Many people believe that crypto is only the type of asset that can either increase or decrease in value. However, with the introduction of staking, crypto has become more than just a volatile investment option. Staking is a way to earn passive income by simply holding cryptocurrency in your wallet. By doing this, you are not only supporting the network but also earning rewards for your contribution.

What is Staking?

Staking is a process through which cryptocurrency holders can passively earn rewards by holding their coins in a staking wallet or platform. This allows investors to participate in securing the network, while earning regular returns on their investments.

In simple terms, staking involves locking up a certain amount of cryptocurrency in order to validate transactions and add new blocks to the blockchain. The more coins you stake, the higher your chances of being chosen as a validator and earning rewards.

How does staking work?

Staking works on Proof-of-Stake (PoS) blockchain networks. Unlike traditional Proof-of-Work (PoW) systems, where miners use computing power to validate transactions, PoS networks rely on validators who hold a certain amount of coins as collateral. The more coins a validator holds, the higher their chances of being chosen to validate transactions and earn rewards.

Once you have selected a staking platform or wallet, you can stake your cryptocurrency by sending it to the designated staking address. This process varies depending on the specific network and platform, but typically involves selecting the amount of coins you want to stake and confirming the transaction.

After staking your coins, you will start earning rewards in the form of new coins or transaction fees. These rewards are distributed periodically to all validators on the network, proportionate to their stake. The reason why you receive rewards is because you are essentially helping to secure the network by participating in the validation process. If a transaction ends up being fraudulent, validators risk losing a portion of their staked coins as a form of punishment.

Comparison of staking to traditional finance

To better understand the concept of staking, it is helpful to compare it to traditional finance. In the world of traditional investments, individuals can earn passive income through methods such as renting out properties or collecting dividends from stocks. Similarly, staking allows cryptocurrency holders to earn rewards by holding their coins and participating in the validation process.

Dividends from stocks are earned because your invested capital helps support the company's operations and growth. Similarly, staking rewards are earned because your staked coins help secure the network and maintain its functionality.

However, unlike traditional finance where dividends are usually distributed in cash, staking rewards are typically paid out in the form of additional coins. This can lead to compounding returns as the newly earned coins can also be staked, generating even more rewards.

A lock up period is also common in staking, where the staked coins cannot be accessed for a certain period of time. This helps to ensure long-term stability and commitment from validators. Stocks can be sold at any time, but staked coins cannot be withdrawn until the lock up period ends.

How to stake crypto?

First, buying a cryptocurrency that can be staked is necessary. Once the desired cryptocurrency is purchased, it can be stored in a compatible wallet or on an exchange that offers staking services. Each individual blockchain network has its own set of rules and requirements for staking, so it is important to research and understand them before starting the process.

Next, users can choose to stake their coins themselves or use a staking service provider. Self-staking requires technical knowledge and constant monitoring of the network, while using a service provider may come with fees but offers convenience and support.

To start staking, users typically need to delegate their staked coins to a validator node on the network. Validator nodes are responsible for validating and adding new blocks to the blockchain, and in return, they earn staking rewards. Delegating to a validator means entrusting them with your staked coins and trusting them to act in the best interest of the network.

Once delegated, users can sit back and watch their staked coins accumulate rewards over time. It is important to monitor the network for any changes in rules or requirements, as well as potential security risks. Just follow the guides provided by the cryptocurrency network and the chosen staking service provider.

Some platforms to stake on

Ether (ETH), Cardano (ADA), Polkadot (DOT), and Solana (SOL) are just a few examples of cryptocurrencies that offer staking opportunities. However, when it comes to platforms, there are a variety of options to choose from. Some of the most popular platforms for staking include:

  • Binance
  • Coinbase
  • Kraken
  • KuCoin
  • Nexo
  • eToro
  • MyCointainer
  • OKX

These platforms make it much easier for users to stake their coins by providing a user-friendly interface and handling the technical aspects of staking. Additionally, they often offer additional features such as automatic compounding of rewards and the ability to stake multiple cryptocurrencies.

It's important to do thorough research on these platforms before choosing one, as some may have higher fees or may not support certain cryptocurrencies for staking.