Staking is a way to run your crypto and earn rewards. If you are a cryptocurrency investor, staking is a concept you will often hear. Staking is the amount of cryptocurrency that verifies their transactions and it allows participants to earn rewards for their holdings.

But what is staking in crypto? Crypto staking is the process of pledging your crypto assets to the blockchain network in order to support it and confirm transactions.

Staking can be an excellent way to make passive income with your coin, especially because some cryptocurrencies provide high interest rates on staking. Our Wallet (best crypto wallet) also provides different features to earn passive income.  Before you begin, it is important to fully understand how crypto staking works.

How crypto staking works:

With cryptocurrencies that use the proof-of-stake model, staking is how new transactions are added to the blockchain.

First, the participants commit their funds to the cryptocurrency protocol. From these participants, the protocol chooses validators to confirm blocks of transactions. The more money you commit, the more likely you are to be selected as a validator.

If you want to staking with crypto, you need to own a cryptocurrency exchange that uses the proof-of-stake model. You can then choose how much you want to stake. Many popular digital assets exchanges allow you to do so. When you staking, your coins remain in your possession. You are essentially putting those staked coins into action and you are free to withdraw them later if you wish to trade them. Wagering is not an option with all cryptocurrencies. It is only available with cryptocurrencies that use the proof-of-stake model.

How to Stake cryptocurrency:

Staking crypto for the first time can seem a bit confusing, but it’s a simple process once you get the hang of it. Here is how to bet cryptocurrency step by step:

  1. Buy a cryptocurrency using proof of staking.

As previously indicated, not all cryptocurrencies support staking. Here are some of the major cryptocurrencies you can bet on and a bit about each one:

  • Ethereum (ETH -1.17%) is the first cryptocurrency with a programmable blockchain that developers can use to build apps. Ethereum has started using proof-of-work, but is moving to a proof-of-stake model.
  • Cardano (ADA -3.07%) is a coin that is good to the environment. It is founded on peer-reviewed research and developed using evidence-based methods.
  • Polkadot (DOT -2.56%) is a protocol that allows different blockchains to connect and work with each other.
  • Solana (SOL -2.92%) is a blockchain designed for scalability because it offers fast transactions with low fees.

Start by learning more about all the proof-of-stake cryptocurrencies that catch your eye, including how they work, their staking rewards, and the staking process with each.

  1. Move your cryptocurrency to a blockchain wallet.

After purchasing your cryptocurrency, it will be available on the exchange where you bought it. Some exchanges have their own staking programs with certain cryptocurrencies. If so, you can simply bet the cryptocurrency directly on the exchange. Otherwise, you will need to transfer your funds to a blockchain wallet, also known as a crypto wallet.

  1. Join the Stake group.

While staking might vary based on the coin, the majority use staking pools. Cryptocurrency traders combine their funds in these staking pools for a higher chance of earning staking rewards.  

What exactly is proof of stake?

Proof of stake in cryptography is a consensus mechanism – a way for the blockchain to validate transactions. The nodes in the blockchain must agree on the current state of the blockchain and valid transactions.

There are different consensus mechanisms used by cryptocurrencies. Proof of stake is one of the most popular because of its efficiency and because participants can earn rewards from the cryptocurrency they stake. Staking rewards are an incentive provided by blockchains to participants. Each blockchain has a fixed amount of cryptocurrency reward for validating a block of transactions. When you bet in crypto and are selected to validate the transaction, you will receive these crypto rewards.

The Advantages of Staking Cryptocurrency

Here are some of the advantages of staking cryptocurrency:

  • It’s an easy way to earn interest on your crypto holdings.
  • You don’t need any equipment to bet crypto like when mining cryptocurrency. • You help maintain the security and efficiency of the blockchain.
  • It is more environmentally friendly than cryptocurrency mining.

The main benefit of staking is that you earn more crypto and the interest can be very generous. You can make more than 10% or 20% each year in some instances. It has the potential to be a very profitable way to invest your money. And, the only thing you need is a cryptocurrency that uses a proof-of-stake model.

Cryptocurrency Staking Risks

There are a few crypto staking risks to understand:

  • Cryptocurrency prices are unstable and can drop quickly. If your bets depreciate drastically, it can be larger than the profit you make on them.
  • Bets may require you to lock your funds for a minimum amount of time. During this period, you cannot do anything with your bet assets, such as sell them. 
  • When you want to withdraw your crypto, there may be a withdrawal time of seven days or more.

The biggest risk you face when betting crypto is that the price will drop. Keep this in mind if you find cryptocurrencies with extremely high staking reward ratios.

Why Do Not All Cryptocurrencies Support Staking?

Cryptocurrencies must use a proof-of-stake consensus mechanism to have a stake. There are many that are not, and these cryptocurrencies cannot be wagered. Proof of Stake is not the first or only consensus mechanism that cryptocurrencies can use. Proof of work is the first, since it was born with Bitcoin.

There is a debate about which consensus mechanism is the safest option. While the computing power required by proof-of-work uses considerable energy, it also makes proof-of-work blockchains difficult to attack. For this reason, several cryptocurrencies use proof of work.

When You Should or Shouldn’t Stake Cryptocurrency?

If you have a cryptocurrency you can bet on and you don’t plan to trade it in the near future, then you should bet it. It requires you to do nothing and you will earn more cryptocurrency.

What if you don’t have any cryptocurrencies you can bet on yet? Considering the profit you can make, you should research cryptocurrency by staking. There are many that offer this, but be sure to evaluate whether each cryptocurrency is a good investment. It only makes sense to buy crypto to bet if you also believe it is a good long-term investment.

The proof-of-stake model has benefited both cryptocurrencies and crypto investors.