Cryptocurrencies are gaining popularity because of the widespread belief that they may help to earn money faster. Of course, it is not that simple and could be quite risky, but there are ways for crypto to bring its holder some tangible benefit. One of the opportunities is staking. In this article we will try to explain what it is and how to deal with it.

What is staking

Staking is a process when a user commits his/her crypto savings to support blockchain and confirm transactions. Basically, a user gives a certain amount of cryptocurrencies to the blockchain. Those who are willing to provide such a foundation are allowed to receive awards. The interest in staking varies for different projects. Usually, the rewards are given in the native cryptocurrency, however, some networks allow users to choose one of the options. Staking is possible if the network uses a Proof-of-Stake protocol to validate transactions.

Simply said, the whole process of staking may be described in several steps:

An investor stakes crypto;
The network uses staked crypto to validate a new transaction;
The investor receives a reward.

It is also important that for the investor the whole process is passive. They don’t have to decide which block to validate. The network decides on itself. Even though the term ‘staking’ is new, the concept is well-known. It is very similar to depositing money and getting a percentage each year.

One of the key ideas of staking is that the whole amount of staked crypto remains in the possession of its owner. In most cases, it can be unlocked anytime the owner wants. Unstaking process can take some time, but it can be initiated whenever needed.

How to stake crypto

Choose a Proof-of-Stake type of crypto, for example:

Ethereum (ETH)

Cardano (ADA)

Polkadot (DOT)

Cosmos (ATOM)

Solana (SOL) etc.
Purchase some amount of coins you would like to stake.
Find a staking program on the official website.

Pay attention to the details, such as if there is a period when you are unable to use staked coins, how many coins you need to own in order to stake, what are the rewards, and how the possible future of the coin looks.
Or participate in a staking pool.

Staking pools just like mining pools allow crypto holders to combine their powers. Staking pools take all the technical responsibility for the staking, however, participants usually get lower rewards in comparison to individual stakers.

Perspectives

Staking has a number of significant benefits.

Easy passive income.

This is the essential benefit that may attract more people and thus provide better support for the network.
Environmentally friendly.

Recently the community is showing concern about mining's influence on the environment. Proof-of-Stake cryptocurrencies do not require mining and, thus, get more support from a part of the community.
No special equipment required.

Unlike mining, staking does not make users purchase expensive hardware. It makes the whole thing more available.

Drawbacks

However, everybody should know about the flipside of staking. As any other way of making money, it has some risks.

Chances that the protocol or exchange can be cyber attacked or hacked. Some investors prefer staking on hardware wallets because of this.
Coin’s value can unexpectedly fall. Taking into account the volatility of the crypto market, it could happen any time. And if investors' coins are locked up in a staking period, they won’t be allowed to withdraw them.
The nodes of the validator which is holding the tokens could be penalized. It could occur if they are not upholding 100 percent uptime in processing transactions.

However, considering all the possible risks, looks like the interest for staking will grow with time, as people are actively searching for ways to create some passive income.

SimpleSwap reminds you that this article is provided for informational purposes only and does not provide investment advice. All purchases and cryptocurrency investments are your own responsibility.

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