What is crypto staking, and how does it work?

Staking cryptocurrency is a popular way to earn passive income with your digital assets, even without selling them. According to recent statistics, the total value of crypto staked already exceeds $280 bln. Let’s look inside this trend to understand how it works and why it attracts many users.

Crypto staking explained

Staking crypto tokens can be imagined as putting funds in a high-yield savings account when the bank pays you interest for lending your money to others. But in crypto, you stake your digital assets to participate in blockchain maintenance and receive rewards.

How does it work?

Staking is only possible in blockchains that use the proof-of-stake protocol. Users pledge their coins, and the protocol chooses validators to confirm blocks of transactions. The more coins you pledge or stake, the more likely you are to be selected as a validator. Each time a block is added to the blockchain, new coins are minted and given as a staking reward to that block’s validator.

Coins to stake

Correspondingly, users can stake only cryptocurrencies based on the proof-of-stake blockchains. Those are Ethereum, Cardano, Solana, Polkadot, and some others.

Staking rewards

The returns from crypto staking are usually much higher than in traditional banks, which attracts so many users. The average staking reward surpasses 11% annual yield. For example, it’s almost 14% for Polkadot but only 4% for Ethereum.

Is staking crypto worth it?

Staking indeed can generate significant income over time. But this method isn’t suitable if you are looking for a quick profit. Still, If you decide to try staking, you need to consider those risks:

1. Most tokens are volatile, so drops in their price can easily outweigh the rewards you earn.
2. Some coins require a minimum lock-up period, during which you cannot withdraw your assets from staking.
3. Staking pools can be compromised and stolen, resulting in a total loss of your staked coins.

As you see, staking is another exciting option to earn with your digital assets. It’s a long-term investment, but it’s less stressful and risky than standard trading on the exchange.