Staking is one of the most common ways to earn passive income in cryptocurrency. It implies locking your coins and getting rewards for helping secure the network. Staking requires no additional hardware, and the setup process takes you just a few minutes.
If you’re curious about passive income opportunities, this article is for you. You will learn what staking is and how it works, what coins you can stake, and how you can start earning today.
What Is Staking? How Is It Different from Mining?
From a user’s point of view, staking is when you freeze your funds in a wallet and earn rewards. From a technical point of view, staking is a way to secure the blockchain: it is the core of the Proof of Stake consensus algorithm.
In Bitcoin and other Proof of Work cryptocurrencies, the network’s consensus is achieved when a miner solves a difficult hashing task and presents the right solution to Bitcoin nodes. When the network collectively marks the solution as valid, the consensus is achieved.
In Proof of Stake, there are no miners who compete for the right to validate blocks. This right is assigned to stakers — nodes who have locked some funds on the blockchain and thus proved they are full-fledged network members. When a staker is given the right to produce a block, they get the block hash with no effort (since there’s no hashing power competition) and present their solution, after which the consensus is reached.
Like miners, stakers are rewarded for their activity. The APR depends on the coin and the size of the stake; in most top PoS coins, it is usually between 6% and 10%.
Why Proof of Stake?
Proof of Stake was invented as a lightweight and scalable, yet secure alternative to Proof of Work. Bitcoin mining makes the blockchain extremely difficult to hack, but its speed and throughput are very low. PoS is much more efficient — it allows processing more transactions per second, and the fees in such networks are very low since there are no huge miner rewards. PoS networks are also more sustainable since the need to engage much computing power is eliminated.
What Does “Locking My Funds” Mean?
If you want to stake, you will have to lock or freeze your funds in the network. This means that when you tap the “Stake” button in your crypto wallet, you won’t be able to spend the coins that are being staked. However, you can unlock this crypto at any time you want. Moreover, in some of the networks, you don’t even have to freeze the coins to stake them.
How Long Do I Have to Lock My Coins For?
The staking period depends on the coin and how often the payouts are made. In NOW Token, the rewards are distributed every Wednesday, so you have to jump on the bandwagon before this day to start earning.
Where Do I Lock the Coins?
You can stake right in the wallet where you hold the PoS cryptocurrency. For instance, BNB coins can be staked in NOW Wallet. If you already have some tokens in your wallet, you can simply tap the “Stake” button and start accumulating the passive income right away.
Note that some cryptocurrencies have a minimum amount for staking. Usually, it’s not too high, but if it is (like in Ethereum — you can stake no less than 32 ETH), users combine their coins in staking pools ( we will discuss them below).
In some PoS cryptocurrencies, you can also become a validator — a node that not only stakes but also validates transactions proposed by other stakers. The more you stake, the bigger is your chance to be elected as a validator. These have more benefits but also have to meet additional technical criteria (e.g. stay online all day long).
Perks of Staking
- The best staking coins keep increasing their value. This makes them inflation-proof, and an extra APR from staking makes the offer much more profitable than a usual bank savings account.
- It needs much less investment compared to mining. You don’t have to buy expensive hardware and anything at all (besides the coins).
- Staking requires very little time compared to money — you simply click the “Stake” button, and that’s it. No sophisticated maintenance is needed.
- Staking is much more sustainable than mining, its environmental impact is negligible.
How Do I Stake Crypto?
Even though staking is very simple compared to mining, you need to choose the currency to make the best profits. Here are some tips:
How do I choose a cryptocurrency for staking? 5 criteria
- APR (annual percentage rate). Staking rewards are measured in percentage that will add up to your stake after you keep your coins for a year. Most coins have a fixed APR that is about 5–10%. NOW Token offers a 25% APR if you have a large stake and keep it longer than a year.
- An asset price dynamic. Choose the coins that have the potential for further growth. If you pick a cryptocurrency that will lose its value and never regain it, even the staking APR won’t help. This is of course hard to predict, but it’s definitely worth doing extensive research on the coin credibility, team, roadmap, and other factors.
- Initial investment. Select a coin whose minimal staking amount is below the sum that you can afford.
- Complexity. Most coins are easy to stake, but some require taking specific steps to set up. Choose the cryptocurrencies that you know you’ll be able to handle in terms of staking arrangements.
- Support by wallets. If you want to stake in your wallet, make sure it supports the coin that you are choosing.
Best coins for staking
ETH is the second-largest crypto after Bitcoin and has proven its value for the community. Hardly anyone doubts about the bright future of Ethereum. It offers a 5% APR which may not look too good, but it should be offset by the ETH price growth. The minimum stake size is 32 ETH, but you can stake less in a pool.
ADA is one of the most ambitious crypto projects with an enthusiastic community and well-developed infrastructure. The team steadily implements the roadmap which helped ADA demonstrate explosive growth in 2021. Cardano offers a 5% APR and is one of the most popular coins for staking, most wallets support it.
- Polkadot
Polkadot is one of the top interoperability protocols — it creates bridges between blockchains. This is one of the hottest topics in crypto as many people are willing to move their capitals across different networks. Breakthrough solutions created by a dedicated team allowed DOT to surge in 2021. Polkadot staking APR is 14%.
Together with Cardano, Solana is a strong competitor to Ethereum — it’s a dApp platform that boasts very high demand. Solana offers extremely low fees and fast settlement, so many projects deploy on this blockchain. SOL staking APR is 6%.
Terra redefines stablecoins — it has issued a few programmable tokens pegged to local fiat money of the USA and some Asian countries, which facilitated the trade between them. This helped LUNA grow by blazing 130X in 2021. We don’t know how the asset will behave in the future, but the upcoming network upgrades and stablecoin releases look promising. LUNA staking APR is 7%.
- Avalanche
Avalanche is another dApp platform on this list. It also surged in 2021 after introducing an efficient blockchain with low fees and near-instant transactions. Many protocols migrated to Avalanche, and the platform demonstrates great potential. It boasts a 9% APR.
Choose a crypto wallet
It’s best to stake your coins in a non-custodial wallet. Firstly, it’s the most secure way to store crypto — the wallet doesn’t have access to your private keys, and it can’t freeze your funds like a centralized exchange. Secondly, check if the wallet supports staking the crypto that you chose. If the coin was already in your wallet and it supports staking, you can simply tap the button and start earning rewards.
Staking is supported in coins’ official wallets — like in Avalanche and Terra. You can rest assured your funds are under great protection while storing them in such wallets.
What are Staking Pools?
Some coins need a considerable investment before you can stake them — for instance, in Ethereum, the minimum staking amount is 32 ETH. For many, this is too much to mine solo, so users started to combine their funds in staking pools so that the stake is big enough. The rewards are distributed proportionally based on the users’ shares in the pool.
Here are some tips for choosing a pool:
- Consider pools with moderate fees. You don’t want to spend much on charges. Apply the fee size to your stake size and decide whether it’s OK for you.
- Search for user reviews. Check the pool’s reputation — does it pay out the rewards accurately? Does it have no hidden fees?
- Choose a reputable pool. It should have been around for some time — this way you can judge that the platform is here to stay. Some coins list trusted pools on their official websites.
Tips for Beginner Stakers
If you already have a PoS coin in your wallet and you’re not staking it, start doing so. If you don’t use this money on a daily basis, it can bring you profit with no extra effort.
Be patient. Staking is a long-term investment, and it won’t bring you immediate rewards. The earnings that you will start getting may even look negligible. If they do, think strategically — how much will they bring you in a month? And in a year? Add this to the fact that the coin may increase in price itself and make you richer without even staking. And a 6% APR for just a few clicks is not bad, is it?
Avoid those offering an overly high APR. The largest coins offer a yield of less than 10%. Some offer more in case the stake is big and is locked for a long time. But if someone offers you unrealistic deals, it’s good to explore the reputation of the project and think whether it is a scam.
Take your time choosing a coin and a staking platform (wallet and a pool). You will only spend one or a few hours doing so, but the result will be a 5–10% APR and dozens, hundreds, or even thousands of dollars that you may not get if you choose the coin that is performing worse than the others. By selecting a coin that demonstrates growth, you can even make a few Xs.
Consider staking a few coins. Why put all eggs into one basket? Think of choosing several coins to stake. If some of them don’t show a good result, the others will even your portfolio out and bring you ultimate profit.
Today, there is an abundance of staking options — many coins with different APR, diverse platforms and pools where you can stake. Passive income that you get covers the inflation and surpasses it in case the coin price grows.
Staking is flexible — the size of your investment can vary from a few bucks to thousands of dollars. You can lock your funds and withdraw them at any moment. And it’s extremely easy to start staking — it takes several minutes and a few clicks. After the setup, no maintenance is required whatsoever.
Choose the coin for staking carefully, assess its price dynamic and potential. The list of PoS assets in our article is very rough — do your research and you may find even better deals. We wish you a pleasant staking experience!
