What is Staking in Crypto and How it Works

When crypto investors talk about investment, it's most likely trading or mining. However, another method for crypto investment is known as Crypto staking. But what is crypto staking, and what does it mean to stake crypto?

Learn more about staking crypto meaning, how to stake crypto, and where to stake crypto. You'll see if it is the right investment for you!

What is Crypto Staking?

Crypto staking is how certain crypto networks verify their transactions. They come as part of the Proof-of-Stake consensus mechanism.

This mechanism helps to add new blocks of record to the crypto blockchain. Which is a chain of blocks that contains several transaction records. The new blocks are added by crypto users who have a particular amount of stake. The stake must be in the native currency of the blockchain in question.

Staking crypto is almost similar to mining crypto. But instead of the Proof of Stake, crypto mining runs on the Proof of Work mechanism. Which is more complex and energy-consuming than proof of stake.

While crypto mining involves mining crypto. Crypto staking entails minting or forging, which is done by validators, not miners.

If you have crypto on a Proof of Stake network, you can stake it. When you do, you stand a chance to get lots of rewards. But the rewards depend on how you staked your crypto and the crypto you staked.

There are lots of benefits that come with staking your crypto. And there are also risks. Let's take a look at them.

Cryptocurrency Staking Benefits and Risks

Every aspect of crypto investments has its pros and cons. And you need to understand these before proceeding to try out crypto staking.

Pros

• Depending on which crypto you are staking in, your returns are very high. Allowing you to make other crypto investments.
• You will get the satisfaction of being one of the major players in the network. Why? Without stakers, the proof of stake consensus mechanism wouldn't function properly.
• You will not need any equipment, making your returns all yours.

Cons

• Crypto is very volatile. So your staked crypto could lose its value even before you succeed in pulling out of the stake.
• Because of the lock-up time, access to your crypto assets is cut off for a particular time. At that point, you can't even trade your crypto even if the price is rising or falling.
• Then there are times you could run into risks when you stake in exchanges. The risks can vary from stolen crypto or losing your private keys. Or worse, you could have your staked crypto slashed or reduced or your rewards wiped off.

How to Stake Crypto in 5 Steps 

Now you know what crypto staking is and the pros and cons of staking your crypto. Let's look at how you can stake crypto in the following easy steps.

Step #1

Choose crypto that uses the proof-of-stake system for staking in. Make sure you do thorough research. Like the minimum requirements for crypto, you need to have before staking. And the kind of wallet. And also the hardware.

Be careful about this. In as much as you do not want an interrupted network.

Step #2

Buy the crypto. It's advised you use your spare cash for this. Or money you are willing to lose. So in the face of any of the risks mentioned above, you will not be seriously affected.

Step #3

Get the wallet needed for your chosen crypto, where your crypto would be stored.

Step #4

Transfer the crypto you plan to stake to the wallet.

Step #5

Then stake your crypto. You can either become a validator, where the rewards are higher and the risks. Or you can use crypto exchanges.

But before staking, you should note how reliable the staking pool is. The size and also the fees. Most especially the fees. As some exchange fees might eat deep into your returns.

FAQ: Everything You Should Know about Staking Crypto

What is staking crypto?

Crypto staking is how certain crypto networks verify their transactions. They come as part of the Proof-of-Stake consensus mechanism.

Is staking crypto safe?

No investment is 100% safe. Including crypto staking. While it has many benefits, it also has risks you should beware of.

Is staking crypto worth it?

If you plan to earn rewards for locking up your crypto, then staking crypto is good for you. But since you have to lock up your assets, you have limited access to them. There's no telling what could happen then. But if you have the appetite for risk, it is worth it.

Is crypto staking profitable?

Yes. Staking your crypto can be very profitable. But there are fees you have to pay. They vary across different blockchains. They may reduce your profits.

Where to stake crypto?

There are a lot of platforms where you can stake your cryptos. These platforms are known as staking-as-a-service platforms. They include BlockDaemon, EverStake, Figment, MyContainer, etc.

What are the most popular crypto staking coins?

The most popular cryptos you can stake in are:

• Avalanche (AVAX)
• Cardano (ADA)
• Ethereum (ETH)
• Luna (LUNA)
• Polkadot (DOT)
• Solana (SOL)

Why do only some cryptocurrencies have staking?

Because these cryptocurrencies run on the Proof-of-Stake consensus mechanism. 

What cryptocurrencies don't allow staking?

Any crypto not in the proof-of-stake consensus mechanism does not allow staking.  

Conclusion

Now you know what crypto staking is, how it works, and its pros and cons. Do you think it's what you would love to do? 

If yes, hopefully, this article will guide you. However, do thorough research before going into crypto staking. Or any other kind of crypto investing.