Cryptocurrency staking is becoming one of the most popular crypto activities within the ecosystem. Though some digital assets are more than half below their all-time high value, some investors use staking to surge their holdings. This means that crypto staking could be an excellent option for striving higher in some bear markets.
So, there is no need to wonder what benefits does staking has. Though the primary use that attracts most individuals to the staking is passive income, the process offers much more.
We’ll reveal the benefits you can get from staking besides passive income through this article. Also, you will learn how to stake right to enjoy the benefits and some best crypto coins you can stake. Keep reading for more.
Table of Contents
- 1 What Is Crypto Staking?
- 2 How Does Staking Works?
- 3 Staking Vs. Mining
- 4 How To Stake Right
- 5 Staking Beyond Passive Income Rewards
- 6 Best Cryptocurrencies For Staking
- 7 Conclusion
What Is Crypto Staking?
Crypto staking is a process that allows crypto coins holders to commit their assets for the running and maintenance of a network. The process involves locking up the crypto tokens for a given period to enable confirmation and validation of transactions on the nodes of the networks.
By staking their holding, those crypto coins are removed from circulation within the given time. The network or blockchain will utilize these tokens to empower their operations. Hence, new blocks will be created that are added to the blockchain. Moreover, the process will ensure the security of the network or blockchain.
In return for locking up their crypto coins, the investors are rewarded with more tokens according to the interest on the network. Also, they have other benefits such as gaining network participation, voting rights, governance contributions, and others.
How Does Staking Works?
Staking is only possible for cryptocurrencies that operate with the Proof-of-Stake (PoS) consensus mechanism. Such protocols and networks use the liquidity from the locked crypto coins to confirm and validate transactions. Some PoS networks include Ethereum 2.0, StakeMoon, Polkadot, Tezos, Cardano, Solana, etc. The process helps in maintaining the security and stability of the networks.
When an investor locks up his crypto holding, he can’t access the tokens. Also, the coins become removed from circulation within the crypto market. This will enable the cryptocurrency to utilize the tokens to validate transactions.
Staking keeps the network running smoothly without any hitch as it empowers effective node maintenance. Moreover, unlike the mining from Proof-of-Work protocols, the process doesn’t require tremendous energy or electricity consumption. Finally, at the end of the staking period, the investors earn rewards of more crypto coins as a yield from the network.
Staking Vs. Mining
Staking is a process used by Proof-of-Stake (PoS) cryptocurrencies to validate transactions. On the other hand, the Proof-of-Work (PoW) consensus mechanism employs mining as a transaction validation process. An example of PoW is Bitcoin.
Using either staking or mining will enable protocols to validate their transaction without the interference of third parties. The two processes will maintain the decentralization of their blockchains. However, they have their differences.
Differences between Staking And Mining
|The process is strictly applicable to Proof-of-Stake (PoS) blockchains and networks.||The process is strictly applicable to Proof-of-Work (PoW) blockchains and networks.|
|It involves locking up of investors holding to validate transactions.||Miners have to solve some complicated cryptographic puzzles to validate transactions.|
|The staking of tokens empowers node validations and will add new blocks to the blockchain. The stakers are rewarded.||The first miner to solve the puzzles adds a new block to the blockchain and is rewarded.|
|An increase in the number of staked coins increases your chance of becoming a validator.||Possessing more computational power increases your solving abilities for the puzzles to receive a reward.|
|Has no requirement for special hardware.||It requires special mining hardware such as GPU.|
|It’s not a threat to environmental pollution as it conserves energy. So, it’s more eco-friendly.||Consumes lots of electrical energy and poses a big to environmental pollution.|
How To Stake Right
Several crypto investors don’t like to engage in the daily trading of their assets for profits. This is because of the fear of the volatile nature of digital assets that could slash their funds. However, some will prefer to hold their coins on a long-term basis.
To maximize your crypto holdings, most investors resort to staking. This allows them to benefit from their holdings without engaging in any side activities for the process. Instead of waiting for a suitable to sell their assets and gain for their long-term investment, they will receive some income between the waiting period through staking.
For you to stake right, the following are involved:
- First, staking on the right projects/platforms.
- Second, staking for the right reasons.
Staking On the Right Projects
The type of project or cryptocurrency for staking influences your rewards. Also, the platform to use for your crypto coin staking matters in getting the best from your holdings.
While lots of PoS cryptocurrencies may offer higher interest rates of APY for their staking, they may turn out to be losses. This is because less prominent assets suffer more in price volatility. So, their prices might get too low during your lock-up period. Also, you may have some difficulties while trying to sell off your earnings due to their common market values.
To understand their price performance, you must research the crypto tokens you intend to staking. This will serve as a risk-proof for you in some cases of unseen price crashing.
Furthermore, the staking platform has its role to play. Here are some of the platforms you can use to stake your crypto holdings.
Staking Through a Wallet
Several private online wallets will allow users to stake their crypto holdings. All you need to do is follow the necessary directions and lock up your coins for the given staking period. Moreover, using +your private wallet gives you the sole responsibility of protecting your funds by securing your private keys.
LedgerLive is a typical online Web3 wallet that users can stake their crypto tokens for yield.
Staking Through an Exchange
Crypto exchanges can serve as staking platforms to stake your crypto coins. By using an exchange, the platform will take the responsibility of staking your coins. Also, from your rewards on the staked tokens, the exchange will apply their service fees according to the stipulated rates on the platform.
Alternatively, you can stake your crypto coins on a DeFi platform that supports staking. Several DeFi protocols or networks will permit that. Also, using the platform is more effortless and removes every ambiguity. The staking process will provide liquidity on the venue for the operation of the network. In return, the stakers will receive dividends from the networks for their staked tokens.
Staking for the Right Reasons – Benefits of Crypto Staking
Benefits from crypto staking are many. First, when you have the right reasons for locking up your crypto holdings, it will give you a paradigm shift in your staking approach.
More than 90 percent of investors that plunge into crypto staking have had rewards of passive incomes as their primary goal. But you can gain more from crypto staking besides receiving more money.
Some of the benefits of staking include
- Passive Income – Earning passive income is one of the popular drives to crypto staking. The process will allow users to get up to 5% to 20% yield of their staked coins. Hence, the greater the number of tokens you staked, the bigger the rewards. Usually, income from staking is in the form of more coins added to the investors’ holdings.
- Gains Governance Power – Staking releases some governance power to the investors on the functionality of the blockchain or network. This will enable the user to participate in some crucial activities on the platform, such as voting and others.
- Requires No Equipment – The staking process does not need special equipment, unlike the Proof-of-Work mining. All you have to do is to lock up your holdings.
- Eco-Friendly – With the staking process, there is little energy consumption, unlike the mining process. Hence, they pose no environmental risk but are eco-friendly.
- More Scalability– The staking process facilitates the high scalability of transactions on most PoS blockchains such as Cardano, EOS, Polygon, etc. Also, the high throughputs of several transactions at once account for low fees on these platforms.
Staking Beyond Passive Income Rewards
Though the primary aim for staking is passive income, there is still more to get from the process.
Here are some rewards of staking beyond passive income.
Network Participation By Staking
Staking goes beyond locking up your holdings and collecting rewards after a given period without doing any work. Through staking, the investor will receive a participatory mandate of the protocol.
When you fail to use your mandate to facilitate the dynamics of the network, you are indirectly creating lapses that could tear down the platform. On the other hand, your active participation contributes to the building and strength of the PoS protocol.
Governance Empowerment By Staking
Staking means that you are contributing your tokens to running a network. In return, you will become empowered to partake in the governance of the network. Some governance activities include voting right to maintain stability and security on the web.
Best Cryptocurrencies For Staking
To maximize the benefits that staking has, it is necessary to use the best cryptocurrencies for staking. Always research a digital asset to understand its operability before venturing into staking with the coin.
Here are the best cryptocurrencies for staking.
1. StakeMoon – SMOON
StakeMoon is a DeFi protocol operation with staking and liquidity-creating technology. The cryptocurrency is built on the Binance Smart Chain (BSC) and aims to reward investors for a long-term holding of their coins.
The protocol uses two approaches to maintain its goal of liquidity provision through staking.
- It implements a 15% penalty as the tax rate on all transactions. This works as a discouraging factor to the daily trading of the SMOON tokens.
- It incentivizes users for staking their SMOON as an encouragement for long-term holding.
StakeMoon shares its 15% transaction tax by distributing 10% to SMOON token holders. The remaining 5% goes to the liquidity pools of the coin. Also, fees generated from transaction senders are added to the rewards for staking the crypto tokens.
Staking of the StakeMoon native token, SMOON, helps the network achieve its aim. Also, the protocol can maintain its operability of validating transactions and ensuring security on the platform. Moreover, stakers are entitled to receive rewards from the staking pool yields. Furthermore, the staking of the SMOON coins has no minimum redemption period. Hence stakers could easily access their holdings at will without a limitation.
2. Ethereum 2.0 – ETH
Ethereum is the second-largest cryptocurrency both by market cap and popularity after Bitcoin. Moreover, it is the first blockchain to introduce innovative contract technology to fortify decentralized finance (DeFi).
Though it started previously as a PoW model, Ethereum 2.0 has shifted to PoS. Hence, the blockchain uses the process of staking for the validation of transactions on its nodes.
Though you can stake any number of ETH on the blockchain, taking a minimum of 32 ETH makes a validator on the blockchain. Due to its popularity, market cap ranking, and outstanding price performance in the past, Ether is one of the best crypto coins to stake for you to enjoy the benefits of staking. You will always get more ETH coins to your hold as your staking dividend.
3. Polkadot – DOT
Polkadot uses the Nominated Proof-of-Stake (NPoS) mechanism for its functionality and to maintain its blockchain security. The network enables the connection of several other blockchains for interoperability. Its design inculcates scalability as well as multi-chain technology.
Staking DOT is an excellent means to enjoy the benefits of crypto staking in the industry. For example, the process could be as a nominator where you must stake a minimum of 40 DOT tokens.
Validators are investors that have staked a minimum of 350 DOT coins. Also, they will be responsible for validating transactions on their given nodes. So, a validator will ensure a 24/7 uptime running of this node to slash on the node’s rewards. Also, you can be a validator through nominations from nominators.
Staking rewards on Polkadot goes to 14% as the APY. This is a considerable high rate for a passive income. Moreover, Polkadot only offers a rigid staking service. You can’t move your crypto coins from the platform until the expiration of the staking period.
4. Tezos – XTZ
Tezos is a decentralized blockchain operating with a liquid Proof-of-Stake (LPoS) consensus mechanism. This operating mechanism ensures energy efficiency on the network compared with Bitcoin. In addition, the network inculcates optional delegation, which makes staking of its native token, XTZ, quite flexible.
The process of staking, also known as baking on Tezos, comes in two forms: a self-baker (validator) or delegator. Staking up to 8,000 XTZ will make an investor be a self-baker. This keeps him in charge of validating transactions on a given node to enable the addition of new blocks on the blockchain.
Delegators have no minimum requirements for their staked coins. Therefore, you will receive your first rewards as added coins after 35 to 40 days when you start the staking process. However, subsequent rewards will always take three days.
The consistency with Tezos staking makes it one of the best cryptos for staking. Also, the network offers an excellent rewarding yield of 6.75% to 10.60% as its average annual interest on staking.
5. Cardano – ADA
Cardano is a sustainable blockchain that has gradually gained popularity from its launch time. The network operates with a PoS mechanism and depicts high scalability by executing thousands of transactions per second. So, it gives has a tremendous competitive edge over the Ethereum blockchain.
Staking with Cardano’s native tokens, ADA is flexible. Investors have the opportunity to access their staked tokens. So, they can pull out from the staking process if they need to do so. This level of flexibility on Cardano’s staking makes the cryptocurrency a favorable choice for beginners. This process is similar to the traditional savings account.
However, you must note that staking rewards reduces in value as the number of investors in a particular staking pool increases. This means getting the best from this crypto will involve diversifying your staking tokens to different pools. For example, the network offers about 5% to 9% APY on staking ADA coins.
6. Solana – SOL
Solana is a PoS blockchain that has meteorically risen as the primary competitor to Ethereum based on scalability. The network depicts high scalability and supports several user-friendly applications. The peculiarity of the Solana blockchain is its ability to execute transactions as they come rather than the usual block processing.
The native token, SOL, supports operations on the network. The blockchain is empowered to validate transactions and maintain security by staking SOL. When you stake as a delegator, you will delegate your SOL tokens to a validator who manages a node. The validator will have to confirm transactions within the node and ensure the proper running of the node. You can earn up to 5% to 6.5% APR on staking your SOL coins.
7. Polygon – MATIC
Polygon is a DeFi PoS blockchain that functions to enable more scalability on Ethereum. It connects several decentralized applications that are Ethereum based for enhanced operations.
Through the staking of its native token, MATIC, the Polygon blockchain supports speed transaction validation with its nodes. The network can validate over 65,000 transactions per second (TPS). Such fast operation ensures efficiency for Ethereum compatible networks in executing their transactions.
Furthermore, an investor can stake on the network with just a single coin to earn from the blockchain dividends. Depending on the number of coins you stake on Polygon, you can receive up to 14% as your APY.
Going through this article will answer the question of what benefits does staking have. While several investors will choose to stake their holding to receive more coins as passive income, the process can offer you more.
Using the best cryptocurrencies, your benefits go beyond more coin addition when you stake on the right platform. You will gain participation as well as power within that cryptocurrency ecosystem.