Cryptocurrency Staking: Earning Passive Income

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Ever heard of a savings account where you can fix a certain amount of money and get a percentage of profit on it annually or monthly? Well, skating is that saving account in the crypto world. But instead of gaining profit in dollars, you will get your profit in the form of Cryptocurrency for the currency you are ‘’staking”. 

It may sound simple but there is a lot to learn before you decide to stake your crypto assets. You also have to acknowledge yourself not only about what is staking but also, how it works. It also has its fair share of risks in addition to ample benefits. Therefore it is advised to read this guide thoroughly before jumping into the world of staking.

What Is Cryptocurrency Staking?

Cryptocurrency staking is somehow similar to a savings account in a traditional bank where you lock a certain amount of money that can be used by banks on different platforms, and as a result, you gain profit from it. But, in cryptocurrency, you use a blockchain network to lock your digital currency and for that you earn rewards. But not all cryptocurrency allows you to stake. The ones who only use proof-of-stake consensus mechanisms allow them to do so.

All the staking blockchain platforms allow a percentage of the reward for staking your crypto tokens for a fixed amount of time. For example, if a blockchain network is offering a 5% reward for a fixed period, say a month, then at the end of this period, not only do you get to have your staked token back but you will also have a reward you earn for staking it. And that will be 5 additional tokens for every 100 stacked tokens (in case of a 5% reward).

But why do these blockchain networks offer rewards anyway? Well, the answer is simple because your staked tokens will support the operation of the blockchain.

By staking a set sum of Cryptocurrency, the participants help the blockchain by not only adding new blocks but also validating new transactions under the proof of stake consensus mechanism.

Staking a sum acts like insurance so that the participants can only add legitimate transactions and data. In any case, if they try to validate corrupt data, they will lose a fraction or in most cases the whole sum of their staked tokens. The rewards are therefore awarded to participate as an honest candidate.

The Pros Of Staking

By staking a sum of your assets to the blockchain network, you will not only earn a reward in a fixed percentage but also, you will help the blockchain increase its strength and efficiency.  By Staking, you are making your blockchain stronger by making it tougher against the attackers. The more the blockchain is staked, the more strength it will develop to process transactions.

Secondly, if you wish to hold on to your crypto investment for a very long time then instead of it collecting dust and sitting in your wallet idly, you can stake it and start earning a passive income.

Cons Of Crypto Staking

If you wish to stake your crypto assets then you must have a sound knowledge of its drawbacks also. The major drawback of staking is that your staked crypto token will be unavailable for trading for a fixed amount of time. And if during that time, the rates of your tokens increase then you cannot sell them. 

Volatility is a huge drawback of any cryptocurrency and if your crypto asset enters the volatility period then not only your reward but your staked tokens may lose their value. 

Your staked tokens can be confiscated in case of any mishap from your side or if you try to validate fraudulent data. And if your blockchain is attacked by attackers which is not very uncommon then it can also affect your staked tokens.

Categories Of Crypto Staking

There is more than one form of crypto staking but in particular, it has two main categories that are defined below.

Active Staking

If you want to participate and want to create new blocks and validate new transactions by staking and earning rewards then this form of crypto staking is called active staking. It means you are actively participating in the blockchain. It is to be noted that this type of staking is time-consuming.

Passive Staking

This form of staking is not consuming at all. In passive staking, you simply have to stake your tokens for a set period and let the blockchain network use it to keep it running smoothly and securely. However, as compared to active staking, the rewards you earn are lower in passive staking.

Types Of Crypto Staking

Staking might be a comparatively new area in the crypto world, but below are a few specialized types of staking.

Delegated Skating

Delegated and Pool skating are often confused with each other but they are different! In delegated skating, crypto stakers delegate their power of staking to someone else who operates the validator node 

Pool staking

Many times the amount required for staking is very high which is difficult to fulfill by a single participant. Therefore, a group of people combine their crypto tokens to get the staking reward. And, on receiving the rewards, they are divided respectively among groups of participants. 

Exchange staking 

If you do not want to be involved in the staking directly then exchange Staking is a very suitable option for you. In exchange Staking, participants can stake their crypto on an exchange and the exchange takes charge of staking from their own. Upon receiving a reward, it distributes it amongst its participants.

How does crypto staking work?

Now that we have established our foundation of the basics of crypto staking. It’s time to know the steps to do the staking now. Below are the steps that will help you understand how crypto staking works.

Finding Stake Supporting Cryptocurrency

It has been already mentioned above that only those crypto who work on proof-of-stake consensus mechanisms allow their token holders to stake their tokens. Therefore, you must do your research and choose the crypto that allows Staking.

Acquiring The Chosen Cryptocurrency

After doing proper research for staking cryptocurrency it’s time to research how to acquire it. The easiest way is to choose a crypto exchange to gain your crypto.

Selecting The Staking Platform

Choosing a staking platform is very crucial because it will determine what kind of staking you can get yourself involved in.

Start Staking Your Crypto

After acquiring your crypto and choosing a staking platform you can follow the rules of the platform and start staking. Please note that your staked crypto will be locked for some predefined time by the staking platform whether it’s custodial or noncustodial staking. After some time, you may start to get additional crypto as your staking reward.

It is however worth mentioning that the process of staking rewards may be affected by some reasons like network congestion where the system is slowed down which in turn slows down the rewarding process.

Also, if a fork takes place i.e. a blockchain protocol is changed then it will also affect the value of the rewards.

How To Make Money By Staking Crypto

We now know that we must choose a staking platform for our chosen cryptocurrencies. The staking platform makes things very clear on how much you will earn and for how long you have to stake your crypto.

Different staking platforms offer different rewards for staking crypto. For example, a Cryptocurrency exchange ‘’Kraken” offers a 4% to 6% annual percentage yield (APY) for Cardano (ADA) staking and 4% to 7% for Ethereum 2.0 staking.

After completing the staking process you have to wait for the scheduled time to receive your crypto. The crypto you receive as a reward can be used in different ways. You can trade it or save it as an investment. You can even use it for further staking.

Some famous cryptocurrency exchanges reward their participants as follows.

Binance offers 20.48% on USDT and 1.17% to 3.17% on ETH

Coinbase offers 5.10% on USDC, 5.01% on SOL and 2.81% on ETH 

Lido offers 3.14% on ETH 

Trust wallet offers 3.68% on ETH, 9.1% on BNB, 14.76% on DOT and 13.94% on ATOM 

Apart from these cryptocurrencies, if you want to indulge yourself with the knowledge of how much reward you can get on staking other cryptocurrencies then visit Staking Rewards!

Bottom Line

If you are a Cryptocurrency trader or want to do long-term cryptocurrency investment then staking is actually a good option. But since crypto is a highly volatile world, therefore, fluctuating prices are common here. Also, if you are ok with your amount being locked for some time because you will not be able to get it for a predefined time, then you can go for staking.

But make sure that you do your due diligence before choosing the staking platform. Also, make sure to get all the necessary information from the platform including how much time it would take to return your staked tokens after the predefined time. Since the staking platform can confiscate your crypto for any wrong behavior or in case of the creation of a fork, therefore make sure you only stake the amount you can afford to lose.

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