How do you make money off staking?
How do you make money off staking?

Crypto staking is a way of earning passive income, and it can be seen as the crypto world’s equivalent of earning interest or dividends while holding onto your underlying assets.

Staking allows you to earn cryptocurrency as a reward for using your existing holdings to vouch for the accuracy of transactions on an underlying blockchain network. While this sounds complicated, everyday users can often do it directly from their digital wallets, or they can use services provided by crypto exchanges that will handle the technical details for a cut of the proceeds.

Generally speaking, cryptocurrency staking offers returns that exceed those you can earn in a savings account. However, staking is not without risk. You’ll earn rewards in crypto, a volatile asset. Sometimes, you have to lock up your crypto for a set period of time. And there is a chance that you could lose some of the cryptocurrency you’ve staked as a penalty if the system doesn’t work as expected.

That said, staking can also be a way to grow your crypto portfolio using assets you plan to hang onto for awhile. Staking is also a more energy efficient way of running a crypto network than the mining process used by Bitcoin and some others.

Read More:what is defi neb and how does it work?

  How much can you earn through crypto staking?

The amount of staking rewards that can be earned varies greatly, depending on the staking platform, the cryptocurrency and how many people are actually staking a given coin.

“With the more popular coins such as Ethereum, Cardano and Polkadot, the rewards vary from 5 to 20 percent,” says Eddie Rajcevic, research team member at tastytrade, a financial media network. “With smaller cryptocurrencies, these rewards can even be above 100 percent.”

If you’re working with a crypto exchange to stake your coins, you may receive different rewards from one to the next. Some might take a cut of any staking reward, while others may pass the whole reward on to you. Other trading platforms have different rules and rewards.

“There are platforms that choose to have a fixed yield for a specific lock-up term with a maximum reward per user, while others adjust their yield daily based on the staking rewards left within a specific pool,” says Claudiu Minea, CEO and co-founder at SeedOn, a blockchain-based crowdfunding platform.

Read More:Crypto Staking For Beginners:What Is Crypto Staking?How Does It Work?

  How to start staking your crypto

With many crypto exchanges offering staking rewards on at least a few coins, an exchange can be an easy path for those who are starting to stake, say experts. But there are other options for crypto owners, including staking-as-a-service platforms and DeFi lending platforms.

“The simplest way to begin with crypto staking is through an exchange, such as Binance, Kraken, or Voyager,” says Rajcevic.

If you’ve purchased your coins through an exchange, it can be simple to inform the exchange that you want to participate in its staking program. Then rewards are deposited directly into your account according to whichever schedule the exchange has established.

Minea points out cryptocurrency exchange Binance as a potentially good starting point, because it’s “the world’s largest crypto exchange when it comes to trading volume and it is trusted by millions of users worldwide.” He says that Binance offers service for proof-of-stake coins as well as for DeFi lending, a similar kind of service that offers rewards on stablecoins such as Tether.

“In these situations, you are lending stablecoins such as Tether,” says Zhang.

Working with a DeFi lending platform might be a more attractive option for many crypto owners, due to the lower volatility of the stablecoins used in them, though it presents new risks, too.

Stablecoins are often backed by real assets such as U.S. dollars or even bonds, giving them a firmer valuation, unlike most cryptocurrencies such as Bitcoin and Ethereum. These coins are then lent to others, meaning that there’s always the potential they won’t be repaid.

  What is Proof of work?

This traditional approach, Proof of work, requires a node to validate transactions by approving them and adding them to a new block on the blockchain. A node to validate transactions is chosen based on its computational power. This is what gave rise to crypto mining as an industry. This consensus mechanism is used in such coins as Bitcoin and, up until very recently, Ethereum. While Bitcoin remains loyal to its original consensus mechanism, Ethereum network recently switched to another consensus mechanism – Proof of Stake.

  What is Proof of Stake?

Proof of Stake (PoS) is a consensus mechanism, where the network chooses validators to add new blocks to the blockchain. A computational power of a node is not taken into account. The process is random, but the bigger the stake (i.e. the number of cryptocurrency users have staked with a particular validator) the more likely the validator is to be the one to add new blocks to the blockchain. In exchange for adding the new block, the validator earns some crypto, which they, in turn, distribute among those who staked their assets with them.

  How does crypto staking work?

While the exact details vary from one asset to another, the general principles of crypto staking remain the same. In short, the staking process is the process of putting money on the line for a chance to add a new block to the blockchain which in turn means better staking rewards. Your cryptocurrency serves as a guarantee, that any new transaction that is being added to the blockchain is legitimate.

  Why stake my crypto holdings?

With the increase in crypto mining difficulty, staking became more and more attractive for cryptocurrency investors.

With staking, your assets don’t just take up space on the blockchain, they are actively used to add new blocks to the blockchain. You can stake your coins and earn rewards for validating transactions or, in other words, earn passive income for holding funds. By staking your funds with a specific validator or staking pool, you increase their chances of being chosen and, by extension, your chances of getting better rewards. As mentioned above, the bigger the stake, the more of a chance a validator has of adding a new block to the blockchain.

The process is still random, however, so it doesn’t mean that everyone should just stake their funds with the same staking pool. While smaller staking pools are less likely to be chosen to validate the new blocks, the rewards are going to be much higher, since there aren’t as many investors among which the rewards shall be distributed.

If you choose to stake your assets in Atomic Wallet, you’ll be pleased to find out that we are running our own staking pools for certain cryptocurrencies, like Cardano.

  How do I get my staking rewards?

Here, the process really differs from asset to asset. While staking Solana, for example, the rewards are automatically added to your staked amount, providing compound interest, similar to what you may find in a bank.

With other cryptos, like Cosmos, rewards accumulate and you have to manually claim them in order to transfer them to your address. Such claiming transactions always require network fees to be paid, so keep that in mind when staking your funds.

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