Key Insights
- Staking crypto is emerging as one of the most popular forms of investment, aside from regular trading.
- This form of investment comes with lower risk and is a great way to earn passive income.
- Some great ways to stake crypto involve staking through exchanges, joining a staking pool, or running an entire node.
- Crypto staking is more than a way to earn income—it is a way to actively contribute to the future of decentralization.
The crypto industry is filled with several ways to get involved and make some side income.
One of these ways is via crypto staking.
Many members of the crypto community are familiar with the good old “buy and sell” strategy.
However, crypto staking offers a much more unique opportunity for investors.
So what exactly is crypto staking, and how does it work? Here’s an answer to these questions and more.
What is Crypto Staking?
Think of crypto staking as locking up a certain amount of crypto in a wallet to support a blockchain network and keep it secure.
In exchange for this service, participants earn rewards in the form of additional tokens.
In many ways, crypto staking is similar to simply holding crypto—the only difference is that this “holding” is done within the network and offers additional rewards.
Think of it as similar to services offered by traditional banks, where interest is paid to users with savings accounts.
How Does Crypto Staking Work?
At its core, staking involves contributing to the security of a blockchain by becoming a validator in a way.
By locking up your tokens, you become a participant In the validation process—and in return for your work—you receive staking rewards, which are typically paid out periodically.
Here’s how the process works:
Step 1: Choose a Staking Network
To stake crypto, you first need to choose a cryptocurrency that uses Proof of Stake or a similar consensus mechanism.
Some of the most popular cryptocurrencies in this category include Ethereum, Cardano, Polkadot, Tezos and even Solana.
Step 2: Buy and Hold the Cryptocurrency
After choosing which cryptocurrency you would like to stake, you will need to buy some.
You can head over to exchanges like Coinbase or Binance to purchase any crypto of your choosing.
Step 3: Stake Your Coins
Once you have the coins in your wallet, you can stake them through an exchange or a staking pool. Many exchanges like Binance, ByBit and Coinbase offer staking services.
On the other hand, you can choose services like Lido to get started—some stakers even run their own validator nodes to improve their gains and avoid issues with fees.
However, the way to go for beginners is to stake crypto right on a centralized exchange.
Step 4: Earn Rewards
In exchange for staking your coins, you begin to earn rewards almost instantly, paid in the form of the staked cryptocurrency.
Keep in mind that some networks offer payment in different tokens.
However, at the end of the day, the amount earned depends on the amount of crypto staked, and how long they were staked for.
So Why Stake Crypto?
Staking crypto comes with a wide range of advantages for both the individual investor and for the crypto ecosystem as a whole.
Here are some reasons why staking crypto might be the way to go:
1. Passive Income
Many investors who stake their crypto do so for the opportunity to earn passive income. Staking allows you to earn rewards that you can reinvest for compound earnings.
Keep in mind that staking rewards can range from less than 1% to as high as over 10% annually.
2. Network Security and Support
This is a less common reason among investors, but crypto stakers often do so to contribute to the security of a blockchain network.
By staking, participants help the network to run smoothly, which can be important for its success in the long run.
3. Environmental Benefits
Compared to Proof-of-Work chains, Proof-of-Stake is far more energy efficient. This means that supporting a network by staking is a great way to contribute to environmental stability.
4. Participation in Governance
In many cases, stakers can also participate in a network’s governance or decision-making process.
This can involve votes on things like network upgrades or entire changes to the protocol.
Different Ways to Stake Crypto
There are several ways to stake your crypto, each of them with their own disadvantages and rewards:
1. Staking Through Exchanges
This is the most straightforward alternative. Exchanges like Coinbase and Kraken allow users to stake their crypto directly on the platform.
Stakers can therefore benefit from ease, and can even choose from a wide range of cryptocurrencies without needing to have much technical know-how.
However, the downside to this is that the exchange sometimes demands a percentage of the rewards as fees.
2. Staking Pools
An alternative to this is joining a staking pool. With this method, multiple users combine their staking power to increase their chances of earning rewards.
The rewards are then distributed to every participant based on their contributions to the pool.
3. Running a Validator Node
This is the least straightforward method of staking. If you have a great deal of crypto at your disposal along with technical expertise, you can always run your own validator node.
The downside to this is that the validator takes on more responsibility and has to monitor their node to make sure that it remains up and running.
Is Crypto Staking Right for You?
Crypto staking is a great way to start earning passive income while contributing to the future of a blockchain.
However, it comes with its fair share of risks, as it is with many other kinds of investment.
Before getting started, it is important to learn as much as possible about your chosen crypto, the platform you wish to stake on, and the approach to staking you wish to pursue.
If you’re a newcomer, consider starting small and doing your own research before getting in.
Remember that staking your coins is a lot more than just earning rewards—you’re also playing a major role in the growth of decentralized finance.
