With cryptocurrencies that use the proof-of-stake model, staking is how new transactions are added to the blockchain.
First, participants pledge their coins to the cryptocurrency protocol. From those participants, the protocol chooses validators to confirm blocks of transactions. The more coins you pledge, the more likely you are to be chosen as a validator.
Every time a block is added to the blockchain, new cryptocurrency coins are minted and distributed as staking rewards to that block’s validator. In most cases, the rewards are the same type of cryptocurrency that participants are staking. However, some blockchains use a different type of cryptocurrency for rewards.
If you want to stake crypto, you need to own a cryptocurrency that uses the proof-of-stake model. Then you can choose the amount you want to stake. You can do this through many popular cryptocurrency exchanges.
Your coins are still in your possession when you stake them. You’re essentially putting those staked coins to work, and you’re free to unstake them later if you want to trade them. The unstaking process may not be immediate; with some cryptocurrencies, you’re required to stake coins for a minimum amount of time.
Staking isn’t an option with all types of cryptocurrency. It’s only available with cryptocurrencies that use the proof-of-stake model.
Many cryptos use the proof-of-work model to add blocks to their blockchains. The problem with proof of work is that it requires considerable computing power. That has led to significant energy usage from cryptocurrencies that use proof of work. Bitcoin (CRYPTO:BTC) in particular has been criticized over environmental concerns.
Proof of stake, on the other hand, doesn’t require nearly as much energy. This also makes it a more scalable option that can handle greater numbers of transactions.
Staking cryptocurrency may seem a little confusing the first time around, but it’s a simple process once you get the hang of it. Here’s how to stake crypto step by step:
As previously noted, not all cryptocurrencies offer staking. You need a cryptocurrency that validates transactions with proof of stake. Here are a few of the major cryptocurrencies you can stake and a little bit about each one:
Start by learning more about any proof-of-stake cryptos that catch your eye, including how they work, their staking rewards, and the staking process with each one. Next, you can look for the crypto you want and buy it on cryptocurrency apps and exchanges.
After you buy your crypto, it will be available in the exchange where you purchased it. Some exchanges have their own staking programs with select cryptocurrencies. If that’s the case, you can just stake crypto directly on the exchange.
Otherwise, you’ll need to move your funds to a blockchain wallet, also known as a crypto wallet. Wallets are considered the best way to safely store cryptocurrency. The fastest option here is to download a free software wallet, but there are also hardware wallets available for purchase.
When you have your wallet, choose the option to deposit crypto and then select the type of cryptocurrency you’re depositing. This will generate a wallet address. Go to your exchange account and choose the option to withdraw your crypto. Copy and paste that wallet address to transfer your crypto from your exchange account to your wallet.
While staking can work differently depending on the cryptocurrency, most use staking pools. Crypto traders combine their funds in these staking pools to have a better chance of earning staking rewards.
Research the staking pools available for the cryptocurrency you have. There are a few things to look for here:
Once you’ve found a pool, stake your crypto to it through your wallet. That’s all you need to do, and you’ll start earning rewards.
Proof of stake in crypto is a consensus mechanism — a way for a blockchain to validate transactions. The nodes in a blockchain must be in agreement on the present state of the blockchain and which transactions are valid.
There are different consensus mechanisms that cryptocurrencies use. Proof of stake is one of the most popular for its efficiency and because participants can earn rewards on the crypto they stake.
Staking rewards are an incentive that blockchains provide to participants. Each blockchain has a set amount of crypto rewards for validating a block of transactions. When you stake crypto and you’re chosen to validate transactions, you receive those crypto rewards.
Here are the benefits of cryptocurrency staking:
The primary benefit of staking is that you earn more crypto, and interest rates can be very generous. In some cases, you can earn more than 10% or 20% per year. It’s potentially a very profitable way to invest your money. And, the only thing you need is crypto that uses the proof-of-stake model.
Staking is also a way of supporting the blockchain of a cryptocurrency you’re invested in. These cryptocurrencies rely on holders staking to verify transactions and keep everything running smoothly.