Staking is a concept within the crypto industry that has recently gained enormous popularity. Are you not satisfied with the returns you can get from buying and holding your Bitcoin (BTC) or Ethereum (ETH)? Then you can choose to put your crypto ‘to work’.
Putting your fiat money to work in the bank rarely gives more than 1-2% in interest rates, at least in western economies. For crypto, staking rewards usually start at 4-7% interest rate (or yield as they call it) in the first year for some of the major coins.
With staking, you keep your crypto and get an inevitable return for locking (and lending) it. Of course, you run an additional risk by not being able to sell immediately, but the upside for long term investors usually overweight the risks. With staking, you get a reward for holding your crypto, as it were.
An aspect of cryptocurrency ownership that often goes unmentioned is crypto staking. Much of the buzz surrounding digital assets involves volume, price and market caps – but there are plenty of other areas of exploration for investors. In the case of staking, it's an area that has not received the attention it deserves.
Especially in a bull market, it can be interesting for traders to grab an extra return in this way. With staking, you keep your crypto and get an inevitable return for locking (and lending) it. Of course, you run an additional risk, but you do not have to sell your crypto to achieve that return. With staking, you get a reward for holding your crypto, as it were.
What is staking?
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- 1 What is staking?
- 2 How does staking work?
- 3 What is the difference between staking and mining?
- 4 Crypto staking costs, risks, and rewards
- 5 What are the best cryptocurrencies and tokens to stake?
- 6 Where can you stake your cryptocurrency?
- 7 What is the APR/APY on staked crypto and where can I get the highest ROI?
Staking is a concept within the crypto industry that has recently gained enormous popularity, since it’s based on HODL and gives ongoing return on your investment. Staking can give return as frequently as every minute up to every month, or even less frequent like every 6 month or once a year. Are you not satisfied with the returns you can get from buying and holding your crypto? Then you can choose to put your crypto 'to work'.
Staking is the process of securing a blockchain network by participating in transaction verification. Stakers are rewarded with tokens in exchange for their assistance in verifying transactions, which serves as an incentive to keep them honest. In addition to new tokens, the price appreciation of existing ones is also a big incentive for investors to buy and hold coins for staking. As prices go up, so do token rewards from master nodes and other staking services.
By staking your coins or tokens, you get a percentage interest over time. Usually this is done via a so-called staking pool, which you can somewhat compare with an interest-earning savings account at the bank.
You earn interest because the blockchain "puts your money to work." The stakable cryptos work through a consensus mechanism called Proof of Stake (described here). In this way, all transactions within the network of the respective crypto are verified and monitored in a decentralized manner. When you decide to stake your crypto, your crypto becomes part of this process, and you get rewarded for doing so.
How does staking work?
This is where it gets exciting and a bit more technical. Bitcoin itself, for example, cannot be staked, and there are several reasons for this. In general, cryptocurrencies are all decentralized, meaning that no company or bank controls all transactions. Instead, there is the consensus mechanism mentioned above. Many cryptos use a consensus mechanism called Proof of Work.
In Proof of Work cryptos, the underlying coin or token’s network uses tremendous computing power to solve problems such as validating transactions between two strangers on the other side of the planet. Proof of Work coins are not suitable for the environment, as they require a lot of computing power and, therefore, the ability to keep the whole thing running.
In addition, Proof of Work coin and token networks can become so ”expensive” that this results in very high transaction costs and take much longer than usual. For this reason, the new Proof of Stake consensus mechanism was created.
At Proof of Stake, all expensive and complex computer systems are not needed to validate transactions, but people who have invested in the blockchain by staking their coins or tokens, are. Proof of Stake thus originated from the idea of being more efficient with validating transactions and thus reducing costs and increasing the network’s speed.
So staking works similarly as mining and is the process in which a network participant is selected to validate the blockchain transactions. They receive cryptocurrency as a reward for this. The more crypto someone stakes, the greater the theoretical chance that this person will be selected to validate the transaction and thus reap the reward. This gives you more crypto when you invest more in staking pools. Of course, they are not the same. Let’ see the difference between staking and mining.
What is the difference between staking and mining?
It's important to understand the difference between mining and staking because each method is used to validate transactions on a blockchain. Mining refers to the process of solving complex mathematical equations on a cryptocurrency network with specialized hardware, for example Bitcoin mining. Staking refers to the process of validating transactions on a blockchain without necessarily using specialized hardware.
Crypto staking costs, risks, and rewards
Are you looking for a way to grow your crypto? Then staking might be the thing for you. You take more risk with staking than the regular holding of your crypto because DeFi often involves relatively young protocols that we have yet to see if they will stand the test of time. A DeFi protocol may completely disappear because the team has run off with the money or a hacker has found a hole in a smart contract. In addition, you naturally run the risk that the market will do things that were not taken into account in the smart contract. Due to these risks, the yields are pretty high with staking. You can expect anywhere from 6 to over 45% interest on your staked crypto per year.
Do you want to safely grab a small return on a coin or token you already planned to hold for a more extended period? Then staking is an exciting option. It won’t make you very rich quickly, but it can give your portfolio that extra boost you’ve been waiting for.
What are the best cryptocurrencies and tokens to stake?
There are tons of cryptocurrencies that you can stake. But as with everything, some give better conditions that others, so generating wealth in the long term relies heavily on the decision you make today. Let’s see if we can help you with choice.
Ethereum is one of the hottest assets on the cryptocurrency market right now and we cannot rely write an article about staking without mentioning it.
When Ethereum switches to PoS, hopefully in the second half of 2022, there will initially be two types of validators: miners and
stakers. The miners validate the transactions on the highest level of the blockchain (formerly known as Ethereum 1.0), while the stakers verify blocks on the consensus layer that lies beneath (Ethereum 2.0). This means that Ethereum stakers will initially need to transfer their ETH from the top level chain to the underlying consensus layer in order to stake.
Polkadot uses a set of nominated validators in its proof-of-stake (NPoS) consensus algorithm. This group of nodes is primarily composed of nominators — individuals or companies that select the nodes that they believe provide the best service to the network. These validators then lock up tokens as collateral, which are used to stake the network and add blocks, receiving rewards in return. Bear in mind Polkadot is for more advanced users, so if you’re just starting, it might not be the perfect staking option in front of you.
Tezos calls staking ‘baking’, and the process is rewarded with the staking currency. To stake Tezos, you need to hold 8,000 XTZ coins – and run a full node. Fortunately, third-party services allow you to delegate your staking power and receive smaller amounts of the staking currency as a reward. Based on annual percentage yield, the return on staking can range from five to six percent.
Staking stablecoins has become a popular strategy for cryptocurrency investors, as it offers steady returns with the opportunity to earn dividends – a hedge against the volatile nature of the crypto markets. Of course, you cannot expect huge returns as other volatile options, but it is the perfect balance between risks and rewards.
Combine that return with the potential price increase of other investments, and you have a pretty attractive extra return on your holdings, thanks to staking.
Where can you stake your cryptocurrency?
When you have made up your mind about staking, then it’s time to choose where you will proceed with your investment.
Staking-as-a-Service (SaaS) Platforms
Staking-as-a-service platforms are built with the sole purpose of staking tokens – they are dedicated to staking only. These platforms charge a fee for taking ownership of your tokens and profiting from their rewards. Initial tests on these platforms have shown that such services can bring in massive profits while ensuring a steady passive income stream via your stake.
Cryptocurrency exchanges have naturally jumped into the staking business thanks to their extensive number of users. Depending on the particular exchange, cryptocurrency holders are able to make a profit by staking their coins. The more coins you stake, the larger cut you take of the profits – so either buy up a bunch of different coins, or just keep your favorite ones and let them collect dividends while you sleep. Check out our top list of crypto exchanges here.
Private staking requires a more significant investment, but in exchange gives traders potentially bigger rewards through the risk of reduced supply. This method is also known as cold staking and it's what we want to look at first. The idea is to deposit your funds into a third party — usually a trusted or reputable company — and let them lock up your funds for you for the duration of the agreement.
What is the APR/APY on staked crypto and where can I get the highest ROI?
Several cryptocurrency brokers and exchanges offer interest rates on staked crypto as high as 140% per year (Binance’s current APR on staked Pancakeswap). We recommend checking out Binance, eToro, and Crypto.com. These top platforms all offer staking and are considered to be the most trustworthy cryptocurrency exchanges worldwide.
Binance is an excellent exchange. With a large number of cryptocurrencies supported, they’ve got you covered. It’s also great to see that they offer a variety of different staking periods as well – this means you can take your pick of how long you’d like to stake for, with options between 10 days and 90 days available.
When choosing eToro as your staking service, you'll enjoy a full range of benefits. For example, their brokerage house is regulated by the SEC, FCA, ASIC, and CySEC. They also have no lock-in period for deposits – choose to keep your assets with them for as long as you need.
Crypto.com is your go-to source for all things crypto, offering several secure products that provide a solution to your crypto needs. From allowing you to invest in a variety of cryptocurrencies and digital assets to offering a host of other secure products, Crypto.com takes care of a range of different cryptocurrency-related issues. It’s an amazing platform for crypto staking and it offers a ton of utility for other activities, as well. So if you breathe crypto, that’s your place.
Tips: Another related topic is called yield farming, which is more risky but can give higher rewards. Learn more about yield farming here.