Staking is one way of earning passive income using cryptocurrencies. It has been gaining fast popularity and has been widely used by blockchain networks due to controversies involving mining, particularly of BTC (bitcoin). Ethereum, the king of altcoins, has even shifted to proof-of-stake from proof-of-work as its consensus mechanism with its ETH 2.0 upgrade. And this opened an opportunity for ETH holders to participate in the network’s staking. But what is staking and how does it work?
Staking is committing a specific number of cryptocurrencies to a blockchain network to facilitate and validate transactions. It also prevents possible frauds and errors in the network. In return, by locking up their assets, users are incentivized with cryptocurrencies. The more digital assets you delegate, the more rewards you get.
ETH 2.0 initially required 524,288 ETH to trigger the genesis of the “Beacon Chain”. But according to a report by Finance Magnates in November 2021, a total of 8.3M ETH is already staked. ETH (ethereum) price is only at $600 when the 2.0 staking was launched but has already increased by more than five times its previous price. The initial lock-up period is 18 months and the upgrade is expected to be completed by Q2 of 2022. Imagine if you were one of those who joined during the first stage of the staking, your Ethereum could have increased by 5 times in value now. And on top of that, you could have been receiving the digital asset as a reward. But there are other means to join another staking from other networks. And in case you missed the ETH staking, you may join it using other means. How? Let’s now discuss how and where can you stake your crypto assets.
Basically, there are 3 ways to stake your crypto assets. What are these?
- You can stake through exchanges
Crypto trading platforms like Binance offer locked staking of certain crypto assets with a duration that may vary from 30 to 90 days. The APY may vary depending on the total number of crypto assets and the duration it will be staked.
- Participate in pools
You can also participate in pools to stake your cryptocurrencies. To do this, you may visit websites of blockchains that offer staking to get a copy of their validators. In this case, you need to choose the validator with a high reputation to secure your virtual assets and to guarantee profit. Also, you need to check details on the fees that they collect.
- Be a validator
If you have enough available funds, you may choose to become a validator. But setting up could be a little costly though since you need to invest in computing equipment and software. Also, you need to download a copy of a blockchain’s entire transaction history. On top of that, you also need to provide the total number of tokens required for a validator. Like in the case of Avalanche, to be a validator, you need to have at least 2,000 AVAX (Avalanche) and with its price of $72.38, you need to shell out $144,760.
For crypto traders, staking can also offer refuge whenever a market crash happens. You earn a reward by committing your crypto assets and at the same time, it protects you from emotional distress that might result in sell-off at your end. You can delegate your assets while waiting for prices to recover.
As the number of blockchain networks that utilize proof-of-stake as their consensus mechanism, the opportunity to stake cryptocurrencies will also continue to grow. ETH killers like Solana, Polkadot, Cardano, and Avalanche have used proof-of-stake from their genesis. The growth of these networks will create a high demand for stakers and validators which will further establish staking as one of the lucrative investments in the crypto market today. But even staking comes with risk. What are the possible risks of staking? We are going to discuss that in our next article.
