You must be wondering: what is staking in crypto? Staking can be seen as an alternative to mining. Mining is the process of validating transactions by solving mathematical ‘puzzles’ cryptographically. This is also referred to as Proof-of-Work (PoW). Unfortunately, Even though Proof-of-Work is a robust mechanism, it a big drawback: it uses a lot of computing power, which ultimately requires enormous amounts of energy usage. That’s why research has been done to find another system to replace Proof-of-Work.
That is where Proof-of-Stake comes in. This is an alternative to Proof-of-Work which is much more energy-efficient, because it does not require any computing power. Instead, participants with the minimum required balance of a cryptocurrency can lock up some funds (also called staking crypto) to validate transactions. Participants can earn rewards by doing this, which is what incentivizes users to participate.
Crypto staking explained
What is staking crypto? Staking crypto is something that’s relatively new and may interest a lot of investors, it allows the holder of a certain cryptocurrency to earn a passive income on annual interest by earning crypto staking rewards. You can compare it to a savings account. The reason you can earn rewards, is because the funds you are staking are actually being put to work in the blockchain (with Proof-of-Stake). Unfortunately, many cryptocurrencies do not support staking at the moment, for example Bitcoin. However, it is gaining popularity and we see some coins moving towards it.
Benefits of staking crypto
There are many benefits of crypto staking. You were asking: what is crypto staking? Now that we have crypto staking explained, let’s look at the benefits. Staking is much more accessible, because you do not need expensive equipment, unlike mining. Consequently, this is better for the environment because the energy usage decreases significantly. Moreover, it is not as technical, so it is very easy to get into. It also has the benefit of having your cryptocurrencies work for you by generating crypto staking rewards, instead of just letting them sit in your wallet. For example: you own $10,000 worth of a certain crypto, and decide to stake it for a 5% annual interest. If the price of the crypto doubles, it is not worth $20,000 but $21,000, because of the 5% extra. Finally, the Proof-of-Stake mechanism allows for better scalability because of lower fees and higher transaction processing speeds.
Best staking coins
What is the best staking crypto, or the best staking coins? Read below to find out.
Ethereum (ETH) has recently brought out some upgrades towards what’s called Ethereum 2.0. Ethereum 2.0 is an upgraded version of Ethereum that will use the Proof-of-Stake mechanism allowing holders to participate in staking. In order to be able to participate in Ethereum staking, you are required to own the minimum staking amount of 32 ETH. However, if you have less than the minimum amount, you can still participate by adding a smaller stake to staking pools. With Ethereum staking, your funds will be locked until ETH 2.0 is fully released, which will be in 2022, so staking Ethereum is recommended for people who are planning to hold ETH for a long time. Rewards for this crypto staking are expected to be up to 7% per year.
Cardano (ADA) is a cryptocurrency with a lot of potential. They are aiming to solve many cryptocurrencies’ scalability issues. Their upcoming project, Hydra, will push the boundaries and could possibly scale the Proof-of-Stake network to be able to handle 1 million transactions per second. If you are interested in staking crypto like ADA, you are required to own the minimum amount of 10 ADA, and then you can start staking ADA. Once you decide to start cardano staking, you can earn a reward every 5 days. The annual interest rate is between 4-6%.
VeChain (VET) has been gaining a lot of popularity recently. This cryptocurrency make it very easy to stake your coins and earn interest on them, which is why it’s so popular. All you need to do, is open a VeChainThor wallet, transfer some VET into it, and you will start earning rewards. The reward for staking your VeChain used to be a bit higher, up to 8%, however it has gradually decreased. Right now, you can expect to gain between 1-3% annually by staking VeChain.
Tezos (XTZ) is an open-source Proof-of-Stake blockchain network. It is seen as a competitor to Ethereum, because it also supports decentralized applications. You can start with crypto staking with Tezos. The minimum requirement for staking Tezos is 8 XTZ. If you decide to start staking, you can earn up to 7% annually. The rewards are paid out in XTZ tokens.
Polkadot (DOT) is a cryptocurrency that also uses the Proof-of-Stake mechanism. It was founded by Ethereum’s co-founders, and has built up a big reputation over the years. The goal of Polkadot is to allow interoperability between independent blockchains. If you are interested in staking Polkadot, you are first required to own a minimum of 120 DOT tokens. This is quite a lot, but you can also expect big returns. The expected yearly reward for staking Polkadot can go up to 12%, which is a lot compared to other coins.
How to start staking crypto?
Have you decided what coin you want to start staking with? Then you might be wondering where you can start doing so. Now that you want to start earning crypto staking rewards, there are various exchanges that allow its users to stake with ease, and we will go over some of them in this part.
Generally, the steps required are:
- Choose what crypto you want to stake
- Get a wallet for the corresponding coin, this can usually be done through an exchange
- Make sure you own the minimum amount of required coins (for example Ethereum requires 32 ETH)
- You can start staking!
But which exchanges are the best? Continue reading to find out.
Binance, founded in 2017, is one of the largest and most popular cryptocurrency exchanges, used by millions worldwide. Binance also allows its users to stake various coins with ease. Simply go to their website, create an account, verify your identity, and you can start buying crypto and crypto staking.
They provide a list with various cryptocurrencies that are available to be staked. Binance also shows you the estimated annual yield for each coin, which can help you make your choice. It may sound obvious to just pick the coin with the highest yield, but you should also consider the minimum amount of required coins for each crypto.
Pros of Binance staking:
- The opportunity to earn high rewards;
- They support ETH 2.0 staking;
- Binance has a high reputation and is probably one of the most reliable exchanges.
Cons of Binance staking:
- Binance may not have the greatest customer support;
- Because staking is so popular, it may be sold out very often.
How to stake on Coinbase? Coinbase is definitely a top 3 cryptocurrency exchange at the moment, with a high reputation among traders from beginners to experts. Coinbase allows users to participate in staking crypto on their platform and be eligible for rewards. First, you must create an account and verify your identity. Next, you can start staking. However, first you are required to own the minimum required coins to start staking. Coinbase makes it very easy to start staking, all you have to do is make sure you own the eligible coins (like Tezos, Ethereum, or Polkadot) and opt-in to start receiving rewards.
Pros of Coinbase staking:
- Staking on Coinbase is very easy, and it’s easy to learn how to stake on Coinbase;
- User-friendly interface and easy to navigate;
- Coinbase is an extremely reliable exchange.
Cons of Coinbase staking:
- Although it’s extremely easy to start staking on Coinbase, the main drawback is the fee for staking: they want 25% of the reward.
Celsius Network staking
Celsius Network is a platform that allows holders of cryptocurrencies to earn interest over their cryptos. The platform was founded in 2018 and has quickly risen in popularity. Just like other exchanges, after creating your account, you are required to verify your identity. After that you can start earning interest.
Pros of Celsius Network staking:
- You can earn rewards of up to 15% annually, paid out weekly;
- Their platform has a user-friendly interface;
- No withdrawal fees, lockups or minimums.
Cons of Celsius Network staking:
- Centralized wallet: you do not own the private keys.
BlockFi is a popular cryptocurrency exchange that allows users to participate in staking, and earn up to 8% annually. You can visit their website to open an account. Keep in mind that you are required to verify your identity before you can start crypto staking.
Pros of BlockFi staking:
- No minimums, monthly fees, or commission fees;
- You are able to borrow against your crypto assets, so you can avoid selling your crypto when you are in need of cash;
- Good and responsive customer support.
Cons of BlockFi staking:
- Limited options compared to other exchanges;
- You are limited to one free withdrawal per month.