Cryptocurrencies have been seen as a risky investment for many years, and even now, many people are unsure whether or not they should invest in them. However, the cryptocurrency market has gained a lot of attention and interest in the past few years, and more and more people have started to invest in various currencies.
Despite this new interest and a lot of content around cryptocurrencies, there is still quite a lot of confusion about what to invest in and how to get the maximum return on their investments. With numerous currencies popping up over the years and various ways to get returns on your investment, it is no surprise that people have difficulty picking the best currency and mode of investment.
Crypto staking is a relatively newer mode of getting returns on your cryptocurrency, and it makes your money work for you. Although not all cryptocurrencies currently offer crypto staking, if you own a cryptocurrency that does offer it, here’s a quick guide on how and why you should utilize it to boost your passive income.
What exactly is crypto staking?
Crypto staking is a method in which you can “stake” your crypto assets for a certain period and then give you a return on those assets. Since you are getting a return on your stakes without selling them, it is a great mode of passive income.
Cryptocurrencies utilize a “consensus mechanism” called Proof of Stake to offer stakes to their users. When using this system, those who want to support blockchains by adding more blocks and validating new transactions must invest in the form of “stakes.”
This helps ensure that fraudulent data is not supported and only legitimate transactions are being added to the blockchain. This is because if you support valid data, you earn rewards, but if you validate flawed data, you will incur a penalty on the stakes you have locked and could lose part or all of them.
Hence, your stakes act as insurance for the cryptocurrency, help add valid data and offer the users a chance to earn passively with ease.
How can you start crypto staking?
As mentioned earlier, not all cryptocurrencies are offering crypto staking currently, as only the ones that have Proof of Stake systems can offer them. This limits your options when picking currencies to stake in. Currently, some of the currencies that you can use for staking are as follows:
First, you must pick a platform and then purchase some crypto. Once that is done, some platforms will allow you to stake instantly using a crypto exchange program like Coinbase or Binance, while others will require you to move your funds to a blockchain wallet.
Once you have met the prerequisites, you can start staking. You can decide how many tokens you wish to stake and how long. You can also join a staking pool with multiple validators like you. These are more reliable, and you can start with a smaller capital.
You can earn rewards once you have locked your stake for a fixed period.
What are the benefits of crypto staking?
When it comes to benefits, there are quite a few.
- For starters, staking is an easy way to earn passive income through interest on your preexisting cryptocurrency.
- Another plus point is that, unlike other methods, crypto staking requires no extra equipment. If you have a currency that allows it, you can easily start earning via crypto staking.
- Since no additional equipment is required, it is also a more environmentally friendly cryptocurrency investing method.
- As discussed previously, crypto staking utilizes the blockchain; hence your stakes also help make the blockchain more efficient, secure, and resistant to attack for the projects you might want to support.
Some drawbacks of crypto staking
Like all investment strategies, crypto staking comes with its own set of risks.
- The biggest thing to remember is that, like every other investment and income method in crypto, this, too, is subject to large fluctuations based on how well the cryptocurrency is doing.
- Another drawback is that you have to lock your invested amount of cryptocurrency for a specific period; during this time, you cannot utilize or sell the assets you have staked.
- If the period is over and you want to surrender your assets, even that can take a few days, and you won’t regain your assets instantly. You will have to wait a few days for your assets to surrender.
So if you are looking for a quick investment, staking might not be for you. But if you are in the crypto world for the long run and want to earn passively, crypto staking is something you should consider.
How can you maximize returns while crypto staking?
Other than the history of the specific cryptocurrency and knowledge about how it works, you should look into the terms they offer.
- You need to see what the program offers rewards and the annual percentage yield for different tokens. Certain platforms have a higher interest rate than others, hence will provide more rewards.
- Various programs will also have different time limits for which you need to lock your stakes, such as 30, 60, 90 days, etc. Try to pick based on how long you want to lock your stake.
- You should also look into staking pools as they are more reliable, have lower fees, and require less effort. Remember that smaller pools are less likely to be picked to validate blocks, but if chosen, the rewards are higher than a larger pool.
So pick a pool that has few people but is trustworthy. A medium-sized pool is your safest bet.
- Some programs will even offer automatic reinvesting, so any profits you earn can be reinvested into the pool as your stakes automatically if you wish to do so.
Cryptocurrency and crypto staking can be complex and confusing for first-time users. But if you read up on it enough and do your research, things become much simpler.
Everyone wants to earn well via crypto, and its large rewards attract many users. However, you need to realize that there are more ways to earn other than cryptocurrency mining and trading. All these require more effort and sometimes even more equipment, hence more investment.
Crypto staking offers an easy and more efficient alternative, allowing you to earn income passively via cryptocurrency. This guide provides a quick overview of what crypto staking entails and has to offer and can act as a good way to understand it before you start utilizing it.