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With Bitcoin recently passing a market cap of more than $785 million and the total crypto market cap soaring past $3 trillion, it’s clear that many people are interested in crypto investments.
So, what is crypto staking and why is everyone so excited about it?
Crypto staking is a new way to earn money from your cryptocurrency. Also called “proof-of-stake” by some within the community, it’s is the future of earning money from holding cryptocurrencies.
Staking is an easy way for anyone with any amount of cryptocurrency to earn passive income without investing large sums or hiring someone else.
This article will cover everything you need to know about crypto staking – including how it works, what kind of returns are possible, and whether or not it’s right for your portfolio.
Whether you’re a new investor or know all the crypto lingo already, staking is worth checking out. Let’s dive in.
What Is Staking in Crypto?
Crypto staking is the process of holding cryptocurrency in a wallet for a period of time and receiving rewards based on how much money is held. The rewards vary from cryptocurrency to cryptocurrency, but they tend to be quite high.
It may be helpful to think of crypto staking as similar to putting your cash in a high-yield bank account. When you deposit your money, you earn interest. You earn this interest because the bank uses your money for other things (lending out to people, securing further loans, etc.)
When you stake a coin, it’s similar to earning interest.
You know already that the blockchain verifies all the transactions that happen for a particular coin. This is usually known as proof-of-work or proof-of-stake, and this is what you’re helping with when you stake your coins.
The blockchain or crypto network needs to get consensus for what has happened. This is basically confirmation that the transaction data adds up properly.
To do this, they need to have participants that can verify the transactions. This is what staking investors do. When you lock up your holdings, you are helping to approve and verify transactions.
When you do that, the networks reward you. The reward level depends on the network.
Crypto Staking vs. Yield
As mentioned above, staking is a method through which many cryptocurrencies verify transactions. The process involves using your crypto to support a blockchain network that is confirming transactions. In exchange for your contribution, you receive a reward in the form of an interest payment.
However, there are also other ways to earn a return on your crypto beyond proof-of-stake. For example, some crypto exchanges will pay a yield to their customers by lending out their cryptocurrencies to other platforms that need liquidity. Yield is a term that refers to a rate of return paid over time.
As Abra, a popular crypto exchange, states on their website, “Assets held by consumers are matched with the liquidity demand from the institutional borrowers to calculate the interest rate paid to our users. The interest rate is adjusted periodically based on the demand for the asset under consideration.”
The importance of this is that some crypto exchanges, like Celsius for example, will use multiple methods to pay yields to users of their platform. If you’re simply looking to produce cash flow from your crypto holdings, then proof-of-stake isn’t the only way to do it.
Pros & Cons of Staking Cryptocurrencies
There aren’t many downsides to staking coins. It’s become an increasingly popular form of passive income that many crypto investors pursue. Of course, with all things crypto, your investments are likely to experience substantial volatility.
If the staking system does not allow you to sell your currency fast enough, then you could lose money if the cryptocurrency takes a sudden dive. However, for many investors, this is not a problem, because they intend to hold onto their currency even if the market goes up and down.
You should also keep in mind that if the value of the coin drops, so will the value of your staked interest.
Popular Crypto Staking Coins and Their Benefits
Since staking is a relatively new concept in the crypto world, there was a long period when it wasn’t available except for a few niche coins.
Now that we’ve advanced even further down the crypto road, many of the most popular coins use proof-of-stake, and there are several exchanges that make it very simple for users to earn by staking.
We’ve compiled a quick list of some popular coins that support proof-of-stake, as well as what their average yearly yield is. Note that the yield is shown as a proportion of the total staked crypto.
Ethereum ETH
Ethereum (ETH) is one of the most well-known and popular cryptocurrencies. The rewards differ depending on where you’ve staked your coins, but they usually sit between 4 and 7% per year.
Bitcoin (BTC)
Many investors flock to Bitcoin it due to its relative lack of risk compared to many of the altcoins.
As the oldest and most well-known cryptocurrency, BTC offers relative stability in both staking and price. Yields for this coin are 3.15% per year on Abra, while Celsuis let’s you earn 3.05 to 6.20% on BTC, depending on how much you stake.
Cosmos ATOM
ATOM’s stated aim is to bring different blockchains together. This has proved a popular goal with the crypto community, and ATOM has grown in popularity. ATOM tends to yield around 6-7% yearly.
EOS
Generally known for supporting decentralized programs rather than being a coin itself, EOS can be staked in several exchanges. The expected return is a bit lower at around 3%.
Polkadot (DOT)
A newcomer to the crypto market, Polkadot was only created in mid-2020. It’s also dedicated to the idea of bringing various coins/networks together. The average yield for this particular investment is around 12%.
As with all crypto investments (and traditional ones, for that matter), it’s a good idea to remember that although the yields are high, so are the risks.
Cardano (ADA)
Cardano works with smart contracts and is also quite similar to the ETH concept. In ADA’s case, though, one layer deals with the coin (ADA) and another with development.
Cardano/ADA is tends to pay a yield of 4-6%.
Stable Coins: USDT, USDC, and Others
Stablecoins are cryptocurrencies that tracks the value of particular government currency, keeping a 1:1 value with the currency that they track. For USDT and USDC, they track the US Dollar.
Currently, stablecoins pay some of the highest returns within the crypto marketplace, often yielding 8.5 to 10.5% per year. For this reason, some investors are now holding their cash in the form of stablecoins, rather that storing it at traditional banks.
This make a great deal of sense, as the average bank interest rate for checking accounts in the U.S. is an appalling 0.03%, while the average savings account rate is only 0.06%.
The logic of this approach is that when you need money to pay for day-to-day expenses, you simply sell your stablecoins and convert them back to cash.
Where to Stake Crypto
Quite a few exchanges and platforms allow users to stake coins. The interfaces differ, but they’re generally quite easy to use. Several of the big crypto players have recently started offering staking. Staking is generally opt-in, meaning it’s not a default option for most investors.
Celsius
Celsius is one of the best known exchanges for offering high staking yields. In particular, Celsius has become a popular destination for earning a yield from USDC, a stablecoin that tracks the value of the US Dollar, at an average yield of 8.5 to 10.5%.
The exchange also has its own coin, the Celsius coin (CEL), which currently pays a yield of 5.10%. Purchasing this coin can be thought of a way to bet on the growth of the Celsius platform.
Abra
Abra offers a higher-than-average return for most of the staking coins on offer. Once funds are deposited in the Abra account, your interest is compounded daily and paid out weekly.
Other exchanges that offer staking to users include:
- Voyager
- Coinbase
- Kraken
- Gemini
- And others
Key Takeaways about Crypto Staking
Congrats, you’ve learned what crypto staking is and how to earn rewards from it using the various crypto exchanges. The simplest way to think of it is similar to earning dividends on a stock.