Crypto Staking: How to Earn Rewards Securely

Making money with cryptocurrency isn’t just buying low and selling high. That’s great advice, but there are other methods of wealth building in crypto like security tokens and staking. Staking lets you use your digital assets to earn passive income without selling them off, much like traditional dividends.

Cryptocurrency has its version of fixed-income assets, where instead of receiving interest in dollars, you get a portion of crypto coins you keep aside and “stake.” This is the essence of crypto staking. But what exactly does it entail, how does it function, and how can you secure rewards? In this article, we’ll dive into some of the common questions investors have about crypto staking. 

Comprehending the Way of Gaining Rewards from Staking

To keep a blockchain operating smoothly, people can lock up some of their cryptocurrency holdings for a set amount of time in a process called staking. As a reward for their contributions, they receive more cryptocurrency. Proof of stake is one common method many blockchains use.

It works like this: Network members who would like to support the blockchain decide to stake a certain amount of their own coins. This validates transactions and allows new blocks to be added. People who have tokens also get advantages from staking on proof-of-stake blockchains.

For instance, if there’s a blockchain where 10% of all tokens are rewarded to people who keep them in a wallet & connected (or “stake”) for at least a month — someone might decide to do this with 100 tokens: if they do, they’d end up with 110 tokens total after that month had passed.

How does staking work?

By staking your crypto assets (there are several types eligible including but not limited to: Ethereum, Tezos, Cosmos), you can earn rewards while contributing to the network’s security. To explain further: Cryptocurrencies that can be staked make rewards possible because the blockchain uses them to carry out various tasks; this process is known as Proof of Stake consensus.

Stakers don’t have to rely on banks or payment processors to verify or secure transactions; rather, these tasks are handled by the blockchain itself once enough new blocks have been added.

However, if you choose to stake your coins then it means they’re sort of ‘in use’.

Based on the rewards that can be gotten, is crypto staking put into different groups? There are many ways to do crypto staking, but most of them can be sorted into one of two main types: active staking and passive staking.

1. Active staking involves locking your tokens to a network to engage in the network’s activities actively.
2. Passive staking means locking your tokens in a blockchain network to contribute to its security and efficiency without active participation.
3. Delegated staking allows crypto stakes to delegate their staking power to a validator node operated by someone else.
4. Some cryptocurrency exchanges offer exchange staking. It allows users to stake their holdings directly on the platform.
5. Pool staking involves a group of coin holders pooling their resources to enhance their chances of earning staking rewards.
6. Liquid staking provides users with representative tokens in exchange for staking their cryptocurrency.

How to Earn Rewards and Make Money?

When you select a program, it will outline the staking rewards it provides. For instance, as of December 2023, the cryptocurrency exchange offers a 5%-10% annual percentage yield (APY) for Ethereum 2.0 staking.

First, users must stake at least 0.1 ETH in the pool. Once committed to staking cryptocurrency, you’ll receive the promised returns based on the schedule. The program will pay you the returns in the staked cryptocurrency. You can keep it as an investment, stake it again, or exchange it for cash or other cryptocurrencies.

Why do some particular cryptocurrencies only support staking?

Bitcoin doesn’t offer staking. To grasp why? Keep reading to explore in detail!

Many cryptocurrencies, including Bitcoin and Ethereum 1.0, employ a consensus mechanism called Proof of Work. Through Proof of Work, the network dedicates significant processing power to solving complex problems, such as validating transactions across distant locations and preventing double-spending.

Cryptocurrencies are typically decentralized, meaning no central authority is in charge. So, how do all the computers in a decentralized network reach the correct conclusion without guidance from a central entity like a bank or credit card company? They rely on a “consensus mechanism.”

Conclusion

Earning interest from Crypto staking on your digital assets can be attractive. It’s a chance to make passive income on crypto assets you intend to hold for the long haul. There’s also the potential for rewards to increase in value over time.

Staking enhances network security and efficiency, allowing you to engage actively in the blockchain network. However, some crypto holders are drawn in by appealing yields and start staking their digital assets without fully grasping how it works or understanding the risks involved.