What’s staking crypto?
Crypto staking is a process where one seals away their crypto holdings to earn interest or rewards. Many blockchain networks, in fact, verify all transactions through staking. If one looks at it like an investor, it is a great way to earn more money from your existing crypto assets. You don’t have to buy more cryptocurrency tokens instead, you can have a stream of passive income with the tokens you already have.
Investors who practice crypto staking get a much better interest rate than what a regular bank would offer. The basis of cryptocurrencies lies in blockchain technology. Cryptocurrency transactions should be validated before data is stored on the blockchain and this is done through token staking.
How does staking work?
You can start crypto staking in multiple ways. You can even validate transactions with your own personal computer or you may choose to assign your crypto to another person you trust. They can, in turn, validate transactions on your behalf.
Note: Not all cryptocurrencies can be used to stake.
Proof-of-stake or PoS and Proof-of-work are two types of consensus mechanisms. Crypto staking is allowed only by the blockchains that operate on PoS to validate transactions. The total number of coins or the final amount to stake decides the likelihood of validating a transaction through PoS.
PoS was originally made as an alternative to PoW. It is one of the most popular consensus mechanisms that is also much more energy efficient than PoW. PoS is gaining a lot of popularity because of improved efficiency and also because it facilitates earning rewards through crypto staking. While PoW needs a lot of computing power, PoS can operate with relatively less power when it comes to validating transactions. Investors seal away some of their crypto coins as collateral in order to validate the blocks.
Blockchain investors who participate in crypto staking are given rewards for their efforts. Each blockchain has a particular amount of crypto rewards set aside to give as rewards for verifying transactions. Typically, crypto participants who stake their crypto assets get rewards when they’re selected for validating transactions.
Essentially, investors can earn more cryptos with staking. Interest rates keep changing from network to network but a 20-30% increase in income annually is common. Several people think of crypto staking as a great way to have a passive income.
What are the best coins to stake?
1. BitDAO (BIT)
BitDAO is one of the most prominent decentralized autonomous organizations (DAOs) around the world. It aims to boost the DeFi field by working towards creating a tokenized economy that is decentralized and promotes open finance. Investors with BIT tokens play an important role in shaping BitDAO’s future by their right to vote on governance proposals like core protocols updates and token swaps.
2. Tether (USDT)
Worried about the value depreciation of your staked tokens and coins? You should consider staking a stablecoin and though the coin you pick will be in sync with your preference, you may want to consider USDT or Tether. USDT has a large trading volume which makes it very profitable. It also adds to the liquidity quotient and allows you to swap USDT for other cryptocurrencies.
3. Ethereum 2.0 (ETH)
Ethereum 2.0, or Eth2 comes second only to Bitcoin and is one of the best bets when it comes to crypto staking options. To be able to stake this crypto, you should have a minimum of 32 ETH. Do remember that Ethereum 2.0 is in an early access phase and the platform is being tested. Before its official launch, the cryptocurrency staked will stay within the network.
4. USD Coin (USDC)
Similar to Tether. USD Coin or USDC is yet another stablecoin that is supported by fiat currency and is used widely to transfer funds. Its value remains stable and it also has high liquidity. This maintains transparency as the reports are posted publicly to reiterate that it is backed by cash and cash equivalents.
5. Terra (LUNA)
Terra is one of the best picks for crypto staking as investing in its LUNA coins is simple. Terra allows the creation of a stablecoin supported by cryptocurrencies such as TerraUSD or UST. In order to invest in it, you could exchange UST for a dollar’s worth of LUNA. If UST prices fall below one USD, one may swap UST for $1 worth of LUNA to make a profit and have a passive income.
6. Hydra (HYDRA)
Hydra is a rather unique cryptocurrency to stake. It uses a combination of deflationary and inflationary mechanics for staking which allows it to get away with nearly almost 100% of its transaction fees despite maintaining block rewards. As a result, users stay protected in case of price degradation.
If you’re keen to know more about staking HYDRA, you must understand that it is possible for any user to be a node in HYDRA’s system. To be able to start staking HYDRA, you should have a minimum of 10 HYDRA coins in your crypto wallet.
What makes HYDRA a very popular PoS coin is the fact that early stakers can get up to 60% returns, though it is very likely that the return rate comes down to 20% gradually. The staking rewards you get come from the transaction fees and all new HYDRA coins are issued by the blockchain itself.
Can you lose money staking crypto?
The most important step before making any investment is to assess the risk. Thus, you may want to ask–how safe is crypto staking?
It is largely safe but you should take into account a few risks. In general, it is difficult to lose your money through crypto staking but you have to watch out for factors like inflation and poor liquidity. Since cryptos can be very volatile, the coin you stake could lose value. So if you stake a crypto token whose value comes down after you’ve earned from staking then, technically you may end up losing money. If you like to practice day trading then staking may not be a great option for you as your tokens will be inaccessible for many weeks and months. Thus, you may end up losing on good trading opportunities as a result.