Investing in cryptocurrency has become more and more common over the last few years. The industry is growing, and plenty of people have made a ton of money in the space. If you look at the price of many crypto assets even a few years ago, many are significantly higher today.
While many people simply invest by buying and selling different types of crypto, there is a new way to make money in crypto, and it is called crypto staking. It has taken off recently and can be a great way to make some passive income. If you are wondering, “what is crypto staking?”, you’ve come to the right place. Read on as we learn more about this exciting new way to invest in the crypto space.
What Is Crypto Staking?
Crypto staking is allocating a certain portion of your crypto assets to support the blockchain and confirm/verify transactions. Staking also helps a blockchain be more secure and efficient too. For allowing your held crypto assets to be used this way and put to work, you will be rewarded.
Cryptocurrencies that can be staked use a process called Proof of Stake to verify their transactions without having to rely on a bank or another middleman to do it for them. Cryptocurrencies that don’t allow staking rely on the process called Proof of Work, which requires miners to solve cryptographic puzzles to validate transactions and earn rewards.
While Proof of Work was the original process used, Proof of Stake is generally preferred most of the time because it is highly scalable and doesn’t require nearly as much energy.
Staking crypto can be a great way to earn passive income while supporting the blockchain you are involved with. Not only that, but the amounts you can make can be quite high due to many cryptocurrencies offering large interest rates.
You can stake many cryptocurrencies if you choose, but this includes only ones that use the Proof of Stake model. You are also free to choose the amount you decide to stake to ensure you are comfortable. It is important to know that even if your crypto is staked, you still technically own them and can unstake whenever you want, if you decide to sell or invest elsewhere.
The Pros and Cons of Crypto Staking
To better understand crypto staking, here are a few pros and cons.
Pros of Crypto Staking
The main benefit of staking is that you can generate passive income by simply holding crypto assets and allowing them to be staked. Interest rates can be quite high, and you can make passive income without lifting a finger.
Making true passive income is rare, and while staking requires a bit of set-up and work beforehand, once the plan is in motion, you can simply collect the rewards without having to do a thing.
Another benefit is that you take on a lot less risk by simply staking than continuously buying and selling crypto assets. While the size of your rewards can fluctuate, it will still be less than the various crypto assets.
An important pro of crypto staking also includes helping a blockchain or project that you believe in. It can feel good knowing that you are helping to contribute to the security and efficiency of something you feel is important or worthwhile.
Also, there is the fact that it is very easy to get started with staking, and it doesn’t require any special equipment or knowledge to get started making money (unlike with mining). You can set up your own infrastructure and become a validator, but this isn’t required.
Cons of Crypto Staking
The first potential drawback of staking is that there is still the market risk associated with crypto as a whole. While staking might be less risky, there is still a chance of losing money. There are no guarantees that your rewards or commission will always be what they are right now, so plan accordingly.
There is also the potential for lockup periods, and wanting to unstake your crypto isn’t always something that can be done instantly. This can land you in a sticky situation if you don’t have a plan in place in case your crypto is unable to be touched for a little while.
Other potential risks include having to wait before receiving rewards, the blockchain project failing, and that rewards themselves can often fluctuate. These are by no means reasons not to consider staking, but you do need to be aware of the potential risks before investing.
The Different Ways To Stake Your Crypto
After understanding the basics behind crypto staking and some of the associated pros and cons, it is important to be aware of the different options you have when staking your crypto. In general, there are three methods you can use.
Use an Exchange
The first and simplest way to get into crypto staking is to use an exchange. There are plenty of crypto exchanges that will stake your tokens for you and pay you a certain percentage for the work they do. This requires no special equipment or knowledge and can be set up incredibly quickly.
Become a Validator
Another option is to become a validator yourself. If you want to set up your infrastructure, you need the proper software, computing equipment, and more. Not only that but there is often a minimum staking requirement that can be tens of thousands of dollars. As a result, this type of staking isn’t viable for most investors.
But if you are up for the challenge and have the right equipment and technical know-how, this can be a fantastic way to make large amounts of passive income on your own.
Join a Staking Pool
If you don’t want to become a validator and don’t want to let an exchange make decisions for you, another option could be to join a staking pool. This involves combining your funds with other investors to get a better chance of earning rewards.
You are putting a lot of trust in the validator of these pools, so make sure to do your homework and only invest in a pool with a good track record and is run in a way that you can trust. Make sure the pool is reliable and has good uptime, and be wary of joining a pool that is too large.
Also, be aware that some staking pools have fees associated with joining them, so make sure they are reasonable before agreeing to anything.
Whichever method you use, you will need to buy the crypto you want to stake and have a wallet or exchange account to keep it in. From there, simply choose the method that best fits the size of commitment you are willing to make.
In conclusion, we hope this article has helped you learn more about crypto staking as a way to invest your money.