What is staking crypto?

Have you ever thought about generating so much passive income that you could forego your mundane 9 to 5? If so, you might want to explore staking crypto. This process allows investors to earn over 1,000% annually. Let’s dive deeper to find out what staking is and how much you can make through it.

Staking crypto in simple terms

What happens with your money when you put it in a savings account at a bank, or a credit union is that those institutions lock your funds. Then, they lend your money to people that need loans. In return, those financial institutions pay you cash.

Staking crypto is the same, but the return is usually much bigger than the one you receive from banks. If you stake crypto, you deposit your digital assets to validate transactions on the blockchain network.

Depositing digital assets means contributing to the health of the crypto ecosystem. Therefore, you’re rewarded if your staked crypto is chosen to create a new block. The longer you keep your coins locked, the more rewards you’ll get later.

Let’s take the Wizardia token (WZRD) as an example. Crypto enthusiasts can stake their WZRD tokens for 4, 8, or 12 months. If you stake your tokens for 4 months, you’ll receive a return of 31%. If you lock your tokens for 12 months, however, you’ll receive an outstanding 114% APY.

Source: Wizardia Twitter account

How does staking work?

Staking is possible with cryptocurrencies that use the proof of stake consensus mechanism to verify and secure transactions. Ethereum (ETH), Cardano (ADA), Solana (SOL), and Polkadot (DOT) are just a few examples of the most common coins that you can stake.

In the main, the proof of stake model means validating new blocks based on the number of staked coins. So the more coins you stake, the more chances you have to be chosen to complete the last part of a transaction and create a new block on the blockchain. When new blocks are added, participants earn rewards in native tokens, NTFs, or both. 

The number of staked coins isn’t the only important aspect, though. Coin age— the number of days the coins have been staked—also matters. As mentioned earlier, the longer you stake your coins, the more rewards you’ll get.

How to start staking?

The first step is purchasing native tokens on an exchange. Small coins might not be sold on larger exchanges, so be ready to transfer funds from one exchange to another. 

Crypto professionals often create staking pools to raise funds from a group of token holders. Finding a professional pool operator isn’t easy, but following three simple rules might help:

  1. Confirm the credibility of an operator in various sources online.
  2. Seek transparent and responsive operators – they’ll be managing your cash after all.
  3. Check the fees, as most pool operators charge for their services.

It’s also possible to run your staking pool. If you opt for this, your reward will be miles bigger. However, being an independent validator requires a lot of expertise and a hefty financial investment before you even begin staking.

First, you’ll need computer equipment with at least 8GB of RAM and 250GB of storage. Second, depending on the coin, you might need to meet minimum investment requirements. For Ethereum (ETH), for instance, you’ll have to stake a minimum of 32 ETH, which is around 1,140 USD at the time of writing this (July 2022).

How much can you make from staking crypto?

The main advantage of crypto staking is the passive income you earn by depositing your coins instead of letting them collect dust in your crypto wallet. The size of the passive income depends on various aspects, such as the cryptocurrency you stake, the staking platform, and the number of staking users (for pool users).

You may hear that people earn over 100%, but this is usually the case with smaller digital currencies. More popular coins like ETH, ADA, SOL, or DOT will generally bring a benefit of 5 to 20%. 

Summing up

Staking means earning rewards by locking up your crypto assets. The best thing is that joining a staking pool doesn’t require massive baggage of crypto knowledge or anything more than some in-depth research online.

Staking has opened up more opportunities for less-experienced crypto investors. And to finish this article with some hype, just remember that in some very rare cases, crypto enthusiasts earn more than 1,000% annually just by locking their crypto. Dope, right?