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Ask CryptoVantage: What is Staking and What Cryptos Support it?
Whether you are new to the cryptocurrency market, or an experienced trader, you have likely heard of staking.
But what is staking and how does it work? Is it worthwhile in order to generate passive income? What cryptocurrencies can you stake? We will answer all of those questions in this edition of Ask CryptoVantage.
What is Staking?
When looking at staking we first have to understand a proof of stake consensus mechanism. A proof of stake consensus mechanism means that the amount of power you hold depends on the amount of the asset you hold. This is in contrast to a proof of work mechanism, such as Bitcoin’s, where the amount of power you hold depends on how much computing power you can pay for.
In a proof of stake system, users are rewarded an amount of the crypto they are staking in exchange for securing and validating transactions on the network, and in proportion to the amount held by the user.
Staking is then the process of taking your crypto assets and using them to help validate the network, whether as a validator yourself or though delegating your stake to a bigger pool operator.
For example, Cardano (ADA), uses a proof of stake mechanism. Users can choose to be a pool operator, meaning they run the node and can receive other users’ Cardano through a delegation, or a delegator, meaning they turn their voting power over to someone else but still own their ADA.
In order to be a pool operator for Cardano, there is no minimum you need to stake, however it attracts more users to your pool when you have more of a stake in the pool because then your actions affect more than just others’ funds. In contrast, Ethereum requires you to stake at least 32 ETH to be a validator on their network, which is currently over $54k US.
Delegating a stake allows you to receive rewards for your contribution without the necessity of knowing how to run a pool and the technical things that would require and is often the best choice for crypto holders. You will still need to do due diligence on the pool you are staking to, and also keep up to date on how the pool operates once you have joined so you know your stake is being used to your liking. When staking your assets never leave your wallet, if you are being asked to send your funds to someone in order to stake it is a scam. There is simply a delegation transaction fee.
What Cryptocurrencies Support Staking?
There are currently 157 cryptocurrencies that support staking, here are some of the ones with the best returns per year:
- Polkadot (DOT)
- Cardano (ADA)
- Synthetix (SNX)
- Ethereum (ETH)
- Avalanche (AVAX)
- Tezos (XTZ)
- Algorand (ALGO)
- Eos (EOS)
- Cosmos (ATOM)
- Tron (TRX)
For a full list of cryptocurrencies that can be staked and their estimated rewards, please visit stakingrewards.com
Passive Income?
At this point you are likely wondering if staking cryptocurrencies is a good way to generate passive income. The answer is yes, as long as you can afford to do so. Many staking assets pay out an annual reward of around 5%, which is much better than you can get from a traditional bank. In addition, there are crypto lending platforms where you can get as much as 12% for lending specific assets, though it should be noted this is not staking as you will have to actually lend them the funds.
