Cryptocurrency has truly changed the world…. for good or for bad? You decide! But one thing I know for sure - if you're not taking advantage of this crypto wave, you're missing out!
Now, Crypto Staking is one of the best ways of making a passive income, but only if done correctly. In this article, I'll guide you through crypto staking and how you can make money with it. Let's get started!
What is Crypto-Staking?
Cryptocurrencies, as you know, involve blockchain technology, which as a result provides the valuation of the cryptocurrency, verifies them, and the entire data is stored on the blockchain. Yeah, it’s not that hard to understand, just don’t focus on the big words! Similarly, staking’s a way to validate these transactions on the blockchain. Or simply put, it’s the process that allows you to lock up your crypto-related holdings in order to obtain rewards or earn interest on those holdings. I know, it’s wild!
We need to understand a bit more about the crypto-staking process because if you want to make money from it, it’s important to understand exactly how it works. There are thousands, rather tens of thousands of cryptocurrencies on the Internet. Depending on the currency you have or you work with, it possesses this supporting technology that allows for the validation process called, “proof of stake” or “proof of work”. In other words, these processes can help in the confirmation that all of the transactions do end up validating the transactions on a blockchain.
As a result, the validators earn fees from any transaction they process and newly minted coins within the blocks. One example we can use to understand is Polkadot. The validators on Polkadot need to stake around 350 coins to validate the transactions taking place. It becomes locked for 28 days and in exchange, the validators earn around 14% of Polkadot per annum.
Delegation versus Staking:
While that sounds like a lot of money, there’s some risk involved, as well. If you try to manipulate the market or fail to process transactions, your Polkadotcan get slashed and gets added to the community treasury. At times these validators are also required to purchase hardware ON TOP of the minimum amount of cryptocurrency stake. This can be a hefty amount so, directly staking your money is slightly risky, especially, for the average earner, and a normal risk-taker.
That’s where the process of delegation comes in. Delegation means lending your cryptocurrency to a validator to earn a cut of any staking reward they can earn. This is a much safer and better way, as it eliminates any risk of setting up elaborate hardware in securing the blockchain and also increases the staking rewards for validators. But delegators also need to lock up their amount for the same period and usually, the amount required for the minimum stake is still too much. That can, again, be quite risky. In the case of Polka Dot, for example, you will require to lock up around $3000 for 28 days.
Things to Look Out For:
Before you stake a coin, you need to check five things in any cryptocurrency:
- Minimum Stake
- Unlock Period/Lock Up Time
- Slashing Risk
- Annual Interest
- Price Potential
To sum it up, the cryptocurrency you choose to stake should have a rather low minimum stake and a lock-up time which isn’t a lot, as well. In addition, the slashing risk should be also low, and look out for the annual interest on offer, too. Lastly, but most importantly, the price potential needs to be more. If you stake a coin that goes down in value, then you don’t really earn much…
Best Coins to Stake
Now that you have a basic understanding of how staking works, the next step is identifying the right kind of coins that can help you earn big. If you’ve been following the crypto-verse for a while, you’d know that there weren’t many options for staking a while back. However, that has changed, and I've listed some coins that will be good options for staking in 2022.
- COSMOS - ATOM
ATOM remains one of the best coins to stake, given the fact that it’s a wonderful project with a lot of potentials and offers interoperability. Currently, it offers 15% per year rewards for delegators and the lock-up period is 21 days. The slashing penalties are also very low, and it remains a strong currency following an upward trend. It also has a medium-sized market cap which indicates that there’s potential to grow.
- Fantom - FTM
FTM is another brilliant coin with a superb project. The appeal of FTM mainly comes from its developers who have made a name for themselves in the world of cryptocurrency. In addition, it has also secured partnerships with some public and governmental institutions. Delegators can earn between 4 - 14% per year with no minimum stake and only a 7-day lock-up period. This is a huge benefit as you get to decide how long you want to lock up your currency. Although, the slashing penalties are 100%, even for delegated stakes, so do your research before you stake!
- Harmony - ONE
ONEhas a wonderful project and has emerged as an alternative to Ethereum. It has faced a lot of competition and still manages to combine some top-class elements and become one of the most promising currencies around. We like ONE because it has a lock-up period of ONE day, which is pretty cool if you ask us! It also has a minimum stake of 1000 ONE, which amounts to around $150. The slashing penalties are quite lenient and given its potential, this is one to have in your portfolio, as it looks set to explode.
- Cardano - ADA
ADA was one of the currencies to have in 2021. Without any doubt, it’s backed by a superb team but it remains a promising one to stake in 2022, as well. It’s ideal for staking as it has no minimum stake for delegators and no lock-up period and no worries about a possible slashing punishment, either. It only offers a 5% per annum reward, but it’s super safe for staking and that’s what the majority of us are looking for when staking our coins. It has a huge market cap, so there’s always the chance of ADA decreasing in value, as we saw in the back end of 2021.
- Algorand - ALGO
ALGO has frightening potential. If not only for staking, this should be a part of your portfolio, even for trading purposes. ALGO has close connections with USA’s governmental institutions and once it gets reliably tied to one of them…you can imagine how high its price will go. In terms of staking, it isn’t a bad option, either. With no slashing, no lock-up period, and no minimum stake, it appeals a lot, even though the staking rewards are around 3% a year. That’s fine because the potential of the coin remains huge and can be a pretty useful coin to have.
Bonus Tips:
Stake for Long-Term
You need to remember that staking’s only helpful if you are looking for long-term investments. However, if your goal is short-term investments, then staking might not be the best option because you risk losing out on lots of short-term gains.
Liquid Staking
Another common issue for staking is when you need to trade your cryptocurrency for another one but it’s locked up and you can’t do anything! Not to worry, as there are already some options for liquid staking. Lido Finance offers liquid staking for select few currencies and other networks are also looking to introduce this.
Tax Rules on Staking
Don’t forget to understand the tax rules of your country regarding crypto staking. In theory, it shouldn’t be an issue, but in reality, there are a lot of issues with taxes on crypto staking. For the US, in particular, taxing on crypto staking is yet to be determined. It would be a wise step to check with your tax laws and then see how they apply to crypto staking, you don’t want to look silly after making gains…
Staking Wallets
Last, but not least, you need to check the wallet of the desired coin you're looking to stake. Usually, each currency has its designated wallet and you might be required to download it from their website. A simple Google search should help you out, in this regard. And, as we care about you and don’t want you to lose your money, we’ll just say it one more time, in case you weren’t listening before. Please do your research, don’t consider this to be financial advice, and best of luck, we hope things turn out in your favor!
That's a wrap for this article! Do you have any questions about crypto staking? Let me know in the comments below. To learn more about the blockchain space, visit my YouTube channel.
Disclaimer: This is not financial advice and I am not a financial advisor. You should always consult a financial advisor before making any investment decisions. This article is for educational purposes only.