What Is Staking In Cryptocurrency And How Does It Work? A Staking Guide

FinanceFeeds Editorial Team

The ways one can navigate the world of cryptocurrencies keep expanding. Whether you are new to the game, or a full-blown expert, crypto staking may still be the way to go. We’ve prepared your ultimate staking guide with everything you need to know.

The ways one can navigate the world of cryptocurrencies keep expanding. Whether you are new to the game, or a full-blown expert, crypto staking may still be the way to go. We’ve prepared your ultimate staking guide with everything you need to know.

What is crypto staking?

Staking is a way for traders or investors to earn rewards by holding onto certain cryptocurrencies over a period of time. It’s about committing to a blockchain network by locking a portion of your crypto assets, and eventually earn more cryptocurrencies in return for your staking in an exchange.

Staking is only available for cryptocurrencies that actively use the proof-of-stake model. Some of those cryptocurrencies include Ethereum, Cardano and Solana.

Here’s a step by step guide on how to go about crypto staking:

  • You need to buy, and therefore invest, in a cryptocurrency that uses the proof-of-stake model. For example, Ethereum, Cardano and Polkadot are such cryptocurrencies that validate transactions with proof-of-stake.
  • Once you buy your cryptos, you may need to move your assets to a crypto or blockchain wallet, which is a secure way of storing your cryptocurrencies.
  • Many crypto traders opt to combine their assets in the so-called staking pool, which advances their chances of earning crypto staking rewards in the long-term. When choosing your staking pool, it’s best to consider the size, reliability and fees added on each time, so you can choose the one that will work best with your strategy and goals.
  • Once you’ve selected a staking pool, then you simply stake your cryptos through your crypto wallet.

What are the benefits of staking in crypto?

  • Stakers can earn an interest, especially through an exchange, which can offer them additional rewards through tokens
  • Staking is less resource-focused, meaning investors require less resources
  • Staking allows for more transparency within the blockchain, which means that it gives stakers more inclination as to how certain cryptocurrencies will act up next
  • Staking requires little effort, instead of constant attention, so you can keep investing and have a solid night’s sleep

What are the risks of staking in crypto?

  • The volatile nature of cryptocurrencies is key, as it means you may need to keep rethinking your strategy due to the unpredictable price swings
  • Beware of lock-up periods: although you can lock your crypto holdings for further rewards, it also means you won’t have access to them for some time and may get a penalty if the system ends up not working as you expected it to. That’s called ‘slashing’.

Risk Warning: Cryptocurrencies are highly volatile and trading can result in the loss of your invested funds. Before investing you should be aware that cryptocurrencies may not be suitable for all investors. You should therefore carefully consider whether trading or holding digital assets is suitable for you in light of your financial condition and not invest money that you cannot afford to lose.

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