What is Staking Crypto: Ultimate Guide
When investing in crypto assets, most people still think that taking advantage of price volatility is the only way to make a profit. But there is another way...
There is another way to make money in crypto which is by staking. By staking, you can put your digital assets to work and earn passive income without the need to check price volatility. In other words, staking is like depositing cash in a high-yield savings account. Banks lend your deposits, and you earn interest on your account balance.
Great. Now that we’re acquainted, let’s dig into the details.
What is staking crypto?
Staking is a process of locking crypto assets for a set of times to support the operation of a blockchain. As a result, you earn rewards for supporting the network.
As a cryptocurrency holder, you can take part in the blockchain transactions operation. Computers perform this process in the network or through third-party staking services.
Popular cryptocurrencies like Solana (SOL) and Ethereum (ETH) use staking as part of consensus mechanisms. This blockchain consensus mechanism uses proof of stake. It is a process where you stake a set amount of cryptocurrency to confirm new transactions and ensure the integrity of the blockchain.
By staking, you are offering insurance and risk losing their stake if they confirm flaws while earning a reward for validating correct and legitimate transactions.
How does staking work?
Here's a simplified explanation of how crypto staking works:
Choose a network or a third-party staking provider
To start staking, you need to select a blockchain network that supports staking. It's because not all cryptocurrencies can be staked. After you have the chosen cryptocurrency, you will need to lock a certain amount of tokens in a staking wallet or platform. This process is called staking. You can also use a CeFi or DeFi wallet that offers staking as a service.
Suggested reading: CeFi vs. DeFi: Why the World Needs Decentralized Finance
Lock your tokens
By locking your tokens, you make them unavailable for immediate use, but they contribute to securing the network.
The staking process beings
By staking your tokens, you take part in the network's consensus mechanism. Depending on the specific staking system, you may need to run a node or delegate your tokens to a trusted validator. By doing so, you help confirm transactions and secure the network.
In return for your contribution, you receive staking rewards, usually in the form of extra tokens. These rewards are usually distributed regularly, providing you with a passive income.
It's important to understand that the process of staking can vary depending on the blockchain network and the cryptocurrency that you choose. Some networks have different staking requirements, such as least token amounts or lock-up periods. Additionally, the staking rewards can vary depending on factors like network participation and inflation rates.
What are the benefits of staking crypto?
- Easy to get started
You can get started staking with an exchange or crypto wallet by supporting crypto projects that you like.
- Passive income
Earning staking rewards is considered to be a great way to put your inactive crypto to use for the long term.
- Increased Security
Staking has the added benefit of contributing to the security and efficiency of the blockchain projects you support. By staking, you make the blockchain more resistant to attacks and strengthen its ability to process transactions.
- Potential Asset Appreciation
Besides earning rewards, you can enjoy potential capital gain if the value of your crypto asset increases over time.
How much can you earn with staking?
The amount you can earn with staking depends on various factors, including
- the cryptocurrency you are staking,
- the staking rewards offered by the network,
- and the number of tokens you are staking.
The potential earnings can vary and it's important to note that returns rates are not guaranteed. The variance in profit percentages is due to 2 reasons:
- While some exchange platforms don’t have fees, others deduct their service charges before giving users their earned profit.
- These platforms have staking pools where users lock their coins together to improve their chances of becoming validators. In proof-of-stake blockchains, validators are chosen based on the amount of staked crypto they have. So, when more users join a pool and contribute their coins, the pool becomes larger, increasing the likelihood of being selected as validators. This means users in the pool have a better chance of validating blocks and earning rewards.
However, looking at market data, you can typically earn between 2 - 20% per year via staking. If you see any platforms offering something higher than that, proceed with caution as they could be fraudulent.
Is staking crypto worth it?
Yes, staking is with it. It’s a relatively straightforward way to generate passive income all while helping support the new era of finance. Each platform or blockchain offers different staking conditions and rewards. Hence, please do your due diligence to discover which option is best for your staking goals.
COMING SOON - STAKING ON WALBI
In 2024, WALBI is excited to announce the addition of a new staking service integrated into the wallet. This will make staking all your favourite cryptocurrencies easier than ever. Token holders will be able to earn stable interest as part of a diversified portfolio right here in the WALBI app. Stay tuned for more information on how you can generate a passive income with WALBI earn.
In the meantime, get on the waitlist for the WALBI app today.
