What is crypto staking? How it works, and how to get started.

6 min readNov 29, 2021

The general psychology of cryptocurrency investors will consider between mining the cryptocurrency or buying it outright on the exchange. However, crypto staking, or staking coins, is often seen as a solution to avoid crypto curiosities, to keep assets in their wallets.

Crypto staking is a new addition in the financial sector, however, it is important for investors to understand what it is, how it works, and what is a staking cryptocurrency.

Crypto Staking can be considered as a step forward not only in learning how to buy Bitcoins traded on virtual currency exchanges, but also expanding your knowledge, making it easier for you to invest.

This article will help you understand all the basics that investors use to stake crypto.

What is Staking in Crypto?

Crypto staking is the process of locking up crypto holdings in order to obtain rewards or earn interest. Cryptocurrencies are built with blockchain technology, in which crypto transactions are verified, and the resulting data is stored on the blockchain. Staking is another way to describe validating those transactions on a blockchain.

Depending on the types of cryptocurrency you’re working with and its supporting technologies, these validation processes are called “proof-of-stake” or “proof-of-work.” Each of these processes helps crypto networks achieve consensus or confirmation that all of the transaction data adds up to what it should.

But achieving that consensus requires participants. That’s what staking is — investors who actively hold onto, or lock up their crypto holdings in their crypto wallet are participating in these networks’ consensus-taking processes. Stakers are, in essence, approving and verifying transactions on the blockchain.

For doing so, the networks reward those investors. The specific rewards will depend on the network.

It may be helpful to think of crypto staking as similar to depositing cash in a savings account. The depositor earns interest on their money while it’s in the bank, as a reward from the bank, who uses the money for other purposes (lending, etc.). Staking coins is, then, similar to earning interest.

How Crypto Staking Works

Crypto staking is able to bring in passive income for investors. When they stake their holding (similar to storing in a digital wallet), it allows the network to create new blocks on blockchains, based on their holdings. The more crypto you’re staking, the better the odds are that your holdings will be selected.

A new block is created, and the investor’s share is used to validate it. Since coins already have “baked in” data from the blockchain, they can be used as validators. The network then returns the benefits to the holders.

Pros & Cons of Staking Coins

Because staking coins is a passive form of investment, there is little downside. But it helps to consider the block rewards associated with staking coins you hold, as well as to recognize the volatility of cryptocurrency in general — if the value of the coin drops, that would impact the value of your staking interest earned.

Popular Crypto Staking Coins

Unlike a few years ago, when the option to staking coins was very new and small, today, there are many projects using POS and some exchanges that make it easier for people to earn cryptocurrency, by staking their coins.

There are some popular cryptos, that Staking Coins is allowed.

1. Ethereum (ETH)

Ethereum (ETH) has become one of the most popular cryptocurrencies on the market — although it is not exactly a cryptocurrency itself. Staking Ethereum on your own will require a minimum of 32 ETH. Rewards vary, but it’s expected that the rate of return on Ethereum staking is 5–17% per year.

2. Tezos (XTZ)

Like EOS and Ethereum, Tezos (XTZ) is an open-source blockchain network with its own native currency, with a symbol of XTZ. And it, too, can be staked on certain platforms and networks. The current expected rate of return for Tezos staking is around 6%.

3. Polkadot (DOT)

Polkadot is a newer cryptocurrency, created in August 2020. Similar to Cosmos, Polkadot hopes to provide interoperability and is designed to support “parachains,” or different blockchains created by different developers.

The Kraken crypto exchange supports staking for DOT.

At the time of writing in mid-2021, DOT staking yields about 12% annually.

Investors would do well to remember that while these above yields may sound high when compared to traditional financial markets, the risk is also quite high, as the coins could quickly lose value.

4. Cardano (ADA)

Cardano is a smart-contract platform much like Ethereum. But Cardano is a multi-layered platform, with one later for the transaction of the ADA coin (the digital currency that fuels the Cardano proof-of-stake network) and another layer for the development of decentralized applications (dApps).

Cardano prides itself on using scientifically tested theories based on peer-reviewed research for its development.

Binance supports ADA staking, with yields of up to 24% at the time of writing in mid-2021.

5 steps to stake coin

Step 1: Choose crypto or coin to stake

To begin staking cryptocurrency independently, a user would have to decide which coin they want to stake and buy their cryptocurrency of choice.

Step 2: Learn the minimum staking requirements

ETH, for example, requires a minimum of 32 ETH (worth about $47,000 at the time of writing) for users to begin staking.

Step 3: Download the software wallet for the desired coin

Choose and download a crypto wallet in which to store your coins for staking. That may mean going directly to the specific crypto’s main website and downloading its corresponding wallet.

Step 4: Figure out what hardware to use

To stake crypto, users need a constant, uninterrupted internet connection. A standard desktop computer will likely do the job, although a Raspberry Pi might save on electrical costs.

Step 5: Begin staking

Once the hardware has been chosen and the software wallet downloaded, a user can get started staking cryptocurrency.

For those holding the appropriate crypto in an exchange-hosted crypto wallet, the exchange handles all the staking on the backend, and users simply have to hold the crypto in their wallets.

Where to Stake Crypto

There are big-name platforms that most crypto investors are probably familiar with, including Coinbase, Kraken, Pancakeswap, which allow users to stake coins. On exchanges like these, investors must opt into staking in order to benefit from rewards.

In just a few months, OnePad will develop a staking system, with many rich items and low costs.

It’s important to note that each of these platforms will have different offerings, rules, and fees. It’s worth the time spent researching a few to make sure your goals align with a certain platform before you jump in.

Is Crypto Staking Profitable?

Anyone can earn crypto by staking cryptocurrency. But unless someone is sitting on a huge stash of proof-of-stake coins, they’re not likely to get rich from staking.

Staking rewards are similar to stock dividend payouts, in that both are a form of passive income. They don’t require a user to do anything other than hold the right assets in the right place for a given length of time. The longer a user stakes their coins, the greater profit potential there will be in general, thanks to compound interest.

But unlike dividends, there are a few variables particular to proof-of-stake coins that influence how much of a staking reward user is likely to receive. Users would do well to research these factors and more when searching for the most profitable staking coins:

How big the block reward is
The size of the staking pool
The amount of supply locked

Additionally, the fiat currency value of the coin being staked must also be taken into account. Assuming this value remains steady or rises, staking could potentially be profitable. But if the price of the coin falls, profits could diminish quickly.

The conclusion

Just like generating interest from cash savings, crypto staking can earn additional rewards from an existing investor’s assets.

For crypto investors, staking can open up another potential avenue for profitability because they get to use investor assets as part of the blockchain validation process.

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