Cryptocurrency staking: what is it and what is it for?

Everything you need to know about cryptocurrency staking

With the continued growth of the cryptocurrency market in the United States, many investors have been looking for alternative ways to generate passive income with their digital assets. Among the most popular options is cryptocurrency staking, a practice that has been gaining traction as proof-of-stake (PoS)-based blockchain networks become more common.

But what exactly does staking mean and what is the purpose of this practice? Come with us to learn all the details about this subject! Let’s go!

What is staking?

Staking is the process of “locking” or delegating your cryptocurrencies in a wallet or platform to support the operations of a blockchain network. In return, participants receive rewards, usually in the form of the cryptocurrency itself.

This practice is only possible in blockchains that use the proof of stake consensus mechanism, such as Ethereum, Cardano, Solana, Polkadot, among others.

Unlike the proof-of-work model, which requires large computational capacity to validate transactions, staking allows anyone with a certain amount of coins to participate in the security of the network and receive rewards for doing so.

How does it work?

To understand staking, it’s important to understand the role of the validator. In PoS networks, validators are responsible for confirming transactions and adding new blocks to the blockchain.

When you stake, you are essentially “voting” on which validators should perform this role, or becoming one directly if you have enough resources.

In the case of blockchains like Ethereum, you need 32 ETH to operate a full validator.

However, platforms like Coinbase, Kraken, Binance US, and others allow you to participate in staking with smaller amounts, through what is called delegated staking. This makes the process accessible to the average American investor.

What is staking for?

In addition to the possibility of generating passive income, staking plays a fundamental role in the security and decentralization of the network.

By staking your coins, you help ensure that transactions are validated correctly and that the blockchain continues to function efficiently and securely.

The rewards received are a way of encouraging more people to contribute to the network’s resources. In some cases, these rewards can range from 3% to 20% per year, depending on the currency and the platform chosen.

What are the benefits cryptocurrency staking?

The main advantage of staking is that you earn rewards simply for keeping your crypto “locked” in a platform.

For many investors in the US, it’s similar to investing in dividends or an interest-bearing savings account.

By participating in staking, you help keep the blockchain network stable and secure, encouraging a more decentralized ecosystem.

With exchanges and apps that facilitate delegated staking, anyone with internet access can get started, even with a modest amount of money.

What are the risks of this investment?

Despite the advantages, staking is not free of risks. Some of the main risks include that staking rewards are paid in the cryptocurrency itself, which means that the appreciation or depreciation of the asset can impact your real returns.

In addition, some currencies require a minimum period in which their assets are “locked” and cannot be traded or transferred.

Finally, if a validator behaves inappropriately or dishonestly, the participants who delegated to them may suffer penalties, losing part of the staked funds (a phenomenon called slashing).

How to get started?

If you live in the United States and want to start staking, the first step is to choose a reliable platform. Some of the most popular options include:

• Coinbase: One of the most popular exchanges in the US, it allows staking of Ethereum, Tezos, and other coins directly on the platform.

• Kraken: Also supports multiple coins and offers educational tools for beginners.

• Ledger + Lido: For those who prefer to store crypto in physical wallets, Ledger allows integration with services like Lido Finance, which facilitate decentralized staking.

In addition, it is essential to check the fees charged by the platform, the lock time, and the reputation of the validators before delegating your coins.

Cryptocurrency staking is an interesting alternative for those looking to make a profit from their digital assets in a relatively simple way.

For investors in the United States, who already have access to several regulated platforms, this practice can be a complementary strategy within a crypto portfolio.

However, as with any investment, it is essential to fully understand the risks and study how the networks you intend to participate in work.

With information and caution, staking can be more than just a trend: a new way to earn money with crypto in the long term.

Written by

Juliana Raquel