On our previous article about how lucrative the crypto space is, we discussed that staking is the act of putting your crypto to work and making profits from it.
It means committing an amount of your crypto to a staking platform and in turn receiving profits till the staking duration ends or till you collect your staked amount.
Not all cryptocurrencies offer staking, only the tokens with proof of stake can offer staking. So what is proof of stake?.
Proof of stake and crypto staking
This is a crypto consensus mechanism. Its a validating blockchain transaction method. All blockchain nodes must be in agreement on the present state of the blockchain before any transaction can be valid.
Each blockchain has a reward for any valid transaction, that’s where staking comes in.
When you stake and your transaction is valid, you gain rewards for staking.
How can I stake crypto?
There are three steps needed in staking.
- Buy a proof of stake coin:Since all tokens can’t be staked, you have to purchase the one that can be staked. E.g Bitcoin can’t be staked unlike Solana. Buying can be from an exchange or whatever but you will do the next thing.
- Send your purchased coin to a blockchain wallet: Some exchanges can offer staking programs but incase it doesn’t offer for the particular coin you want, then transfer it to a blockchain wallet e.g Trust wallet.
- Go to the Staking pool available for the coin: Staking pool is the platform where staking takes place, and every coin has its own staking pool. So navigate to your staking pool and perform the staking processes. Staking in the staking pool is just a 2-3 minute geek.
Staking APY and how it is calculated in crypto staking
The reward for staking is always calculated annually(yearly). APY means Annual percentage yield. This is the percentage of profit per year. So if a coin has a staking APY of 101percent for a duration of 90days, this is the calculation of your reward for that 90days.
if you are staking 20ADA with an APY of 128 percent, it means your APY is 128/100=1.28. multiplying with the number of ADA u staked = 25.6ADA in a year.
To know how many ADA in the 90days duration, you have to find the number of ADA for a day and multiply by 90.
ADA for a day =total ADA for the year/365days= 25.6/365=0.07 ADA daily. so for 90 days,= 90 * 0.07 = 6.3ADA.
This means for a duration of 90days, you have earned 6.3ADA from staking 20ADA, than just leaving it in your wallet.
Advantages of Staking Crypto
Staking in crypto benefits the person staking and the blockchain itself.
- Earn rewards on the cryptocurrency being staked- you earn rewards on each coin you stake depending on the Annual percentage yield (APY) of the pool you are staking on. For example, if you are staking AXS on Binance, you earn some amounts of AXS in the staking period. Currently the API for staking AXS is 104.62 percent for 90 days period.
- No machine or equipment needed for staking just your mobile phone/computer and internet- Staking is not mining so you don’t need extra resources apart from your purchased coin.
- See yourself as a supporter to the blockchain and the currency- Staking is a Proof of stake protocol that helps in validating transactions in the blockchain. So as you are staking you are helping for blockchain validations and thus making the blockchain efficient.
- Staking has no adverse effect on the environment unlike mining- Staking is environmental friendly. It doesn’t consume energy or require high end computers or experience.
Crypto staking risks
After the sweet benefits of staking, there are still some risk involved in the mechanism. Recall that all business are risky, so staking is not exempted. The following risk are involved when staking.
- Staked coin volatility risk- The worrisome risk that you take note of is when the staked coin makes a massive decline in price because of volatility. A coin that gives you 10percent APY for staking and then drops 50percent in price. Obviously you will be on losses after everything. Therefore you are to research on good coins before staking. Always stake coins with potentials so you will smile during and after the staking period elapses.
- Staking valueless coin risk- You might be staking coins without high volume, hoping that as time goes on. The coin will be valued. There are some coins that cannot be swapped to ALT coins or stable. Staking such coins will end in regrets. Stake coins with value and high volume potentials.
- Lock up period risk- Lock up period in staking is the time interval when you cannot un-stake or access your stake coins. So if price falls drastically within this lock up period, un-staking becomes a problem leading to reduction in profit.
- Reward Time risk- Each coin offers different duration or timing for rewards. Some coins give staking rewards daily, while some give at the end of the staking duration. Daily rewards are always better for the average staking participant. So depending on your choice, go for the type that suits you.
Conclusion
As said earlier, there are a lot of staking pools, so we still have fraudulent platforms where you can lose your coins in the name of staking. So check out for the following before engaging on crypto staking.
- Check how reliable the pool is: do your research before choosing a staking pool, if its reliable or not. How good is their servers?, how trusted is the servers?, Take it all in consideration.
- Moderate Staking fee: The fees matter too in staking, so choose a staking pool that offer fees of 2percent to 5percent.
crypto Staking is not for everyone, its necessary for people who will not want to trade or hold a coin. So you can venture into staking to let you earn as you stake your coins, than leaving it on your wallet.