Menu
Close

What Is Crypto Staking: The A-Z Guide

BlockchainSep 6, 2022
What is crypto staking guide

If you've been in the crypto game for some time now, you've likely come across the term crypto staking somewhere along the way. Crypto staking can seem like a complicated idea but it's actually incredibly simple.

So what is crypto staking then? At its core, crypto staking allows crypto investors to earn rewards for holding specific cryptocurrencies. Basically the networks incentivise traders to buy and hold their tokens by offering a form of passive income to these traders.

Whether you want to ramp up your crypto staking or you're just getting started, we'll unpack all there is to know about staking crypto.

What is Crypto Staking?

Crypto staking is the process of securing the network of a decentralized application by letting users hold tokens to earn a passive income. Crypto staking offers cryptocurrency holders a way to utilize their digital assets by lending them to a network in order to validate transactions and earn rewards. In return for locking up their coins in a staking wallet, participants are rewarded with a portion of the network’s newly generated tokens.

This process helps to secure the network and maintain its decentralization, while also providing an incentive for people to hold and use cryptocurrencies.

In simple terms you can think of staking crypto as holding money in a savings account - you get paid interest on your deposited funds. In the case of staking crypto, you also receive rewards (a kind of interest) for helping to secure the blockchain network. The key difference is that the returns yielded from staking crypto are much higher than what you'd ever earn from interest on a savings account.

What is Proof of Stake (PoS)?

In order to start crypto staking, you must hold crypto that uses the proof-of-stake model. Proof of stake essentially means that you must hold a certain amount of the cryptocurrency in order to be able to validate transactions and mine new blocks.

In return for staking your coins, you are rewarded with a portion of the new block’s rewards. This is a type of consensus mechanism crypto networks use to validate transactions on the blockchain.

The proof-of-stake model is seen as a more efficient way to validate transactions and mine new blocks, as it does not require the use of large amounts of electricity like proof-of-work.

What is Delegated Proof of Stake (DPoS)?

Delegated Proof of Stake is a consensus algorithm used by blockchain networks to reach agreement on the order of transactions. Under DPoS, network participants, called "delegates", are elected by the network's users to represent them. These delegates are then responsible for confirming transactions on the network. In order to ensure that delegates remain accountable to the network's users, they are regularly voted on to ensure that they remain in compliance with the network's rules.

How Does Crypto Staking Work?

Now that we've got a basic idea of some common terms related to crypto staking, let's look a little closer at what is crypto staking and the staking process.

If you wish to stake crypto, you will pledge coins to a network in order to verify transactions and earn rewards. Coins that are staked are typically locked away for a set amount of time, during which you cannot spend or move them.

Forcing stakers - also referred to as validators - to lock away their staked assets for long periods of time prevents dishonest actors from destabilizing a network for their own gain. Basically, the more staked crypto held on the network, the more stable the network is and the higher the values go. In return for their commitment, stakers are rewarded with a percentage of the block reward. The more staked assets held, the higher the potential rewards you can reap.

What Cryptocurrencies Can You Stake:

At present, these are the cryptocurrencies that allow token holders to stake:

  • Bitcoin (BTC)
  • Bitcoin Cash (BCH)
  • Litecoin (LTC)
  • Ethereum (ETH)
  • Ethereum Classic (ETC)
  • Dash (DASH)
  • NEO (NEO)
  • Stratis (STRAT)
  • Steem (STEEM)
  • BitShares (BTS)
  • Peercoin (PPC)
  • Namecoin (NMC)

You can stake any of the above cryptocurrencies by downloading a compatible wallet and then locking up your coins for a set period of time. In return, you will earn a share of the rewards generated by the network.

Pros and Cons Of Crypto Staking:

As with anything in life, staking crypto is not without its risks. Here is a risk/benefit analysis of staking crypto.

Advantages of crypto staking

First off, staking crypto has a number of advantages for crypto investors and traders. These include:

  1. Increased rewards – When you stake your coins, you earn a percentage of the rewards for helping to secure the network. This can be a great way to earn a passive income, and can also increase the value of your holdings.
  2. Increased security – By staking your coins, you are helping to secure the network, which can result in a more secure system overall.
  3. Voting rights – As a staker, you have a say in how the network is run, and can vote on important decisions.
  4. Increased exposure – As a staker, your coins are more likely to be seen by others, which can lead to increased exposure and greater liquidity.
  5. Better returns – In many cases, staking can provide better returns than simply holding coins. This can be a great way to increase your earnings and grow your portfolio.

Risks of crypto staking?

On the other side of the coin, crypto staking also comes with some risks. These include:

  1. Losing your staked coins if the staking wallet is hacked or lost.
  2. Not earning rewards if your staking wallet is not online or not working properly.
  3. Potentially being scammed by someone who claims to be staking your coins on your behalf.
  4. Not being able to sell your staked coins if you need to liquidate them.
  5. Cryptocurrencies are notoriously volatile. A big drop in price can cancel out any rewards you may have earned. That's why staking crypto is a long-term commitment and investment, not a get rich quick scheme. The greatest staking rewards come with time.

Is Crypto Staking Profitable?

The short answer is yes, it can be. Staking crypto is profitable when viewed as a long-term investment. There are a few things to keep in mind when it comes to staking rewards.

First off, the rewards vary from coin to coin and as we mentioned before, only particular digital assets actually allow staking. Additionally, the value of the staking rewards can fluctuate, so it's important to do your research and make sure you're staking coins that offer a high rewards rate.

As for the cost of staking, this can vary depending on the type of hardware you use. For example, if you're staking coins on a desktop computer, the cost is minimal. However, if you're staking coins in a staking pool, the cost can be higher.

Staking pools normally deduct fees so this can impact your profit margins when staking. It is important to therefore select staking pools that offer low fees and have a good track record of producing high yielding staking rewards.

What Is a Staking Pool?

We've mentioned staking pools a number of times and you might be wondering what that actually means. A staking pool is a group of people who come together to pool their staking resources in order to increase their chances of earning rewards. This can be done by either combining their funds in a staking pool to stake together or by splitting the rewards earned from staking amongst the pool members.

What is Cold Staking?

Cold staking is when you lock up your crypto assets in a cold wallet and then stake them to earn rewards. A reminder, a cold wallet is a crypto wallet that is not connected to the internet, therefore better protected against malware and hackers.

How To Start Staking

Now that we have answered the question of "what is crypto staking?" and covered how it works, let's go through how to start staking crypto. There are a few ways to stake your coins. The first way is to use a staking wallet. This is a special type of wallet that is designed specifically for staking. It will keep track of your staked coins and automatically send them to the correct address when it is time to collect your rewards.

Another way to stake your coins is to use a staking pool. This is a group of people who all stake their coins together. This is a good option if you don’t have a lot of coins or if you don’t want to use a staking wallet. The pool will take care of all the staking for you and send you your rewards.

The last way to stake your coins is to use a staking service. This is a company that will stake your coins for you. They will keep track of your coins and send you your rewards. This is a good option if you don’t want to worry about staking your coins yourself.

Buy cryptocurrencies

To get started, you will need to buy cryptocurrencies that allow staking. You can refer to our list above for eligible cryptocurrencies.

Store in a crypto wallet

Once you have bought cryptocurrencies that can be staked, the next step is to store your coins in a wallet that allows crypto staking. There are a few different types of wallets that allow you to stake your coins including hardware wallets, desktop wallets, mobile wallets and online wallets.

Find a suitable staking platform

The next step is to find a reputable staking platform. A staking platform is an online service that allows you to store your cryptocurrency and receive rewards for doing so. Our top picks include Binance and ZenGo.

Binance Earn Crypto Earning

Binance Earn offers users the opportunity to earn rewards for holding Binance Coin (BNB). These rewards are earned through the Binance Stake program, which allows users to earn interest on their BNB holdings. The program pays out a total of 10% of the exchange’s trading fees each quarter, with rewards distributed proportionally to users based on their BNB holdings. Some features of Binance Earn include:

  • Great earning potential
  • No fees
  • High yields
  • Various deposit options

ZenGo is a mobile-first, user-friendly staking platform that allows users to store, stake, and earn rewards from a variety of Proof-of-Stake (PoS) tokens. The ZenGo platform offers a variety of features, including:

  • A user-friendly interface that makes it easy to store and stake tokens
  • Integrated cold storage to protect your tokens
  • Auto-stake, which allows you to automatically stake your tokens and earn rewards
  • A rewards system that pays out rewards in real-time

Both Binance and ZenGo are reputable platforms that offer users a variety of features and benefits. Other popular choices include StakeUnited and Proof of Stake (POS) Universe. Both platforms allow you to store a variety of cryptocurrencies, including Bitcoin, Ethereum, and Litecoin. They also offer a variety of rewards, including dividends, voting rights, and a share of the platform’s profit.

Get your rewards

The last step is to get the rewards you have earned by your crypto holdings. Bear in mind, the average crypto investor takes up to two years to receive a return on investment. So, be patient and you will be rewarded in the long run.

Conclusion

If you are holding crypto assets that you don't plan on trading for the foreseeable future, staking can be a great long term investment and in time will earn you a passive income. It doesn't require much effort on your part, especially if you make use of staking wallets, staking pools or staking platforms to do it on your behalf. If you're looking for a get rich quick scheme, you're going to be very disappointed, so unless you're in it for the long haul, staking crypto is not for you.

Matias Lapuschin
Matias Lapuschin
Head of Content Marketing

Stay up to date

*By subscribing to our newsletter, you agree to receive marketing emails from Sensorium.