Crypto Staking: A Form of Bonus or Investment?
An online bonus is certainly a very appealing concept. If we tell you right now that you can get a bonus, we’re pretty certain you’ll jump on to the opportunity. It’s only normal to do so. Among all the areas where you can actually do that, crypto is one of the least appreciated ones.
It’s understandable though. The term “crypto” might be thrown around a lot in the modern world but very few people understand what it is and what benefits it can bring to the table. Even a lot of you who are actively involved with the paradigm may know that the industry offers bonuses too.
We’ve already gone through a detailed discussion of what crypto bonuses are and how they work. If you haven’t read that already, maybe you should take a peek there first. Among the many types, one was crypto staking.
This guide is dedicated to that practice. We’re going to set it up from top to bottom so that you can get right into it after you’re done reading.
What is Crypto Staking?
We know that we’ve brought you here with the promise of getting bonuses. In reality, crypto staking has nothing to do with a bonus. However, the purpose behind a bonus is to get additional value. That’s exactly what staking does for you.
The term itself is pretty self-explanatory. You “stake” the assets and you get a higher return. It’s more of an investment process than getting a quick bonus. It starts with you having crypto to spare in the first place.
To simplify things, you can think of crypto staking as putting a sum of money in a savings account at your bank. Savings accounts usually have the highest return on investment, as interest. You get a fixed rate on a monthly or annual basis.
And when you stake your crypto assets for a fixed period, you get additional coins than you initially had. Same thing, right?
Well, not really. While the end result of both practices is the same, the process is not even similar.
The banks give you interest on your savings because they can use the money for investments. They may use it to disburse loans, buy stocks, and whatnot. They’re sparing a portion of what they’re making using your money as interest.
With crypto, it’s not possible. Your coins are being used for other investment purposes. Rather, they’re being used to keep the blockchain functional.
So, the question is, how can you start staking your assets? How does the whole thing work? To understand that, you first need to understand the concept of Proof of Work (PoW) and Proof of Stake (PoS) consensus systems.
Proof of Work vs Proof of Stake
Before we can get into the idea of staking existing assets, you need to know whether your coins are compatible with the process or not. It’s determined based on whether the blockchain uses Proof of Work or Proof of Stake consensus. Let’s do a comparison of the two.
Proof of Work
This is the consensus algorithm 1st generation blockchains use. Namely, Bitcoin. The goal here is to solve complex cryptographic problems using raw computing power. So, it’s essentially a competition of how powerful of a machine you have.
You might be familiar with ASICs. It stands for Application Specific Integrated Circuits, primarily designed for Bitcoin mining. The development of ASICs is a direct result of the Bitcoin blockchain being too power-hungry for regular computers.
The Proof of Work consensus as a whole is very inefficient and takes a lot of resources to succeed. Simply put, the most powerful machines will win the race. When that happens, the machines get access to the next “block” and coins as rewards. So, if you want to make money through this process, you need to spend a ton of money beforehand making the appropriate rig.
Also, the concept of “staking” is completely missing from this paradigm. So, all the coins that use the Proof of Work consensus are automatically disqualified. The main way to make money using these platforms is to mine your own coins and sell them for profit.
Proof of Stake
From what you’ve read in the previous section, it should be apparent that proof of work is not the ideal way to get into the crypto industry. Maybe back in the day when it first started, it was viable thanks to low competition. In this day and age, it’s nearly impossible.
That’s where the Proof of Stake consensus comes into play. It completely cuts out the unhealthy competition between the nodes. The result is a lot of saved money and energy.
The Proof of Stake consensus creates a coherent and user-friendly process where you can “stake” your assets to keep the blockchain up and running. By “up and running”, we mean participating in the validation process of the transactions.
It’s crucial because the goal of blockchain technology is to maintain decentralization. It means no single entity is able to take over the network. It also means that multiple entities must always be working to keep the paradigm running.
When you stake your assets, you actually have something at stake. It might sound like a play on words but it's not. In the PoS consensus, if you try to forge a transaction or upload any other type of fraudulent data, you will lose your assets, either partially or entirely.
This is the primary motivation of the Proof of Stake consensus to keep the blockchain running. Also, only blockchains that use the PoS system will let you stake your coins and make money off of them.
So, How Does Crypto Staking Work?
If you’re planning to stake crypto to make some profits, it means you already have some in your possession. It also means you have a crypto wallet that holds coins for you. On paper, that’s pretty much all you need to start staking.
However, there will almost always be a minimum number of coins that you need to stake. Also, you’ll need to stake your assets for at least a few years to generate a worthwhile return on that.
Ethereum is one of the most used blockchains for staking in the world right now. If you go to the website and check the requirements, you’ll notice that you need at least 32 ETH tokens to start staking. At the time of writing, that’s well over C$72,000!
So, the question is, are you willing to stake such a massive amount of money for over 2 years, while not knowing how much you can actually make in the process? Also, there’s always the risk of losing money if the value of ETH tokens goes drastically down.
These are hard facts that discourage a lot of first-time investors from participating in staking. If you’re feeling the same way, please don’t. Crypto exchanges and various staking pools have come out in the last few years to solve all of these problems.
Staking pools are practically lifesavers for people with a small accumulation of assets. There are plenty of communities packed with P2P validators who share their resources to match up to the platform’s requirements.
For example, if 32 people come together with 1 ETH each, that entire pool can participate in the staking process. Moreover, the members can be switched out from time to time which results in shorter commitment times.
The challenge, in this case, is finding the right staking pool with trustworthy individuals. There have been plenty of scam reports of investors losing everything they had on these staking pools. An exchange, on the other hand, is much safer.
Crypto exchanges take the guesswork out of finding the right staking pools. They take care of the backend work on the blockchain. You get a very nice interface where you can decide how much you want to stake and for how long you want to stake. Not only that but they also give you a somewhat accurate assumption of how much you can expect in return.
This is represented as APY values which stands for Annual Percentage Yield. Most reputed exchanges offer between 4% to 7%. Of course, that depends on what token you’re trying to stake and what the overall status of the industry is.
At the end of the day, manual staking pools and crypto exchanges’ staking features do the same thing. You get a more organised and safer environment on one over the other.
Is Crypto Staking Safe?
Before we get into the step-by-step process of how you can get started with crypto staking and make money, we believe it’s only fair that we state the risks associated with the practice. Many platforms will try to upsell staking by promising many things. All of them can be true if you’re willing to put up with the risk as well.
The biggest risk, in this case, is the volatility of the crypto industry. As no governments or financial institutions are regulating the industry, there’s no way to predict when the price of the tokens may increase or decrease. If it decreases significantly while your tokens are locked away, it can negatively affect your portfolio.
The latest example we can think of is the Terra Luna crash. This has been the biggest crash in the recent history of the crypto industry. Millions of investors lost billions within moments.
Another big area of risk is hacking of the staking pools. You’re relatively safer when you’re using crypto exchanges but there’s no way to guarantee 100% safety in any way. There’s always smarter than the cybersecurity professionals at the exchanges, somewhere in the world.
Last but not least, the vesting period. Well, this is not really a risk but a by-product of staking your tokens. The vesting period is the time when your crypto tokens are “locked”. Meaning you can’t transfer them, exchange them, or do anything that may impact their value. As it’s triggered via the smart contract of the pool, you can’t manually change it until the vesting period is over.
This is why we always recommend investing money that you can afford to lose, at least when it comes to the crypto industry. It’s simply because if you suddenly need money for a medical emergency or similar, you won’t be able to access your assets.
At the same time, if the price of your locked token starts to rise rapidly, you won’t be able to sell it at the right time to make the biggest possible profit. Sure, the returns you generate will be better as your overall portfolio will increase in value. But chances are you won’t be able to see or touch that value.
How to Start Staking?
The prerequisite to stake crypto is to have crypto in the first place. However, it doesn’t mean that you can’t be a part of the process just because you’re a newcomer. It’s just that you’ll need to go through a few additional steps. Let’s go over them quickly.
Open a Crypto Wallet
To hold your tokens as well as to house your profits in the future, you need a crypto wallet before anything else. Right now, there are 2 main types of wallets you can get. The software wallets and the hardware wallets.
Software wallets are easy to use and cost-effective compared to a hardware wallet. However, they do have more areas for compromise. For example, when you connect the wallet to the internet, you may fall victim to a hacking attempt. A hardware wallet, on the other hand, is isolated from the internet which automatically makes it safer.
Whatever your preference is, get a wallet. If you’re thinking about staking Ethereum, Metamask is by far the best option. If you want to dive into the colourful world of NFTs in the future, the same wallet can support that too!
Buy Some Crypto
Since the very beginning of our guide, we’ve been stating that you need to have crypto in the first place to stake it. If you’re not mining and no one can send some to your wallet, that narrows your option down to buying them at exchanges.
Thankfully, all major crypto exchanges in the world offer crypto tokens for fiat currency. It means you can connect your credit/debit card or even wallets to buy crypto.
Choose the Staking Platform
At this point, you’ll need to decide whether to go with staking pools or exchanges. If you ask for our opinion, our vote goes with an exchange. It’s simpler to use and it’s safer. You get more parameters under your control.
Near the end of this guide, we’re going to briefly review a few of the top exchanges you can use in Canada. So, stay tuned for that.
Choosing the Tokens to Stake
As we’ve already mentioned, not all existing crypto tokens are eligible for staking. It means you’ll need to do a deep dive before you can actually make some money. But let us make the process a little easier for you. Currently, Ethereum (ETH), NEAR Protocol (NEAR), Tezos (XTZ), Cardano (AZA), Solana (SOL), and Polkadot (DOT) are the most popular.
Benefits of Staking Crypto
At the end of the day, you’re participating in something in the hopes of getting some benefits, right? So, what benefits does crypto staking bring to the table? As we’ve already covered the risk, it’s only fair to flush out the benefits too!
Excellent Source of Passive Income
The whole process of staking is passive. The active practice would be buying and selling the crypto tokens, also known as trading. You’re not trading your tokens. Rather, you’re using them to increase their value. What better example is there of passive income?
Easy to Understand
Trust us when we say this, if you really want to be involved with the crypto industry without getting too much into the technicalities, it doesn’t get any better than staking. If you actively want to build your portfolio and make some serious changes to your life with the profits, you’ll need to get into the dirty water just like every other enthusiast out there.
It can result in years of practice, knowing how to programme by heart, and losing a lot first before you can finally start profiting. If you’re not ready to go through the turmoil, stick to crypto staking.
In one of our previous sections, we said that staking helps the blockchain remain functional. And we mean it. From what we’ve seen, if a crypto project can sustain the initial years, the price of tokens goes up pretty rapidly. All previous crypto booms give us the same pattern.
So, when you’re staking, you’re actually supporting the blockchain. The more you stake and the more people there are who are like you, you can make your preferred crypto projects successful!
The Best Crypto Staking Platforms
As promised, we’re going to help you figure out what crypto exchanges or staking platforms to choose. In this section, we’re going to list the most viable options currently available in Canada.
Kraken is one of the most used platforms all over the world for crypto staking. Ethereum, Solana, and Cardano, to be precise. It offers APYs between 4% and a whopping 23% depending on what crypto you choose. Newer tokens have a relatively higher APY. One of the main benefits of Kraken is that you can unlock your assets anytime you want!
In the world of crypto, Gemini is a pretty renowned name. Now, you know it as a valid and safe crypto staking platform. It offers over 45 coins for staking that all use the proof of stake consensus.
Technically, Gemini is a lending platform rather than a staking platform. It means you can lend out your assets as part of the DeFi (Decentralized Finance) paradigm and earn interest payments. The APY currently is at a very respectable 4.55% on Solana.
Perhaps the most well-known crypto trading, exchange, and staking platform. It offers only 6 tokens for staking and they are ALGO, ATOM, ETH, XTM, ADA, and SOL. Unlike some other platforms, you’ll need to have a minimum number of tokens to start taking. But the limits are very user-friendly. For example, you can stake SOL as long as you have $1 worth of it.
Right after Coinbase, Binance has to be the most reputed crypto platform. The overall collection of tokens is very limited but the ones Binance has are solid. You can stake AUDIO, AVAX, BNB, LPT, and GRT. It’s a shame that you can’t stake ETH and ADA on such a reputed platform.
Last but not least, we want you to look at KuCoin, the only platform with over 50 coins for staking! It has one of the most generous APYs among all other exchanges too! For example, if you stake ETH2.0, you can expect a fixed 4.7% interest every year. Another crazy thing is that it’s one of the very few staking platforms that let you utilise tokens like USDT and USDC!
Is crypto staking worth it?
It certainly is if you make the right calls at the right times. You need to choose the appropriate token on the appropriate platform if you want to profit. Also, you need patience because all APYs are calculated annually. If you pull out early, the payouts are not going to be as good.
Can you make money from staking?
Yes, you can. The whole idea behind staking is to make money without losing any of your assets. It’s one of the safest and most efficient ways to generate passive income.
Is staking a form of bonus?
Technically, no. But if you consider the end result of crypto staking and claiming a bonus, then yes, you can consider staking as a bonus too.
What are the risks of staking crypto?
Hacking and fake staking pools are the biggest risks. Also, if the platform you’re staking on has a minimum staking period, your tokens will be locked for that time.
Can I lose crypto while staking?
Yes, you can. Take the Terra Luna crash for example. Although such drastic events barely happen in the crypto industry, they still happen.