Want to know more about Staking Crypto to earn rewards and increase your wealth? Can staking make you rich? Get up to speed quickly on how to profit by staking and holding onto your digital assets.
Crypto Staking: A Quick Definition
Put simply, staking crypto is a method of earning rewards for holding onto different crypto assets. Crypto is still an up-and-coming technology, so it’s crucial to understand all aspects of it before investing. Crypto Staking is one of the relatively safer, longer term methods for investing in crypto, but it is not without risks.
Coins and Tokens Are Not the Same
Note: Many people use the words “coin” and “token” interchangeably. Coins and tokens are both digital assets, but they do not represent the same thing necessarily. For example, you can buy a token with a coin, but not the other way around. Coins are methods of payment (meaning, currency) for buying and selling things, while tokens can represent a company’s share, or give access to a product or service. Tokens can perform other functions as well. To add to the complication, a token can become a coin.
Can Staking Make You Rich? Here’s How Staking Works
If you own a cryptocurrency that allows staking crypto (some examples are Pancake Swap, Cosmos, Ethereum, Cardano, and many others) you can earn rewards: a percentage of reward overtime via a Stake Pool. How you earn crypto rewards using this method comes from a process called Proof of Stake, which is a consensus mechanism similar to a show of “goodwill” by the blockchain. The assets you stake are put into use by the blockchain to help verify all the transactions being carried out, kind of like how mining works in Bitcoin. But instead of all the power and energy being used to validate transactions on its ledger, it’s your assets helping out to make the process more efficient.
More Useful Definitions for Staking…
What is a Stake Pool?
A Stake Pool is a large group of investors and coin holders who join and merge their resources to form a consolidation, allowing them to validate blocks on the blockchain and earn rewards in return. They are essentially pooling their sources for a share in the rewards. Various currencies (like Cardano, for example) enable both public and private staking pools. Private pools only provide rewards to their respective pool owners; public pools are open to anyone in the nodes.
What is Proof of Stake?
The idea of Proof of Stake has emerged to help increase the speed and efficiency of the blockchain while reducing its fees. Proof of Stake does that by not requiring miners to churn through all energy-intensive processes and instead validate transactions through people who have invested in the project themselves.
Its implementation may vary in different projects, but the general idea of Staking and Proof of Stake is that users put their tokens on the line to add a new block to the asset blockchain in exchange for rewards. For investors, Crypto Staking is like an interest-bearing savings account at the bank. You might also think of staking crypto as similar to owning traditional stock covered calls. These tokens act as a guarantee of the legitimacy of any new transactions added to the blockchain. If transactions in these new blocks are inconsistent, then the users of these Stake Pools can have a certain amount “burned” by the network.
For investors, Crypto Staking is like an interest-bearing savings account at the bank.
There are two different types of Staking Crypto: Online Staking and Cold Staking. Online Staking is the method described above (putting tokens on the line to add a new block through a Proof of Stake).
What is Cold Staking?
Offline Staking or Cold Staking allows users to stake their cryptocurrency assets in an offline wallet and rewards. The wallet is also known as a hardware wallet or cold storage wallet that isn’t connected to the internet. Investors get the opportunity to earn rewards and interest without being connected to a Proof of Stake validating node. It’s even possible to stake offline against someone that operates a Stake Pool and still earn a reward.
Cold Staking does not require users to hand over custody of their funds to an external party, which also removes any risks that are associated with other interest-earning practices.
What Makes Staking Crypto a (Relatively) Safe Form of Crypto Investing?
Staking Crypto is not a risk-free passive income strategy, but it has advantages in that you’re not sending your assets anywhere, and no one is borrowing them. So, in answer to the question: “Can staking make you rich?” You need to keep this in mind. This strategy is excellent for earning more rewards for cryptocurrencies you plan to hold long term. But do remember: there is always the volatility risk that comes with owning any crypto asset.
What Is Your Time Horizon?
If you want to be invested in your tokens for a longer time horizon, say for five to ten years or more, then staking your assets can be a good option for passive income, but if you are a short-term holder, then crypto staking comes with its own risks, from price fluctuations to Vesting Periods.
Popular Coins for Staking Crypto in 2022
There are literally hundreds of coins that can be staked on various platforms, from low market cap coins to popular ones. Here are a few of the top coins to stake in 2022:
- Pancake Swap
The list goes on. You generally cannot go wrong with the coins mentioned here, but an important thing to analyze is the APY (Annual Percentage Yield) that you might earn and the kind of rewards you can expect.
How to Choose a Coin to Stake
Selecting a coin to stake is directly related to choosing which token to invest in. So, it is necessary to do your own research before staking crypto and putting your money into one of these Stake Pools. One of the metrics to look for when selecting a coin to stake is its market cap, which can act as a good indicator of how much investors trust in a token. Annual return rate (APY) is also a key factor, but note that volatile coins may have higher return rates. However, volatile coins have higher risks overall. Stable coins may offer smaller rewards, but they may have more longevity than volatile coins or new projects.
Many investors and holders appreciate staking as a way of passive income that works for them by generating rewards instead of simply having cryptocurrency sitting in their wallets. The process also has the added benefit of contributing to the blockchain project itself, which helps improve its efficiency and security. By staking, investors help blockchains become more resistant to attacks and increase their ability to process transactions.
A general risk that comes with staking is the Lockup Period of the Vesting Period which is mandatory for different Stake Pools. During Lockup, the tokens cannot be transferred or sold. This can be a drawback as you will not be allowed to trade tokens during a period where prices can be shifting.
TIP: It is necessary to research the staking requirements and rules for each project you’re looking into as they may be different.
How to Get Started Staking Crypto
Staking is usually open to anyone who wants to be involved, but to become a Full Validator and start your Stake Pool, you must have a substantial investment, some technical knowledge, and an always active computer system able to perform validations 24/7 without any downtime.
A vast majority of investors can participate in a much easier way by contributing an amount into a Stake Pool via exchanges like Coinbase, Kraken, and others that offer great APYs. It is also possible to invest in a native pool that offers good annual returns.
Best Cryptocurrencies in 2022
As staking goes hand in hand with investing in a cryptocurrency, it is essential to know the latest trends emerging with the beginning of a new year. The metaverse and web 3.0 seem to be the most popular topics and projects emerging in 2022, and with these come new opportunities to invest in innovative new projects. Many popular coins are cropping up this year, and leading the pack are coins like:
- Crypto.com Coin
- Shiba Inu
- Axie Infinity
These tokens have become quite popular and many of them are also excellent choices for staking because they offer good yields and annual returns. Some of them even give quite a lot of utility to the blockchain network and have become very stable. Shiba Inu, though, is relatively volatile and may not be a great option when it comes to investing and adding into a Stake Pool.
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Disclaimer: All the information provided above and on this site is for informational purposes only and should not be considered as professional investment, legal, or tax advice. You should conduct your own research or consult with a professional financial advisor when investing.