The concept of staking entered the cryptocurrency world relatively recently, so not everyone knows what staking is or how to profit from it. In reality, staking is a straightforward way to earn passive income. It’s growing in popularity and attracting more participants every day. However, it’s essential to understand what it is and how it works to avoid potential pitfalls.
What Is Staking?
In simple terms, staking is similar to a savings account at a bank. You deposit money with a financial institution and earn interest. Meanwhile, the bank uses your funds to support its operations. However, if the bank goes bankrupt, you risk losing your money.
This analogy provides a general idea of staking. In the case of cryptocurrency, your tokens are used to ensure the security and functionality of a blockchain. A blockchain operating on a Proof of Stake (PoS) consensus mechanism relies on locked tokens to guarantee secure and accurate transactions. These tokens help create new blocks, and stakers receive rewards proportional to their contributions.
The profitability percentage varies greatly depending on the chosen project, and so does the required investment amount. For instance, staking Ethereum requires a minimum of 32 ETH, a significant amount. However, there are other promising tokens that are easier to purchase. Let’s explore staking in detail and learn how to profit from it.
What Is Staking – Types of Staking
The main types of staking are determined by the operating algorithm. In each case, the earnings depend on the amount a user is willing to lock on their account. The higher the stake, the greater the earnings. Staking types include fixed, flexible, and DeFi staking.
Fixed Staking
Fixed staking is ideal for those who prefer clear planning. Tokens are locked for a specific period with a predetermined interest rate. Usually, these periods are relatively long—three months, six months, or even a year. Fixed staking offers higher interest rates, allowing for better profits. The minimum staking amount is set by blockchain platforms, and the entry threshold can vary significantly.
Flexible Staking
Flexible staking is fundamentally different from fixed staking. While it offers lower interest rates, tokens can be withdrawn at any time. The only drawback is that payouts are made once a month. In other words, you may see your earnings the next day, but you’ll actually receive them in 30 days.
DeFi Staking
Not everyone is familiar with DeFi staking yet. These projects operate via smart contracts, where various services, companies, and individual users can borrow your tokens at an interest rate. The reward percentage and lock-in periods vary. These projects often offer very high profitability, sometimes reaching up to 100% annual returns.
Why Staking Is Not Mining
Traditional mining uses the Proof of Work (PoW) algorithm, requiring new blockchain blocks to be created using specialized hardware (such as GPUs) and software. It’s a complex and energy-intensive process.
In staking, the Proof of Stake (PoS) consensus algorithm is used. New blocks are created not by solving cryptographic puzzles but by proving ownership of tokens. This accelerates rewards and consumes significantly less energy.
Staking involves earning rewards for participating in block creation by locking tokens in an account. The reward is distributed among all participants in proportion to the number of locked tokens. This eliminates the need for mining equipment—just hold enough tokens and lock them to validate network transactions.
How to Start Earning With Staking
Now that we’ve covered what staking is, let’s figure out how and where to start. Beginners typically start with cryptocurrency exchanges. It’s best to choose a major and trusted platform like Binance, WhiteBIT, Coinbase, or ByBit.
In addition to exchanges, there are dedicated staking platforms. These platforms are often user-friendly and suitable for both novices and experienced investors. However, not all platforms are trustworthy, so it’s essential to select a reliable one.
Some hardware wallets, such as Ledger, also support staking. They allow you to delegate your tokens to a staking pool. Keep in mind certain requirements, such as verifying ownership of the wallet.
The most important step is choosing a suitable token that operates on a PoS consensus mechanism, such as Ethereum, Solana, or Polkadot. Then, pick a provider and review the terms. If everything fits, decide how much you’re ready to stake and start.
What Is Staking – Video
Learn more about staking and how to earn with it by watching this video:
Conclusion
Staking is a simple way to earn passive income. Smart investments can generate earnings without additional expenses or time. However, it’s crucial to select the right token and platform for staking.
FAQs About Staking
Anyone with enough tokens to meet the minimum requirements can participate.
Apart from fraudulent schemes, the main risk is token volatility. If the token’s value drops significantly after the staking period, you may lose money in fiat terms.
No, Bitcoin staking is not possible because its blockchain operates on Proof of Work, not Proof of Stake.
