With the rapid development of the cryptocurrency world, more and more people are constantly looking for ways to make money. Some become day traders, others engage in mining, others trade NFT tokens and play play-to-earn games.
All of the above requires certain skills and can only benefit those who are well versed in new technologies.
But what about the average user who has recently started to explore the digital world and wants to try to make a profit as easily and safely as possible?
In this article we will look at one of the popular methods called “staking”. Almost anyone who owns digital assets can have an additional source of income.
What does the phrase “stake tokens” mean, which you can so often hear from experienced market participants? Let's figure it out.
What is staking in cryptocurrency in simple words
Staking (translated as “bet”) is similar to depositing money into a bank: the investor blocks his funds for 3 months (for example), and in return receives a percentage determined by the bank as an incentive.
The same thing happens in cryptocurrency:
The participant agrees to lock his tokens in the protocol of a specific network for a certain period of time (to be able to confirm transactions in blocks). In return, he receives a reward in the form of additional coins.
Since the concept of cryptocurrency staking is new, not all blockchains support it. Currently, this feature is only available for Proof-of-Stake (PoS) assets.
The essence of this algorithm is as follows:
- The functionality of the PoS blockchain is supported by validators who check user transactions.
- If 2/3 of the validators confirm the transaction is correct, it is included in a new block of the blockchain.
- To participate in the verification process, the validator pledges its tokens to the network. It does not need to mine blocks - its function is to create new ones and validate others.
- From each such operation he receives a reward.
- If a validator is found to have defrauded the network, he will be punished and part of his deposit will be taken away.
In PoS cryptocurrencies, the chance of adding a new block to the chain and receiving a reward for doing so is proportional to the number of tokens that a participant (called a validator) blocks for this purpose. In addition, other indicators may be taken into account - for example, the age of the bid.
Since the chance of winning the next block to be verified (and receiving a reward) is directly related to the number of coins in a user's wallet, pooling can be beneficial.
In this case, the participants share the profit in proportion to the invested share. This method is convenient for novice validators with a small amount of crypto assets, especially if the minimum bet in this blockchain is quite high.
Both well-known exchanges, such as Binance or Kraken, and independent decentralized projects have pools for staking.
For regular users, the staking process is simplified:
- You need to buy coins on the exchange or in another way.
- Then block them on your wallet.
- As long as the assets are in the wallet, the participant will receive a reward.
- At any time, the participant can stop the blocking process and spend their funds.
This is even easier to do on a cryptocurrency exchange. You need to go to the betting page, indicate the amount and click the “Submit” button.
The potential amount of income you can receive directly depends on the size and duration of your bet.
Preliminary preparation
Preparation consists of two stages.
First, you need to top up your exchange account in rubles. This can be done in a convenient service using VISA/Mastercard/MIR cards. Just go to the section: Buy cryptocurrency ‒ Top up from card. Follow the instructions on the website and prepare your card details.
All that remains is to purchase the cryptocurrency chosen for staking, for example, ETH - for rubles. Buy cryptocurrency ‒ Fiat balance. In a new window, indicate the amount of cryptocurrency that we want to purchase.
Important: financial transactions on Binance require a verification procedure.
The difference between staking and mining
The main difference between these processes is the underlying blockchain consensus mechanism used to validate transactions.
Mining is used for Proof-of-Work (PoW), and staking is used for Proof-of-Stake (PoS).
Besides this, there are other differences:
Miners
solve complex mathematical puzzles, then adding the finished block to the chain. This requires special equipment that consumes a lot of energy. Thanks to high computing power, a miner has a higher chance of solving a block and receiving a reward.
Stakers
They also participate in the verification of new blocks, blocking their assets in a smart contract. They do not require additional powerful computing hardware, so the process is considered much more environmentally friendly.
Benefits and Risks
The opportunity to receive rewards just for storing cryptocurrency looks like an attractive proposition. But you shouldn't count on significant profits.
The goal of Proof-of-Stake is to be the most efficient way to maintain validation of the public blockchain, not to maximize rewards for a specific use case (Vitalik Buterin).
Like any other method of earning money, cryptocurrency staking has advantages and disadvantages. You should study them before deciding whether or not you should take part.
Advantages:
- Passive income that requires minimal attention.
- Low energy consumption and environmental friendliness. Unlike mining, staking requires much less electricity.
- No special knowledge or skills are needed.
- The threshold for entry into this method of earning money is quite low. You don't need to invest in expensive equipment or pay high energy bills. To get started, a small investment in the purchase of tokens is enough.
- It is believed that cryptocurrencies based on the PoS algorithm are much better protected from attacks. This reduces the risk for their owners and therefore for validators.
Risks:
- The biggest risk factor when investing in digital assets is volatility. While an increase in the price of a digital currency significantly increases staking profits due to the higher value of coins, the opposite occurs in a bearish trend. When your funds are locked during the betting period, you will not be able to sell them at the right time.
- The profit margin is relatively small. For the most popular assets it does not exceed 15% per year.
Taking into account all the above facts, staking is a good option for additional income for people investing in cryptocurrencies.
conclusions
Cryptocurrency staking is one of the options for passive earnings on digital assets. Anyone can use it.
Before you start staking cryptocurrencies, you need to study the features of the project, staking conditions and information about the available level of profitability. It is also important to choose a platform for work.
Disclaimer
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TOP 10 best cryptocurrencies for staking
Since the market changes daily, it is quite difficult to recommend a specific coin. Either way, you'll have to do your own research.
One resource to help you make your choice is stakingrewards.com. It tracks over 200 coins available for staking.
Remember that when choosing a cryptocurrency to stake, you need to do both fundamental and technical analysis. In order not to buy tokens at the moment when their price has reached its peak.
Here are some of the most popular assets by annual reward rate (according to stakingrewards.com):
- Solana (SOL) - 6.94% per annum.
- Cardano (ADA) - 5.77%
- Ethereum 2.0 (ETH) - 5.18%
- Polkadot (DOT) - 13.68%
- Avalanche (AVAX) - 9.56%
- Terra (LUNA) - 4.12%
- Algorand (ALGO) - 4.69%
- Binance (BNB) - 12.88%
- Internet Comput (ICP) - 10.31%
- Cosmos (ATOM) - 10.29%
Betting on stablecoins (digital assets designed to mimic the value of fiat currencies such as the dollar or euro) is a great way to earn passive income while avoiding market volatility. The reward percentage here is slightly lower, but the risk of loss is also minimal.
Here are some of the yields (annual percentage) of stablecoins on the Binance exchange:
- USDC: 2.79%
- BUSD: 2.89%
- DAI: 8.79%
- USDT: 4.79%
Where can you stake tokens?
This is a list of the most reputable platforms for making money on bets. They can be divided into three types:
Centralized Exchanges (CEX)
Exchanges naturally began to engage in staking due to the large number of users on their platforms.
By placing bets, traders can diversify their income stream, as well as monetize their available funds.
Binance
is the largest digital currency exchange in terms of trading volume. Therefore, many investors prefer to use this platform. In December 2022, the Staking service appeared on it with fixed (for 30, 60, 90 days) and flexible asset blocking. It currently features about 90 different tokens.
Kukoin
— the exchange provides excellent conditions and a lot of coins for participation. Here you can find good digital assets that are not on Binance.
Coinbase
is a leading American exchange listed on NASDAQ. It also offers a staking service.
Staking Platforms
Such sites are intended only for betting without the possibility of trading and storage. They take a percentage of the commission earned to cover their commissions.
PancakeSwap
is the most popular decentralized staking platform today. For example, the platform’s own token called Cake offers a yield of 46.27% per annum. Everything here is as simple and pleasant as possible - you need to connect your MetaMask wallet and select the appropriate coin.
Everstake
- Works with a wide range of Proof of Stake blockchains, providing many options to choose from. Offers the most promising projects with a yield of 5-20% per annum.
P2P
— allows you to stake 20 popular coins. The site has a calculator that allows you to calculate the estimated profit from the service.
Dokia Capital
— has a standard set of tokens (about six in total), although there are little-known ones that are not available on other sites. Has a simple, intuitive control panel.
Cold wallets
This form of staking is called cold staking. The participant must keep the staking coins at the same address, as moving them violates the lock-in period and results in loss of rewards.
The advantage of hardware wallets is that you have complete control over your assets.
Ledger
is a leader in the cold wallet industry. Apart from security, it allows users to stake up to seven tokens. Some of the supported ones are Tron (TRX), ATOM and ALGO.
Trust Wallet
is a universal wallet supported by Binance. It allows owners to earn passive income by staking XTZ, ATOM, VeChain (VET), TRX, IoTeX (IOTX), ALGO, TomoChain (TOMO) and Callisto (CLO).
Trezor
- The world's oldest hardware wallet also supports staking some assets through third-party applications.
The Future of Cryptocurrency Staking
From the above discussion, it is clear that staking is healthier (environmentally and possibly economically) than PoW mining. Thus, it is rightfully gaining momentum and increasing market share in the crypto sector. The shift towards staking gained new momentum when Ethereum finally made the shift and officially welcomed staking in December 2020.
And in 2022, the popularity of both decentralized and centralized staking will reach an all-time high as DeFi staking continues to thrive.
Finally, DeFi staking, despite its FOMO-inducing growth, should be approached with caution, especially newly created protocols that promise suspiciously high rewards to crop farmers or liquidity providers.
Remember that cryptocurrency staking comes with significant risk, so it is essential to do thorough research and invest wisely. Happy staking!
How does staking work on the Binance exchange?
All available offers are located in the tab in the top menu Finance - Binance Earn
.
Scroll to the bottom of the page until the inscription “Stop walking around with cryptocurrency, make money on it!”
Kinds
Here you can find three types of staking:
Fixed Staking
— when placing your funds, the user must specify a period to choose from: 30, 60 or 90 days. After the selected period, your locked assets will automatically return to your spot wallet.
For blocking funds, the participant receives a fixed fee in the amount indicated next to the selected token.
In addition, there is a minimum entry threshold (indicated in a separate column).
ETH 2.0
— you need to top up your wallet with 32 ETH (at least). The annual interest rate will range from 2 to 20%. Its size depends on the total number of coins blocked for staking and is calculated by the Binance exchange.
DeFi
— here the placement period is flexible. You can place them even for a day and immediately withdraw them along with interest, which is accrued daily. The entry threshold is much lower here.
How to start and choose an asset
First you need to buy tokens that will act as a “free asset”. That is, the user should not suffer serious damage from the loss of their value.
It is best to use several types of coins to diversify risks. If the prices of some go down, the prices of others will go up.
You need to choose taking into account volatility and the minimum contract amount. For example, speaking about the same Ethereum 2.0: not everyone can afford to freeze 32 ETH.
You also need to look at trading volume. The higher it is, the more in demand the cryptocurrency asset is.
Reviews
Redemption of staking on Binance works well. Everything is done within two days. I did not notice any problems, even despite the difference in time zones. Even a beginner can figure it out. Victor
A super alternative for those who do not want to delve into the intricacies of mining. Considering the prices of PC components, staking is an excellent solution. You can simply buy currency and invest it at interest. Yes, the profit may be small, but if you choose the right crypto, you will have a stable percentage. Misha
