Crypto staking, based on the Proof-of-Stake mechanism, is a consensus algorithm in blockchain that first appeared on the scene in 2011, in response to the energy-intensive Proof-of-Work (PoW). With PoW, which is used by Bitcoin, among other things, large amounts of energy are needed to mine new coins. As a result, miners with large resources gained an advantage over time and PoW turned out to be no longer a fair model.
Unlike PoW, PoS is not based on the amount of energy you provide, but on the number of coins you keep in safekeeping. PoS is thus a consensus algorithm that is not only more accessible to users, but also allows blockchains to work more energy-efficiently.
How does crypto staking work?
With PoW, miners compete against each other to validate new blocks by solving complex ‘puzzles’. The user who solves the puzzle first will receive the reward. With PoS, on the other hand, one user (in this case called a ‘validator’) is chosen by means of a random selection who is allowed to validate the new block. When the new block is validated, it is added to the blockchain and the validator in question receives a reward.
‘Stake’ literally means ‘bet’ or ‘share’. To become a validator, you as a user must first wager a certain amount of a cryptocurrency (the ‘stake’) and keep it in a crypto wallet. In this way you help to secure and support the blockchain network and in return you have a chance to add a new block to the blockchain.
The size of the amount you put into custody determines how likely you are to be selected as the validator who is ultimately allowed to validate the block.
The length of time in which you have to keep your coins in custody can vary per platform and per crypto coin. For example, you can choose to keep your coins for 1 month, 6 months, or even longer. Respectively, your reward is also greater, and it can vary from an average of 5% to even 20% of your bet.
There are some nice advantages when it comes to cryptocurrency staking:
- Environmentally friendly: PoS is more energy efficient than PoW
- Accessible: No need for heavy equipment like mining, making staking more accessible
- You can profit from the price: If the value of your crypto currency increases during the strike, the value of the coins you have in custody increases (although this can also be a disadvantage)
- No technical knowledge required: If you strike via an external platform, you can also start with limited technical knowledge
- Passive income: You don’t have to do anything during the process itself, so with enough effort you can see it as a form of passive income
Platforms for Staking
You can choose to keep the coins in your own wallet, but there are also platforms that offer staking as a service. As a result, you not only receive the convenience that these platforms offer by handling all the technical details for you, but you can also enjoy all the other benefits that these external platforms offer.
These are some of the best staking platforms on the market:
Simplicity trumps at Binance. What makes staking at Binance unique is the simple choice between flexible or fixed staking. Thanks to the wide range of coins and relatively low minimum bet, you will undoubtedly find an option that suits you in one of these categories. When you are stuck, you can even strike from a few days!
Blockfi is a fast-growing international player that adopts a savings model similar to Celsius, with interest paid at the beginning of each month. Interestingly, here you can have your interest paid out in another crypto currency, allowing you to take advantage of exchange rate differences to maximize profits. Blockfi offers an interest rate of 6% on BTC .
At Celsius Network , you can basically think of strike as a savings account. When you open an account and deposit your coins, you will receive interest that is paid weekly. The interest on Bitcoin is 8.43%, on altcoins an average of 4% and on stabelcoins even 10%.
Celsius is best known for their focus on altcoins. If you choose Celsius for the sake of staking principle, it’s probably a good idea to keep that in mind.
Perhaps one of the largest players, making their range of crypto coins very extensive. Crypto.com offers very interesting interest rates and very flexible staking options, so that you have control over the duration. Thanks to a simple and transparent overview of the interest awarded per currency and duration, you know exactly where you stand.
CoinLoan works with a sort of graduated system: your interest increases by a fixed percentage every time you deposit a certain amount. For example, if you discontinue CLT, your interest increases by 0.1% per 125 CLT. With some coins, this can even rise to more than 10%.
CoinLoan does not work with a minimum bet and you can unstake your coins at any time.
Crypto staking tips
If you are considering crypto staking, keep these things in mind:
- Not all cryptocurrencies support staking
- Your wallet must support staking
- The conditions for staking may differ per blockchain
- The reward is determined differently by each blockchain
What are the risks of Bitcoin staking?
In principle, the risk of strike is nil. After all, you earn on the right exchanges as long as you have a coin and if you sell it, you will be charged pro-rata for the period that you have the coin.
The risk increases slightly when you have to hold the coins for a certain amount of time to receive a staking reward. This also applies when you use the offer of some exchanges. They offer higher rewards if you lock your coins for a certain period of time. After all, during that period you cannot freely sell your coins and stop profiting from any exchange rate gains or losses.
Many exchanges require you to keep the coins on their exchange in order to receive the staking reward. As we described earlier, this involves risks. As users realize this, there is an increasing number of parties offering cold staking. This allows you to strike while your crypto coins are safely stored in a cold wallet.Shortcode
Finally, there is a risk that has more to do with structure than decision structure. After all, in a staking pool you hand over the power to blockchains of the crypto coins in which you invest. As a result, you are dependent on the decisions that the manager of the pool makes. When, as in the case of a crypto exchange, it has its own interest or when the manager is good friends with someone with his own will, you can be faced with surprises.
All in all, we believe that if you have done your own research and investing in PoS crypto coins fits your profile, you can choose the right method fairly risk-free to make extra returns with staking.