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Should You Stake Your Crypto?

Crypto staking is the process whereby crypto holders support blockchain network processes by depositing their crypto assets in its network. The staking process locks up these assets, enhancing network liquidity and its security metrics. 

Crypto stakers earn governance rights, and they verify transactions or vote on governance protocols. In return, the platform awards stakers with rewards, often in the same cryptocurrency as the one staked on the network. 

The crypto staking process is available in all cryptocurrencies that utilize the proof of stake (PoS) mechanism in all its forms. PoS is a faster and more energy-efficient model than Bitcoin’s proof of work (PoW) data validation mechanism.

Besides its network security benefits, crypto staking is an excellent passive income generation feature. It helps prevent fraud and errors in the validation process and incentivizes the security network. For example, if a user validates a block and the system detects incorrect information, the validators may lose some of their stake, a process known as slashing.

The crypto staking processes

To start your crypto-staking journey, purchase a cryptocurrency that relies on the proof of stake model. Such crypto assets include Cosmos, Tezos, Cardano, Polkadot, and Solana. You can also stake your ETH since  Ethereum,  ETH2 upgrade will turn it into a proof of stake network.

Some exchanges may have staking programs with their chosen crypto assets. Consequently, you can stake crypto directly on exchanges such as  Coinbase. 

As an illustration, at Coinbase, investors that hold  Algo, the native currency for the Algorand blockchain, can stake their assets and earn a juicy  5.75% APY. Other exchanges such as  Binance and Etoro have their unique staking programs.

Alternatively, you can stake your assets on a wallet such as Exodus, TrustWallet, or Ledger. The wallet’s protocol will delegate to other validator nodes on PoS networks. Simply buy your PoS coins and choose the deposit option to generate a wallet address. 

Then, go to your exchange account, withdraw your crypto and use the wallet address to transfer your digital assets from your exchange to your wallet. Next, choose the number of assets you want to stake and pledge them. Some blockchain has high staking requirements, while some are very affordable. Ethereum, for instance, has high minimum staking investment volumes of 32 ETH.

The platform will then choose transaction validators. When they add a transaction to the blockchain’s ledgers, they will earn block rewards. Block rewards are new coins, and wallet stakers will earn their staking rewards from the validators. 

 Another staking option is a liquidity pool. Crypto traders who combine their assets in staking pools have a higher chance of getting better staking rewards. Choose a staking pool with high uptime and 2% to 5% yield rates.  

 However, you can stake your assets on a blockchain independently if you have the technical known how. Nonetheless, staking via an exchange or wallet is more straightforward and advantageous as you may contribute any amount to a staking pool. 

Also, it lowers the barrier to entry and allows you to earn without having to run your validator hardware. Some blockchains allow crypto stakers to withdraw their tokens whenever they want to. Others have set down staking and locking periods. 

Crypto staking risks

Cryptocurrency is volatile, and its prices can fluctuate in seconds. If your staked assets incur significant losses, they could outweigh the interest you earn on them. Then, staking holds your assets captive, robbing you of the ability to use your funds in transactions. Most PoS coins are excellent micro payments assets. 

You can, for instance, use ETH to make payments on Eldorado.gg. Use your ether assets to buy your in-game currencies such as OSRS GP or pay for game boosting services. You, however, cannot make crypto payments when your coins are locked up in staking protocols.