Cloud and traditional cryptocurrency mining are not the only ways to organize passive income in the digital asset market. In this article, we will look at other alternatives that are worth paying attention to, such as staking.
What Is Staking and How to Make Money on It?
When investing, Staking allows traders to earn passive crypto by supporting the network. They deposit a token amount and generate variable interest for as long as they stake. It’s an investing strategy based on lending crypto.
Staking is possible with cryptocurrencies that use the proof-of-stake consensus model (PoS). The network selects the validator based on the user’s amount of collateral (usually, it’s fixed). To avoid centralization, PoS networks also rely on computer randomness.
In a PoS network, like Ethereum 2.0, validators need quantity (stake lots of ETH), history (hold for a long time), and luck (random number generators).
PoS is the fastest consensus model compared with Bitcoin’s Proof of Work (PoW). PoW validators are the miners who first validate a transaction, which is competitive, slow, and expensive. PoS (faster) doesn’t involve mining, as the network chooses validators based on their stake.
How to Make Money on Cryptocurrency Staking?
As a passive income strategy, Staking is as simple as buying a coin – just decide on the network (tokens) and exchange. What coins can you stake? To find out, you just search “[Your Coin] consensus algorithm.” If it says Proof of Stake, you can stake it.
These digital assets include Ethereum, Binance Coin, UniSwap, Polkadot, Algorand, Tezos, Polygon, Cardano, Cosmos and EOS, among others. It excludes PoW coins like Bitcoin and all its fork coins.
You will find these options when choosing the staking platform. Consider Binance (and the US version), CoinBase, Bitfinex, Kraken, KuCoin, FTX (non-US), CEX.io, and Swyftx. As for decentralized finance (DeFi) services, consider Aave, Uniswap, and most decentralized exchanges.
Once you choose a platform that supports staking, you buy the coin as usual. Then, look for the Staking option in the menu. Choose the number of tokens to stake from your purchased amount. Once you confirm, the process begins with a seven-day lock period.
*If you can’t find the coin, you can stake it from the official website (although more technical).
What Cryptocurrencies Can I Stake?
When staking, interest rates constantly change based on liquidity. When many investors stake, rates go down. When there’s a lot of coin demand, rates go up.
You get a 3% to 15% annual percentage yield (APY) on average for major coins: DOT, BNB, AXS, USDT, MATIC, and ATOM.
Smaller coins (or new projects) will offer +100% APY sometimes. The reason is volatility: by the time the lock-up period expires (up to 60 days), the token may go up or down by ~70%. Even if you don’t lose on the price, high APYs go down significantly within months.
To know when to stake a coin, check the project’s network. For example, Polkadot has ~53% of tokens staked, which is below their ideal 75%. As long as it’s below their target, staking rewards will be 10% to 20% consistently.
Coins like Cardano, Tezos, and Algorand yield an annual 4% to 10%, which isn’t low if you’re holding for their price potential. Unlike popular belief, you can unstake any coin before the seven-day lock period. However, you won’t get your staking rewards. Afterward, you can unstake at any time.
What Is a Proof-of-Stake (PoS) Algorithm?
Proof of Stake works because all devices contribute to security. Just from owning the token, you earn passive staking rewards. And if you own enough for long enough, you might become a validator to earn more.
By contrast, PoW miners need to compete with millions of other miners. The biggest bitcoin miners run hundreds of mining devices in factories, which uses about 0.6% of the global electricity consumption. New miners don’t stand a chance, so they need to join mining pools and share a tiny part of profits.
Miners rely on block rewards, which halve every so often. PoS validators get staking rewards from transaction fees. In comparison, PoS has more security and scalability.
How Much Can You Earn from Staking Cryptocurrencies?
As of 2021, miners do earn more. Staking rarely yields more than 13%, not including fees and token inflation. However, that doesn’t mean that you will earn more by mining.
Many PoW coins, such as Ethereum, are transitioning to PoS. And mining isn’t getting any easier. It still costs thousands to start earning a decent amount, and the rewards reduce every year. This is not to mention the moves by some governments, such as in India, to change income tax laws in relation to cryptocurrencies.
