A Complete Guide to Crypto Staking

  • October 29, 2021

a complete guide to crypto staking

If you're a cryptocurrency investor, you may hear the term "staking" frequently. Staking is the technique through which cryptocurrency transactions are validating, and it enables crypto investors to receive rewards based on their holdings.

But, before we proceed further, it is good to understand what is crypto staking? Crypto  Staking is a procedure that entails investing your crypto assets to facilitate and confirm transactions on a blockchain network.

Through crypto staking, crypto investors may lock a portion of their cryptocurrency as a means to contribute to a blockchain network. Besides being beneficial to the network, this allows cryptocurrency holders to create value from cryptocurrencies in their ownership and are currently lying idle.

Staking can be an excellent method to utilize your cryptocurrency to earn passive income, mainly since specific cryptocurrencies provide high interest rates in exchange for staking.  Moreover, many crypto enthusiasts assert that the earnings gained through staking are very minimal. 

Before you begin, you must understand how cryptocurrency staking works from concept to implementation. And you must investigate the profit potential of staking and determine whether it is more lucrative than mining or not.

Therefore, in this article, you will get a complete guide on how to stake cryptocurrency, staking platforms, its profitability, potential benefits, risks, and future potential of crypto staking. So keep connected!

Is Crypto Staking Profitable?

Yes, it is!  Staking cryptocurrency is as profitable as mining or trading, even without the considerable financial risk. Staking (buying and holding) certain coins will allow you to be included in the mining pool. In reality, with major exchanges like Binance, Coinbase, Huobi, and others providing staking services to its customers, and with APYs on exchanges such as Binance reaching up to 30 percent, it is no surprise that they currently hold massive quantities of staked cryptocurrency in their portfolios. 

Meanwhile, as of September 13, 2021, the total assets staked on Binance Smart Chain was 15,549,281 BNB. The current exchange rate for this amount was more than USD 6.1 billion when this article was last updated. According to the latest available data, the total value locked (TVL), which measures the value of assets staked in DeFi protocols, was above $86.59 billion as of September 13, 2021. It is a clear indicator of the high demand and potential profitability signs for crypto staking.

How Does Staking Work?

Staking is compatible with cryptocurrencies that process payments using the proof-of-stake mechanism. As an alternative to the proof of work system, which requires mining equipment to utilize processing power to solve mathematical equations, this approach uses less energy and is thus more environmentally friendly.

Many experts believe that staking is one of the most straightforward methods to earn money with cryptocurrencies, and they are not wrong about that. Through the simple act of purchasing and keeping a particular coin for a specified length of time, you may earn money in the form of interest. 

Staking is based on the Proof of Stake process, in which new currency miners are chosen based on the number of coins they already have in their ownership. The more coins you have, the greater the number of new coins you may mine. 

Each time a node achieves the required minimum balance, it contributes that bitcoin to the network as a "stake" (similar to a security deposit).

The amount of a stake is directly proportional to the likelihood that that node will be selected to fabricate the next block of transactions.

It is similar to how a miner is paid in proof-of-work chains in that if the node successfully produces a block, the validator gets a payment.

If they double-sign or try to assault the network, validators will lose a portion of their share.

Crypto Staking Platforms

Centralized Exchanges (CEXs)

The fact that exchanges have many users on their platforms has prompted them to enter the staking business naturally.

Traders may diversify their revenue streams and monetize their idle money on exchanges by staking their positions. Staking is supported by several major cryptocurrency exchanges, including but not limited to Binance, Coinbase, DeFi, Etherum, etc.

Staking on Ethereum

One of the most popular staking choices right now is Ethereum 2.0, the second-most popular cryptocurrency platform on the market. Moreover, if you have invested in ETH, you may contribute to the system's success by serving as one of its early validators.

Staking on Binance

By trading volume, Binance is the most prominent digital currency exchange in the market. To take advantage of this, many investors place it at the top of their lists when considering staking via trading platforms—aiming to fulfill this need, the Binance staking service for proof-of-stake currencies such as Ethereum 2.0 officially launched in December 2020. The exchange also supports DeFi staking, and it accepts a variety of cryptocurrencies, including DAI, Tether (USDT), Binance USD (BUSD), Bitcoin (BTC), and the Binance Coin (BNB).

Staking on Coinbase

Coinbase is a US-based cryptocurrency exchange that is listed on the NASDAQ. It is another major cryptocurrency exchange where you may stake various cryptocurrencies, including Bitcoin and Ethereum. Staking on Coinbase is available for various currencies, including ALGO and XTZ, in addition to the ETH 2.0 token.

Staking on Gemini

The Gemini platform does not presently provide any Gemini staking opportunities. Although there is a service called Gemini Earn, which allows customers to earn up to 8.5 percent annual percentage yield on their bitcoin, this is done via loan rather than staking to ensure the security of a proof-of-stake network. On the other hand, Gemini has said that they want to provide Ethereum 2.0 staking services in the not-too-distant future.

Wallets (Cold/Private)

This kind of staking is often referred to as cold staking. A staker, on the other hand, must maintain their staked coins at the same address since transferring them would cause the lock-up period to be broken, resulting in them losing their staking incentives.

How to Choose a Staking Platform

Before you rush to stake your coins, consider that your choice of staking platform is just as essential as the benefits you will get. If you make the incorrect decision, you may lose your rewards and your staked coins permanently. Therefore, when selecting a staking platform, consider the following recommended practices:

  1. If you are a non-technical individual looking at new DeFi platforms, never trust the staking platforms blindly. See what others are saying about the protocol on Reddit and Twitter. 

  2. APYs and annualized returns aren't everything while selecting staking platforms. Other important things to examine include the platform's reputation and age.

  3. Check details on a PoS-based network using CoinMarketCap. This includes staking platforms and third-party staking services.

  4. Read the staking terms and conditions or regulations before staking. The regulations include whether the wallet must be online 24/7, whether staked crypto must be cooled before being un-staked, and a minimum staking value.

  5. Lastly, it is recommended to keep your crypto money on trustworthy platforms like Maker, Cool Wallet, etc., rather than risk it on dubious sites that offer substantial staking returns.

How to Stake Cryptocurrencies

The procedure for staking digital currency is determined by the staking option you choose. For example, cold staking is different from staking as a validator on a proof-of-service (PoS) network directly. More importantly, the strategy employed by staking-as-a-service platforms differs from that taken by third-party or exchange-based staking.

A step by step guide on how to stake on exchange platforms are listed below:

  1.  Let's choose Binance as our preferred exchange platform and Ethereum as our coin of choice.

  2. First and foremost, you'll need a Binance account as well as some ETH currency. Fortunately, since it is an exchange, you can convert your other currencies into ETH.

  3. When logged in to your exchange platform, go to Finance>Binance Earn>ETH 2.0 staking to get started.

  4. It is important to note that staked ETH tokens are subject to a lock-up term of up to 24 months. Binance tokenizes the ETH that has been staked and pays incentives in BETH to its users.

  5. To begin staking, click "Stake Now" and enter the amount of ETH you want to dedicate to staking.

  6. To confirm, click "Confirm." You are all done! Review the terms and conditions in the second box that appears before clicking "Confirm" to complete the transaction.

The Future Potential of Crypto Staking

In light of the previous discussion, it seems apparent that staking is more beneficial than proof-of-work (PoW) mining, both ecologically and commercially. Consequently, its popularity and market share are growing commensurately in the crypto industry. Staking gained fresh momentum in December 2020, when Ethereum finally decided to accept staking and formally welcomed it into the fold.  As DeFi staking continues to thrive, the popularity of decentralized and centralized staking seems to be at an all-time high in 2021, according to the latest statistics.

Finally, despite its phenomenal development, staking should be handled with care, particularly when it comes to newly-created protocols that promise suspiciously large returns for yield farmers or liquidity providers, among other things.

You should keep in mind that crypto-staking involves considerable risk; therefore, it is vitally necessary to do comprehensive research and make intelligent investments.

 

For more detailed consultation on crypto staking, Kryptechs Solution can be your best choice! Register for a free consultation.

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