What is staking in crypto investing?

Every crypto investor should be familiar with the concept of staking. Today, we'll discuss what staking is, how it works, which currencies are supported, and the opportunities it offers for optimizing your investment portfolio.

When considering investing, it's worth remembering the old adage: let your money work for you as hard as you work for it. Staking is a passive income stream, a relatively simple way to generate income. Users store cryptocurrency in Proof of Stake (PoS), thereby ensuring the blockchain's functionality. PoS is the algorithm by which new blocks are generated, transactions are confirmed, and a single version of the ledger is verified.

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How does staking work?

An investor transfers their assets to the blockchain. The more stakes they place, the more secure the blockchain becomes. Thus, by increasing their reliability, networks reward investors for their stakes with coins.

An investor's trust in the asset is used to confirm transactions and ensure network stability. When the protocol selects your commitment to validate transaction blocks, you receive cryptocurrency as a validator of that transaction.

Proof-of-Stake (or proof-of-stake) currencies are based on staking. Staking is a means of verifying transactions. Investors participate in block confirmation based on their stake. This is different from Proof-of-Work (or proof-of-work), where the algorithm rewards miners who confirm transactions and create new blocks through mathematical calculations. Bitcoin operates using the Proof-of-Work algorithm. We'll discuss which currencies operate using the Proof-of-Stake algorithm below.

Benefits of staking

• Receiving interest on deposits.
• Low entry barrier as no equipment, expensive tools or technical knowledge are required.
• Consumes less energy than cryptocurrency mining.

A reasonable question might arise: if I stake ETH, I don't need to be a programmer, I don't need to absorb carbon, and I earn interest? What's the catch?

The answer is simple. For networks like Ethereum, staking requires significant assets. You can't just buy 1 ETH and expect to be rewarded as a validator.

What cryptocurrencies can be invested in?

To stake, you need to choose a cryptocurrency that supports the Proof-of-Stake model. For example, Bitcoin only supports Proof-of-Work.

Ethereum uses a hybrid proof-of-work and proof-of-stake model and plans to move to full staking in Ethereum 2.0.

Here are some popular cryptocurrencies you can bet on:

Ethereum

Ethereum, a programmable blockchain, allows staking with returns of up to 17%, but a minimum stake of 32 ETH is required to deposit. Platforms like Aave and Polygon, built on Ethereum's second layer, allow staking with no minimum requirement.

Staking on Matic (Polygon) and AAVE is a simple yet effective way to earn on the Ethereum universe currency. These platforms allow you to exchange ETH for L2 tokens, earn interest, and return them to L1 in minutes.

Tezos

The Tezos currency also uses the Proof-of-Stake model. Tezos staking is available, for example, on the Everstake platform. Tezos has proven its reliability over several years, and many new projects are launching on its network.

Solana

Solana, Ethereum's main competitor, has several wallets that support staking, such as phantom.app and solflare.com. Solana's rewards are 6.35% per annum as of early 2022.

Cardano

Cardano staking is comparable to a traditional savings account, where holders can stake their assets with the click of a button and expect positive long-term returns. Even after staking, investors can freely move their ADA and withdraw it entirely if desired.

Polkadot

Polkadot requires a minimum stake of 120 DOT, and there is a maximum nominator limit of 22,500. Polkadot tokens cannot be transferred while staked. According to Ledger, Polkadot's current annualized yield is approximately 10%.

How to place a bet?

Exchanges

Cryptocurrency bets can be made using cryptocurrency exchanges. It's worth noting that investors provide the exchange with the currency's liquidity—the ability to be quickly bought or sold at a price close to its market value—so that it can place bets on their behalf. Coinbase is an example.

Using a wallet

Some wallets also allow betting. LedgerLive is one of the most popular options for users who want to bet cryptocurrency directly from their wallet.

Staking services

Investors who fear slashing—the loss of funds due to falling prices—hire a staking specialist who monitors their invested funds 24/7 to avoid losses.

DeFi rates

DeFi stands for decentralized financial services. DeFi protocols are popular due to their ease of use. As we mentioned earlier, Ethereum's L2 DeFi protocol, such as Aave, makes cryptocurrency staking easy. There are numerous DeFi platforms that offer this capability.

Similar to an exchange, when using a DeFi platform, an investor lends their cryptocurrency to the protocol.

Some platforms, such as Binance, offer both flexible and fixed staking. By choosing flexible staking, you can earn a lower APY but make it easier to withdraw funds if needed.

DeFi offers a wide range of staking options. Each investor makes their own decision, considering the risks associated with the staking process.

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