Every crypto investor has heard about the concept of cryptocurrency staking. Shortly, this is a way for cryptocurrencies to verify their transactions, allowing participants to earn rewards on their holdings.
Staking cryptocurrencies is a process, involving committing your crypto assets to support a blockchain network and confirm transactions. This process is available with digital currencies that use proof-of-stake protocol. As you might know, this is the more energy-efficient alternative to the proof-of-work protocol, which requires mining devices and computing power.
Moreover, staking is a great way for generating some passive income.
How does crypto staking work?
For cryptocurrencies that use a proof-of-stake protocol, staking is how new transactions are added to the blockchain.
Participants pledge their coins to the protocol. Afterwards, the protocol chooses validators to confirm the transaction. The more coins you pledge, the bigger the possibility of being chosen as a validator.
To stake cryptocurrencies, you need to own a crypto using a proof-of-stake protocol. After that, you choose the amount you would want to stake. This can be done through many cryptocurrency exchanges.
Coins will still remain in your possession when you stake them, and you can unstake them. Keep in mind, that the unstaking process is not always immediate, and with some cryptocurrencies it is required to stake your coins for a minimum amount of time.
How to stake cryptocurrencies?
Buy a cryptocurrency
As we already mentioned, not every cryptocurrency offers staking. Here are some of the biggest cryptocurrencies you can stake:
Ethereum - Ethereum started using proof of work protocol, but transitioned to proof-of-stake protocol.
Cardano - Cardano or ADA is a popular, and eco-friendly cryptocurrency, founded on peer-reviewed research.
Polkadot - This protocol allows different blockchains to connect and work together.
Solana - A scalable blockchain offering fast transactions with low fees.
Transfer your crypto to a blockchain wallet
When you buy the chosen cryptocurrencies, you can either keep it in the exchange if it has its own staking program, or move it to a blockchain wallet (crypto wallet).
Wallets are considered to be the safest way to store your currencies. You can easily withdraw your currencies from the exchange and transfer them to your wallet.
Joining a staking pool
Staking can look different on different cryptocurrencies. However, most of them use staking pools. Most crypto traders combine their funds, so they can have a bigger chance of earning rewards.
When searching for a staking pool, here are some things to consider:
Staking pool reliability - Do research to ensure that the stake pool is reliable enough. You cannot earn rewards, if the server is constantly down. That is why we suggest you pick one with an uptime closest to 100%.
Fees - Most of the staking pools take a fee from the staking rewards. A reasonable cut is considered 2% to 5%. It also depends on the cryptocurrency.
Size - As you might guess, smaller pools are less likely to be chosen to validate blocks. At the same time, they offer larger rewards, just because they don’t need to divide the rewards as much. Again, do a research, as you don’t want to choose a small pool that could fail. Also, keep in mind that some cryptos limit the amount of rewards a pool can earn.
When you are done with those steps, you can begin crypto staking and earning rewards.
Of course, always have in mind that cryptocurrencies are volatile and can bring you great profits, as well as huge losses. That is why we always suggest you do good research before investing in cryptocurrencies, and never invest more than you are willing to lose.