In a few steps, you could start earning 5%, 10%, or potentially even more on your crypto.
If you've decided to invest in crypto, staking is a great way to boost your returns. Many cryptocurrencies, especially newer ones, validate transactions using a model called proof of stake. With this model, people who own the cryptocurrency can stake it. That means they let their crypto be used by the blockchain to validate transactions.
In return for staking crypto, participants receive rewards on what they've staked. You could look at it like earning interest on what you have in a savings account. The big difference is that while bank account interest rates tend to be very low, you can often make 10% or more with crypto staking.
Like almost everything crypto-related, staking can seem confusing at first. It's easier to do than you might think, and you're free to unstake your crypto if you want to trade it later. Once you know how to stake crypto, you can start earning passive income from it.
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1. Learn about cryptos that offer staking
To start staking, you need to own a proof-of-stake cryptocurrency. These are the only cryptocurrencies you can stake. Fortunately, the proof-of-stake model is getting more and more popular because of how efficient it is.
Choosing the right crypto is the most important part of the staking process. A common mistake here is choosing a crypto solely because it offers enormous rewards. It's always tempting to buy when you see a crypto offering 100% or more in yearly staking rewards, but many of these are poor investments that will plummet in price.
You should only buy a crypto if you feel confident it's a good long-term investment. Look at staking as the cherry on top and don't make it the only reason you buy.
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There are lots of proof-of-stake cryptocurrencies you can consider. Here are a few of the biggest:
- Cardano (ADA)
- Solana (SOL)
- Polkadot (DOT)
- Terra (LUNA)
- Tezos (XTZ)
Ethereum (ETH) is also in the process of transitioning to the proof-of-stake model. It's not 100% there yet, but it can be staked.
2. Buy the cryptocurrency you want
Now that you've learned about cryptos you can stake, the next step is to pick one and buy it. This may seem straightforward, but it's important to consider where you'll make the purchase. The simplest option is to choose one of the cryptocurrency exchanges with a built-in staking feature.
The reason to take your time here is because not every cryptocurrency platform lets you stake crypto. At the moment, most of the stock brokers and payment apps that sell crypto don't offer staking. They also won't let you transfer the crypto you buy off their platforms.
So, let's say you buy crypto from one of those places. You won't be able to stake it on the platform or transfer it to another wallet or exchange where you can stake it.
That's why you should stick to exchanges that give you full control of your crypto. Some of the top options include:
- Binance
- Coinbase
- Kraken
Each of these exchanges offers staking with some of their cryptocurrencies, so you can stake what you buy in a few clicks. You'll also have the option of transferring your crypto if you want to stake it somewhere else.
3. Stake your crypto through an exchange or pool
This part of the staking process depends on the crypto you bought and the exchange where you bought it.
If you used an exchange that lets you stake that crypto, then it likely has a staking page or a staking option on your portfolio. Review the exchange's help section if you're not sure how to do it.
Another option with many cryptos is to use a staking pool. These pools consist of crypto funds that investors have pooled together to earn more staking rewards. To stake through a pool, you typically need to transfer your crypto to a crypto wallet first. Then you can choose a staking pool and send the crypto there through your wallet.
Staking crypto is a fairly straightforward process, especially now that several exchanges offer it. Once you've figured out what you'll buy, it's a good idea to research how staking works for that specific cryptocurrency. This will help you choose the staking method that works best for you and offers the most rewards.
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Now, let's break down the key concepts mentioned in the provided article about earning returns through crypto staking:
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Proof of Stake (PoS) Model:
- This model is highlighted in the article as the basis for crypto staking. PoS is a consensus algorithm where validators (participants) are chosen to create new blocks and validate transactions based on the number of coins they hold and are willing to "stake" as collateral.
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Staking:
- Staking involves participating in the PoS system by locking up a certain amount of cryptocurrency as collateral to support the network's operations. In return, participants receive rewards, analogous to earning interest on a savings account.
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Cryptocurrency Selection:
- The article emphasizes the importance of choosing the right cryptocurrency for staking. It advises against solely focusing on high staking rewards, cautioning that some may be poor long-term investments. The key is to select a cryptocurrency with a solid foundation and potential for sustained growth.
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Examples of Proof-of-Stake Cryptocurrencies:
- The article provides a list of notable PoS cryptocurrencies, including Cardano (ADA), Solana (SOL), Polkadot (DOT), Terra (LUNA), Tezos (XTZ), and mentions Ethereum (ETH), which is in the process of transitioning to a PoS model.
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Buying Cryptocurrency:
- Once the user has chosen a suitable cryptocurrency for staking, the next step is to purchase it. The article advises careful consideration of where to make the purchase, highlighting the importance of choosing cryptocurrency exchanges with built-in staking features.
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Cryptocurrency Exchanges with Staking Features:
- The article recommends exchanges such as Binance, Coinbase, and Kraken, emphasizing their features that allow users to stake cryptocurrencies easily. These platforms offer not only the ability to stake but also the option to transfer crypto to other wallets or exchanges for staking.
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Staking Process:
- The staking process depends on the specific cryptocurrency and the exchange where it was purchased. Users can stake through the exchange's staking page or portfolio. Additionally, the article introduces the concept of staking pools, where investors combine their crypto funds to increase staking rewards.
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Research and Staking Method:
- The article suggests researching how staking works for the chosen cryptocurrency to optimize rewards. This highlights the importance of understanding the nuances of each crypto's staking mechanism and selecting the most suitable staking method.
In summary, crypto staking is portrayed as a lucrative opportunity for investors, provided they choose the right cryptocurrency, use reputable exchanges, and understand the specific staking processes involved. The article aims to guide readers through these steps to help them earn passive income through crypto staking.
