Cryptocurrency, as a new invention, has opened many possibilities to everyday users. Should you hold Ethereum or USDC? Or perhaps it is best to provide liquidity on DeFi platforms? You may be left wondering what to do with your assets and how to grow your portfolio. Idle assets are detrimental to long-term performance, which is why in this blog post we will consider staking and explain what it is. Is it the opportunity you’ve been looking for so long?

Staking explained

The concept is as simple as it gets—you contribute to a network’s security and get rewarded with coins or tokens, which translate to revenue in dollars if you wish to convert your earnings. You are a part of a community, and depending on the specifics of the consensus mechanism the network uses, you delegate your tokens, add them to a pool, or become a validator. A validator’s job is to check the validity of a transaction and process it.

Think of staking as a way of generating passive income in the cryptocurrency space. It’s in a way similar to your high-yield savings account. Instead of utilizing cash, you play around with digital assets to ensure the network is stable and secure.

How does staking work?

Now it’s time to get into details. Let me walk you through this process step by step.

Your journey starts with choosing a blockchain network. Whether you opt for Ethereum, Cardano, or Solana isn’t that important. You need to, however, bear in mind that each network has a different set of rules to earn rewards. You also shouldn’t decide solely on the yield but also based on the fundamentals and future performance. These few percents won’t be enough if your crypto performs poorly.

Once you pick the network, it’s time to find a wallet where you will store your crypto. It can either be a multi-coin wallet or a native wallet, but it needs to support staking for that currency. In most cases you’re left with a decision to make: will you become a validator or join a staking pool? Becoming a validator comes with more responsibilities and usually requires technical knowledge but guarantees better profits. Joining a staking pool, on the other hand, is well-suited for beginners as the process is very straightforward and requires just a few clicks.

As your crypto is staked, magic happens behind the scenes, and block by block, you earn more rewards. Your investment doesn’t just “sit” in your wallet; it becomes part of the network, letting it grow further.

Staking is much like investing your savings into a high-yield savings account.

Types of staking

Every network is different with the opportunities it offers. You should always get a basic understanding of how the process works until you start depositing money somewhere. It’s always better to be safe than sorry.

Validator staking

If you’re an experienced user ready to set your feet in deep waters, you should try out validator staking. By participating in the network’s consensus, you become an entity, which has the privilege to process transactions and decentralize the network. The rewards are higher, but it requires the technical know-how—a perfect example of how education can translate into greater profits later on. Also, get familiar with the requirements, as some networks either want you to use an expensive machine with advanced components or demand an enormous amount of money to start.

Delegated staking

Delegated staking is a simpler, more convenient path. You trust a validator to stake your tokens on your behalf. They are rewarded for their work and share their rewards, minus a small cut. On some networks it may be the only achievable way to stake tokens for inexperienced users.

Staking pools

Staking pools combine the resources of a group of users and are accessible to almost everyone. Usually, a minimal amount of crypto is required to join. This way supports users with small portfolios, making it an inclusive and budget-friendly alternative to explore staking.

Each option has its pros and cons. Depending on your choice, your earnings and complexity will differ. Staking is available to everyone, no matter the location, financial resources, or education level; it’s a friendly way to earn an extra buck.

The way you participate in staking is usually dependent on your blockchain of choice.

Why stake? The benefits

Staking is an easy way to grow your portfolio and let your assets work for you. Instead of tracking the market every single day, you know that you’re constantly earning rewards, which can range from modest gains to impressive returns, including the appreciation of the underlying asset.

The process is not only about the profit but also about decentralization. By staking, you contribute to the mission of your favorite cryptocurrency in keeping the network fair and secure.

As your rewards are accrued daily, your holdings are growing over time, creating a snowball effect. The more people secure the network, the more the asset you’re holding should appreciate in the long term, although markets are sometimes irrational.

Last but not least, staking is accessible to everyone. While mining cryptocurrencies requires costly equipment and energy, staking only needs a compatible wallet with deposited funds and a few clicks. Yes, it’s that easy.

Risks of staking

Despite your holdings growing, cryptocurrencies are very volatile and unpredictable. If you make a wrong choice, you can end up in a situation where you lose money as the price plummets and your profits evaporate.

Read all the available information, as some networks require lockup periods to unstake, making it less ideal when you want to pull out your money quickly because you’re in need or you anticipate the market to shift.

Choosing a validator should be a thorough and well-researched decision, as an unreliable validator can lead to penalties, which lead to lower profits.

Important to note that no network is safe from exploits. Blockchains were created by humans, and the human nature is to make mistakes. These glitches, security breaches, or any other types of errors could impact your ability to access your funds, or worse, you could lose them all.

Conclusion

Staking can be both a beneficial strategy and a way to become more compendious about the topic. Think about it—while learning, you’re earning rewards along the way. Although it comes with its risks, earning passive income stress-free is a tempting decision to make.

Would you like to show your commitment and trust in the network? The path has been laid out in front of you, and the decision to follow it is only yours to make.