How does crypto staking work and how profitable is it? This article gives a thorough answer to staking cryptocurrencies and why you should be staking your crypto.
Cryptocurrency staking is one of the main financial activities in the cryptocurrency market. But why should you be staking crypto? The reason for staking crypto is not just one, but there are many of them. That’s why we have decided to create this guide with the 7 reasons why you should be staking crypto.
The cryptocurrency market has enabled a wide range of financial solutions to users over the last few years. Staking is one of the most innovative due to a large number of options available. You can stake different cryptocurrencies that would give you different yields and you would also have a passive income just by holding your favorite virtual currencies.
Moreover, there is not just a single platform that you can use but there are numerous crypto services providers that are already ready to offer you some of the most advanced crypto staking solutions. If you are still asking “why should you be staking crypto?” then you should keep reading to know the answer.
How Does Crypto Staking Work?
As you might already know, there are not just two different virtual currencies in the market, there are many of them, even thousands. Each of them is different and has different functionalities. Staking is one of the possibilities offered by Proof-of-Stake (PoS) virtual currencies.
Staking means that users that want to get involved in the blockchain network can lock a part of their virtual currencies to earn rewards in the same virtual currency they staked. This is one of the ways of earning passive income with virtual currencies.
But why are users being rewarded for simply holding the coins and not using them? Because when users stake their coins, they are also letting the network become more secure over time. This is possible thanks to their consensus algorithm (PoS).
PoS virtual currencies use the stake of each of the investors in order to make sure that transactions are verified and secured. This makes it possible to offer decentralized financial solutions to cryptocurrency users from all over the world without having to rely on a centralized authority.
The takeaway here is that you can earn crypto rewards if you stake your coins using a Proof-of-Stake blockchain network. The consensus algorithm involves using the funds staked to secure the network and the transactions. This is a completely different process from Proof-of-Work (PoW) cryptocurrencies such as Bitcoin (BTC) or Litecoin (LTC).
Now we will give you some reasons for staking crypto. We have chosen just 7 of them, but there are many other reasons that you should take into consideration. Basically, you are being part of the entire crypto ecosystem, securing a blockchain network, and being rewarded in the process. So why should you be staking crypto? Here are the main reasons:
#1 – Earning New Crypto Over Your Existing Crypto Holdings
One of the reasons for staking crypto is related to the possibility of earning rewards. This is a basic thing when it comes to PoS blockchain networks. If you are holding, let’s say, Tezos (XTZ), then you could earn more XTZ by staking your coins.
If you are a long-term investor and a strong believer in XTZ, then you can easily stake your coins to earn more rewards. In the long term, this is a very rewarding thing. You will be increasing your XTZ stake and you will also be protecting the Tezos network.
ETH2 is another example, with the migration from Ethereum Proof-of-Work to Ethereum Proof-of-Stake, users are able to stake their ETH holdings, protect the Ethereum network, process transactions and earn rewards for doing so.
Thus, as a holder, this is one of the best possible options. As you don’t want to trade your coins (there is a risk that you will lose them), you can easily stake them and earn new crypto over your existing crypto holdings. This is how easy this process is.
Currently, there are several cryptocurrency-related platforms that are making it possible for users to engage in staking activities. It is also possible for crypto investors to do solo staking (without the help of using third-party platforms), but this is usually a more complicated and advanced thing to do.
#2 – Possibility to Earn High Yield
Another reason for staking crypto that is worth taking into consideration is the possibility to earn a relatively high yield on your crypto funds. As we already mentioned, staking cryptocurrencies would let us earn rewards on our funds. But how high are these rewards?
There is no general rule on how much you can earn with your stake. It would highly depend on the blockchain network, the funds you stake, the platform you use to stake, and the interest in the virtual currency you hold, among other things.
The yield that is currently being paid to users that stake their virtual currencies is currently between 5% to 25% per year, but it can go as low as 0.1% and as high as 50%, or even more. Depending on many different factors (including the digital asset you hold), you will be able to earn a higher or lower yield while staking your digital currencies.
It is also worth taking into consideration that the risks are also minimal. Each network has different risks, for example, some of them would have a smart contract risk that is higher than in other networks. Despite that, the risk is relatively low and it might be one of the safest investment options currently available in the cryptocurrency market.
Additionally, users that stake using a third-party provider (such as an exchange) should also take into consideration the risk of the platform being hacked or attacked.
#3 – Environment Friendly
We have heard over the last few years how cryptocurrencies were attacked by mainstream media since Proof-of-Work (PoW) cryptocurrencies require energy to operate. For example, Bitcoin and Litecoin use hardware equipment that consumes large amounts of energy to secure the network.
Bitcoin’s energy consumption has usually been compared to that of a medium country. Thus, it was targeted by anti-crypto narratives that focused on this issue.
However, this is not the case for Proof-of-Stake virtual currencies, as they do not consume large amounts of energy to operate. Indeed, the energy consumption of large PoS networks is minimal, making these digital assets very environmentally friendly.
For instance, when users stake their coins waiting for a reward. Additionally, they would not be engaging in excessive use of electricity or energy when protecting the network. This advantage over PoW blockchain networks has attracted a large number of investors. As they are now searching for PoW alternatives to earn rewards while participating in the consensus algorithm.
Ethereum is one of the examples of a cryptocurrency network that is moving from being a PoW blockchain to a PoS network. Although this process has not yet been completed, it might be ready in the coming months or years.
Eventually, a clean environment is definitely considered a reason for staking crypto.
#4 – Crypto Staking Can Be Done for Free
Another positive thing to take into consideration is related to the fact that investors can easily stake their coins for free. Moreover, there is no need to purchase expensive hardware or make large investments in specialized equipment to start staking.
Bitcoin requires investors that want to have access to the consensus algorithm through mining to buy specialized hardware devices called ASIC miners. These are very expensive machines that take a lot of time to be produced, are costly to maintain, and create a lot of heat and noise. On top of that, these devices are very expensive, and not every person would get engaged in mining activities.
Things are different if we talk about PoS blockchain networks. These blockchain networks do not require users to have specialized hardware or computers. Every single person with funds to stake can do so in different ways. There are many options available in the market to start earning rewards with crypto staking activities.
Users that stake their funds would only have to keep their wallets connected to a blockchain network (if they do solo staking). Also, they can easily deposit their funds on any of the platforms that are offering staking solutions to users. That’s how easy it is to start staking virtual currencies and earning passive income.
#5 – Staking Crypto Helps Securing Blockchain Networks
If the reasons mentioned above were not enough then another important reason why you should be staking crypto is securing the network. By staking cryptocurrencies, users are also able to protect and secure blockchain networks.
As we already know, Bitcoin is protected by a large network of miners located around the world. PoS blockchains rely on nodes located in different jurisdictions that want to earn passive income on their crypto funds.
Through staking, network participants can process transactions and make it possible for the network to operate smoothly. Blocks are added onto the blockchain by staking nodes, meaning that they play a key role in the way in which the network operates. Basically, the tokens staked work legitimizing new transactions that are added to the blockchain.
The larger the network of nodes, the easier it becomes for the network to process transactions. In addition, the smoother the network works, and also the more secure and decentralized it becomes. The positive thing about crypto staking is linked to the fact that you are earning rewards for this. Moreover, a way to earn passive income while also protecting a blockchain network without using large amounts of energy.
#6 – Crypto Staking Keeps You Self-Sovereign
The cryptocurrency market is all about becoming self-sovereign and using services that do not depend on centralized authorities. With cryptocurrency staking, users are able to become self-sovereign, as they do not depend on financial companies or centralized platforms to start staking their virtual currencies.
However, there are some things that you should take into consideration. For example, in order for you to control your digital currencies, you will have to stake virtual currencies directly from your wallet. This is contrary to using a cryptocurrency exchange for staking activities.
Another and even safer way to stake cryptocurrencies is by using your hardware wallet such as a Ledger Nano. This would keep your funds safe at all times (not connected to the internet). Additionally, and even better, you would also be in charge of your digital assets. You are not giving away control of your keys and cryptos to a third party.
#7 – Staking Platform Tokens Give You Discount When Trading
Finally, the last of our reasons for staking crypto is related to the benefits that holding specific virtual currencies give you. When you hold specific cryptocurrencies such as exchange digital assets, you will be able to trade virtual currencies at a discounted rate.
Some of these coins include Binance Coin (BNB), KuCoin Shares (KCS), or the virtual currency of the FTX exchange (FTT). When you hold these virtual currencies, in your cryptocurrency exchange, the rewards that you receive would come in the form of reduced fees for trading or discounted market and limit orders.
Every single time that you place a trading order (limit or market) at a cryptocurrency exchange, you pay a small fee. Usually between 0.10% and 0.25% of the trade, depending on the platform. If you stake these digital currencies in the platform that you use to trade, then you will pay reduced fees. This is one of the best options for traders rather than long-term holders.
Conclusion: Is Staking Crypto Worth It?
So why should you be staking crypto? This article analyzed the reasons for staking cryptocurrencies and why you should at least analyze the possibility of getting involved in the crypto market. As a result, staking digital currencies has several advantages. For instance, it includes high yields, becoming the owner of your funds, and being rewarded for holding a virtual currency that you believe in.
This is one of the best ways in which you can earn passive income in the cryptocurrency market. At the moment, there are several staking coins, it is up to you to decide which virtual currency you choose to stake.
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