If you invest in cryptocurrencies, you’ll hear the term “staking” a lot.

Staking, like many other elements of cryptocurrency, can be complicated or simple, depending on how much knowledge you want to gain. For many traders and investors, the most important thing to know is that staking is a means to get paid for keeping certain cryptocurrencies. Even if you just want to get some staking rewards, it’s helpful to know at least a bit about how or why it exists the way it does.

Staking is a powerful way to make money in cryptocurrency without buying and selling coins. Experts say that as of April 2022, the overall value of all cryptocurrencies staked was more than $280 billion.

So, what exactly is crypto staking? And the more important question is, “What’s in it for you?” Let’s find out here.

We’ve divided this article into sections to ensure that you get all of the information you need about crypto staking: 

• What Is “Staking”?
• How Staking Works 
• Proof Of Stake 
• Limits of Crypto Staking
• PROs of Crypto Staking 
• CONs of Crypto Staking
• Step-By-Step Guide to Staking Crypto 
• How To Get Started With Staking

What Is “Staking”?

First things first: What exactly is “staking” in crypto? Staking is an element of the process in that various cryptocurrencies confirm transactions. Staking is a means for those who hold crypto to put their assets to work and then earn passive income without having to sell them.

Staking is like investing money in a high-yield savings account for your cryptocurrency. Put money in a savings account, and the bank will make loans to other customers. You get a little portion of the interest the bank earns on your deposits as compensation for keeping your money there.

In the same way, if you stake your virtual currencies, you lock up the coins so that you can help run the blockchain and keep its security up to date. In exchange, you get rewards based on how much money you make. Most of the time, these returns are much higher than any interest rate that a bank might offer, making it a more suitable option for crypto investors. 

How Staking Works 

Crypto staking is a crucial part of the technology that makes some cryptocurrencies work. Understanding it helps to know what blockchain networks are and how they work.

With proof-of-stake cryptocurrencies, new transactions are added to the blockchain by “staking.”

What Is “Proof-of-Stake”?

Proof-of-stake is one type of consensus mechanism that is used to verify transactions in cryptocurrencies. With this system, people who own the cryptocurrency can stake their coins, giving them the right to test new blocks of transactions and add them to the blockchain.

This particular method is an alternative to the “proof of work” model, which was the first way for cryptocurrencies to reach a consensus. Since proof of stake uses a lot less energy, it has become more popular as people have become more aware of how crypto mining affects the environment.

First, people give their coins to the protocol for cryptocurrency. The protocol picks validators from these people to verify blocks of transactions. If you pledge more coins, you’re more likely to be selected as a validator.

Once a new block is successfully added to the chain, crypto coins are made and given to the validator of that block as a reward for staking. Most of the time, participants are rewarded with the very same type of virtual currency that they stake. But some blockchains reward users with a different kind of cryptocurrency.

If you want to stake crypto, you have to own crypto that uses the proof-of-stake framework. After that, you can then choose how much you want to stake. Almost all popular cryptocurrency exchanges let you do this.

When you stake your coins, (technically) you still have them in your hands. You’re putting those staked coins to work, and if you want to trade them later, you can remove the stakes. 

Limits Of Crypto Skating

A cryptocurrency can only be staked if it uses the proof-of-stake consensus mechanism. Unfortunately, a lot of crypto-assets do not use this method. 

Some of the most prominent cryptocurrencies you can stake include the following:

• Ethereum (ETH).
• Cardano (ADA).
• Solana (SOL).
• Luna (LUNA).
• Avalanche (AVAX).
• Polkadot (DOT).

Proof of stake is not the first or only way for cryptocurrencies to reach a consensus. As mentioned previously, there’s also “proof of work,” which was first used for Bitcoin. Before Peercoin (CRYPTO:PPC) introduced proof of stake in 2012, other early cryptocurrencies followed in its footsteps.

People disagree about which consensus mechanism is the safer choice. The thing with “proof of work” is that it requires a lot of computing power, which uses a lot of energy. However, this also makes proof-of-work blockchains hard to hack. Because of this, some cryptocurrencies prefer to use proof of work.

“Proof of burn” is another less common way to reach a consensus. With this method, miners must burn (destroy) crypto to confirm transactions. 

No choice is perfect, so developers of cryptocurrencies pick the one they like best for their projects.

Now, let’s talk about the benefits and possible drawbacks that every investor must review and understand before diving into crypto staking. 

PROs Of Crypto Staking

• It’s a simple way to make money on the cryptocurrency you already own.
• For crypto staking, you don’t need any tools like you would for crypto mining.
• You’re helping to keep the blockchain safe and running smoothly.
• It is better for the environment than mining for cryptocurrency.

The main reason to stake is to earn more cryptocurrency, and interest rates can be very high. In some situations, you can make more than 10% or 20% per year. It could be an excellent way to put your money to work. 

Staking is another way to help the blockchain of crypto that you own. The holders of these cryptocurrencies “stake” their coins to validate transactions and ensure everything works well.

CONs Of Crypto Staking

There are several risks to know about when you stake crypto:

• Cryptocurrency prices are unstable and can change quickly. If the cost of your staked assets goes down a lot, the interest you earn on them might not be worth it.
• When you stake, you might have to lock up your coins for a certain amount of time. During that time, you won’t be able to do anything with the assets you staked, like sell them.
• When you want to unstake your cryptocurrency, you may have to wait up to seven days.

When you stake crypto, the biggest risk is that the price goes down. This is something that you need to keep in mind if you find cryptocurrencies with very high staking reward rates.

For example, many smaller crypto projects offer high rates to attract investors, but their prices then crash. If you wish to add crypto to your portfolio but want less risk, you should choose cryptocurrency stocks instead.

Even though the crypto you stake is yours, you must take it out of your stake before you can trade it again. So you don’t get any unpleasant surprises, it’s crucial to find out if there’s a minimum lockup period and if unstaking will be a struggle in the future.

Step-By-Step Guide To Staking Crypto 

Staking cryptocurrency may appear complicated at first, but it’s a simple process once you get the hang of it. Here’s a step-by-step guide to staking cryptocurrency:

1. Purchase a cryptocurrency that employs proof of stake.

Just like what we mentioned earlier, you can’t stake in all cryptocurrencies. You’ll need a cryptocurrency whose transactions are verified by “proof of stake.”

It’s best to start by learning more about proof-of-stake cryptos that pique your interest, like how they work, their staking rewards, and the staking process for each. Then you can look for the cryptocurrency you want and purchase it through cryptocurrency apps and exchanges.

2. Move your cryptocurrency to a blockchain wallet.

After you purchase your cryptocurrency, it will be available on the exchange from which you purchased it. Some exchanges run staking programs with specific cryptocurrencies. If so, then you can stake your cryptocurrency on the exchange.

Otherwise, you must transfer your funds to a blockchain wallet, also known as a cryptocurrency wallet. Wallets are widely regarded as the most secure method of storing cryptocurrency. The quickest option here is to download a free software wallet.

Once you have your wallet, select the option to deposit cryptocurrency and then the type of cryptocurrency you want to deposit. This produces a wallet address. You’ll then have to navigate to your exchange account and select the option to withdraw your cryptocurrency. To transfer your cryptocurrency from your exchange account to your wallet, you’ll just have to copy and paste that wallet address.

3. Engage in a staking pool.

While staking can differ depending on the cryptocurrency, the majority use staking pools. To increase their chances of earning staking rewards, cryptocurrency traders pool their funds in these staking pools.

Investigate the staking pools that are available for the cryptocurrency you own. Once you’ve found a pool, stake your cryptocurrency in it using your wallet. That’s all you have to do to start earning rewards.

How To Get Started With Staking

Most of the time, anyone can stake if they want to. Still, becoming a full validator can require a large minimum investment. ETH2, for instance, requires a minimum of 32 ETH. Apart from the minimum investment, it also requires technical knowledge, and a dedicated computer that can do validations day and night without stopping. Participating on this level comes with security concerns and is a big deal since a validator’s stake can be cut in half if the network goes down.