period, after which you can withdraw your interests and funds. Amazingly, Solana has no minimum required staking amount for tokens, which places the SOL token ahead of the crowd now and at different times.
Algorand is another high-efficient, super cheap, and ultra-fast blockchain that enables effective transactions for users. It is also another relatively new token that has experienced a 600% expansion in the past year. This results from the massive fan base, wide adoption, and awareness of the token’s community. Most individuals consider the Algorand coin to be another “Ethereum Killer” as it solves many problems the Ethereum blockchain is yet to solve.
Algorand provides a more efficient means of staking than any other cryptocurrency on this list today. It not only offers ultra-fast solutions, but it also provides a very cheap yet profiting, staking availability. This puts the Algorand coin among our Top 5 crypto assets list to stake within 2022.
Furthermore, the Algorand protocol provides an average revenue of 4.7%, which is relatively larger than several other staking coins. You can purchase the Algorand crypto on any of the leading crypto exchanges, and store it in your Algorand Wallet, My Algo Wallet, Trust Wallet, MathWallet, etc., or any other compatible crypto wallet. That said, you can participate in the stake using just 1 ALGO token or any additional amount above that.
The Cardano protocol is one of the oldest known “Ethereum Killers,” as we know. Cardano is built and hosted on the Ethereum blockchain. The token introduces the advancement and development of the Ethereum ecosystem. Over the past 12 months, Cardano has surmounted a massive increase of over 940% and is ranked the #5 largest crypto in the world based on market cap.
Cardano provides a platform for innovators, visionaries, and change-makers to advance the blockchain and take effect globally. It is also an open-source project that facilitates trustless, seamless, robust, and super-fast transactions. In addition, Cardano provides a staking reward ranging from 1.9% to more than 7%, depending on the number of tokens you’ve invested. Also, it requires a very affordable fee to partake in the staking process.
How Will Staking Make Me Profits? We’ve outlined all the ways Staking can make you profits. Some tokens, like Stakemoon, don’t require you to do much to the stake, as it works with autonomous Staking and high rewards. That said, it’s essential to know which crypto staking coin works best for you, select it, and get on with your business.