What Is Crypto Staking? What You Need To Know In 2024

The crypto market offers numerous possibilities to users looking to profit. During the early days of the market, crypto trading, holding, and mining were the three most popular profit-taking methods. However, during the last couple of years, crypto staking has become an innovative way to make your crypto work for you. 

With staking, users can earn an annual percentage yield (APY) on specific cryptocurrencies just by holding them in their private wallet, crypto exchange account, or on a DeFi platform. The more crypto you stake, the more you’ll earn over time. 

In this guide, we’ll look at crypto staking, how it works, and some of the most popular digital currencies you can stake. 

The Proof-of-Stake Consensus Mechanism

In order to understand how crypto staking works, we must first explain the Proof-of-Stake (PoS) blockchain consensus mechanism. The first digital currencies, such as Bitcoin (BTC) and Litecoin (LTC), used the Proof-of-Work (PoW) mechanism, which was based on crypto miners who acted as decentralized network nodes. 

On PoW blockchains, the miners process and approve transactions and later receive block rewards for their work. Miners spend huge amounts of computing power to find the right hash for each transaction and consume a lot of electricity in the process.

The PoS mechanism is quite different. Proof-of-Stake blockchains also use decentralized network nodes, but they don’t have to mine crypto. Instead, PoS node operators have a stake in the network’s operational mechanism. The nodes stake the blockchain’s native cryptocurrency and agree to verify and process transactions. 

Network nodes receive staking rewards from the transaction fees and distribute the coins to all users who are staking crypto through that specific node. The staking rewards are distributed in proportion to the number of coins a user is staking. 

In case a node validates a fraudulent transaction, it would lose all of the staked coins. This is what makes PoS blockchains so secure because no node operator would agree to risk their holdings. Nodes are encouraged to increase the number of coins they are staking and receive higher rewards. 

PoS blockchains consume a fraction of the energy associated with PoW cryptocurrencies because they don’t need huge amounts of power to validate transactions. 

Crypto Staking

Crypto staking leverages PoS technology to offer individual crypto enthusiasts the possibility to grow their crypto portfolio just by holding coins.

In order to become a node operator, most PoS blockchains have some sort of staking threshold. For example, Ethereum (ETH) requires node operators to deposit 32 ETH, which is quite a lot if we take into account that ETH’s price fluctuates between 1,300 and 1,700 USD per coin. 

That’s why various crypto exchanges, DeFi platforms, and crypto wallet providers run network nodes and allow individual users to stake ETH through their platforms. This is how millions of crypto enthusiasts gain exposure to crypto staking without any significant upfront investment. 

Crypto staking has become very popular because it allows users to start earning APYs with just a few clicks, but you should always be careful when choosing where you stake your crypto. It’s best to choose a reputable staking provider with a huge number of satisfied users.

It’s also very important to never trust platforms that promise unrealistically high staking returns. The usual staking rate for most PoS cryptos is between a few percent to a little over 10 percent. Platforms that promise returns of several tens of percent or even more are probably scams or Ponzi schemes that pay out initial investors from the later investors’ money and then collapse at one point.

The Role of Staking Pools

Staking pools are a vital part of the crypto staking process because they allow millions of small-time investors to earn staking rewards. You can search the web manually for staking pools that deal with specific cryptocurrencies, but it’s always better to join staking pools operated by reputable crypto platforms or decentralized apps (dApps). 

Your staking pool is the validator node you use to stake coins and earn rewards. Different staking pools can have dramatically different staking rewards for the same cryptocurrencies. If you browse the web for Cardano (ADA) staking options, you can find some platforms that offer a 2% APY, while some others offer as much as 5% rewards. 

This difference in APYs is due to the fact that staking pool operators charge different fees. That’s why you should always explore multiple platforms and apps to find which one offers the best APY. However, if you’re choosing between a popular platform with a lower APY and an unknown app with a much higher APY, you should always go with the more popular, reliable platform to avoid possible security risks.

Staking Benefits

Crypto staking has several key benefits. Staking is a great way to profit from your idle crypto. It’s much better to earn a steady APY on some of your crypto holdings than to just keep coins in your wallet, hoping their price will increase over time. If the price does increase, you’ll benefit even more because the amount of your coins is constantly increasing. 

Unlike crypto mining, which is very expensive and requires a lot of maintenance, staking doesn’t require any additional investment besides buying some PoS-based crypto coins. Also, staking is eco-friendly because there’s no massive energy consumption involved in the process. 

Finally, crypto staking benefits the blockchain because you’re helping process and verify transactions with your stake in the network. When staking, you’re participating in the network’s normal functioning, and you’re earning a portion of the transaction fees in return.

Staking Risks

Although staking is a great way to earn crypto and participate in a blockchain’s everyday operations, it isn’t without risks. Cryptocurrencies are extremely volatile assets and their prices are known to change dramatically over a short period of time. This means that in extremely volatile market periods, you might miss a chance to take profits from selling your crypto if you decide to keep it staked. 

During bear market cycles, when the prices of most cryptocurrencies are going down, your staked coins might lose a huge portion of their value, and you might end up with a bunch of staking rewards that have really low value. 

Also, many staking services require users to lock up their crypto for a certain period of time before allowing them to withdraw their initial deposit and staking rewards. During the lock-up period, you can’t manage your crypto, and in case it starts to lose value rapidly due to high market volatility, you can only watch and wait for the lockup period to end.  

Popular Cryptocurrencies for Staking

The Proof-of-Stake blockchain mechanism has become the most popular consensus model in crypto thanks to its low energy consumption and high scalability. PoS blockchains have huge transaction processing capacity and high transfer speed. That’s why there are numerous popular PoS cryptocurrencies that you can stake and earn an APY. 

Here are some of the most popular cryptocurrencies for staking.

Cardano (ADA)

Cardano (ADA) is one of the most popular PoS digital currencies on the market. This innovative blockchain was launched in 2017 by Charles Hoskinson, a former Ethereum co-founder, and a team of dedicated blockchain experts.

Cardano is specific because of its scientific peer-review development approach that requires each network upgrade to go through extensive trials and internal check-ups before it’s released publicly. 

The project is focused on smart contract functionalities that allow developers to build all sorts of platforms with the help of the Plutus and Haskell programming languages. Cardano has one of the fastest-growing ecosystems of decentralized applications across various sectors, from DeFi platforms and decentralized exchange platforms (DEXs) to NFT markets and numerous native tokens.

Cardano is often referred to as an Ethereum killer because it offers similar services to those of ETH, however, ADA is much faster and more scalable. 

Ethereum (ETH)

Ethereum (ETH) was originally the second-largest PoW cryptocurrency on the market, right behind Bitcoin. However, after the Ethereum Merge event in September of 2022, Ethereum shifted to a Proof-of-Stake network architecture. This move dropped the Ethereum power consumption by more than 99 percent and introduced ETH staking possibilities to millions of users across the globe. 

Ethereum is the largest dApp-development blockchain ecosystem on the market, but it’s much slower than many other PoS cryptos that process transactions in a matter of seconds. An Ethereum transfer takes up to 5 minutes, and the GAS fees are much higher compared to other cryptos.

Ethereum’s main advantage is that it has a huge market capitalization and is firmly established as the second-largest crypto on the market.

BNB (BNB)

BNB (BNB) is the official cryptocurrency of the Binance crypto ecosystem. Binance is primarily the largest cryptocurrency exchange platform on the market, but it also has its own blockchain, the BNB Chain, based on a PoS mechanism.

The BNB chain is very practical for launching dApps and crypto tokens. That’s why there are thousands of tokens that use the BNB chain, and they all pay transaction fees in the chain’s native coin, BNB.

BNB is ranked among the top 10 cryptocurrencies according to CoinMarketCap and has a market capitalization higher than numerous other popular coins combined. You can stake BNB on Binance, along with numerous additional BNB-based tokens.

Binance offers a broad range of staking possibilities, liquidity pools, and DeFi yield-generating options for BNB holders. Also, if you stake BNB on Binance, you get trading fee discounts. 

Avalanche (AVAX)

Avalanche (AVAX) is an extremely fast and highly-scalable blockchain with a special focus on smart contracts and DeFi platforms. Avalanche is very young. The blockchain was launched in 2020 and quickly became one of the fastest-growing networks for DeFi protocols. Avalanche allows users to stake the native AVAX coin and a broad range of additional tokens built on top of the Avalanche blockchain. 

Avalanche hosts numerous decentralized apps that provide users with DeFi services, such as yield-farming, crypto loans, staking, and liquidity mining. The Avalanche blockchain consists of three chains that divide the workload among themselves, which is why the network can process around 4,500 transactions per second.

One of the key reasons why Avalanche is popular among developers is that it allows them to easily create their own blockchains with custom operational mechanisms.

Solana (SOL)

The Solana (SOL) blockchain is another highly popular PoS network launched in 2020. It uses a decentralized network architecture capable of processing a staggering 50,000 TPS. However, these numbers are only theoretical because Solana still doesn’t have that many active users, but it efficiently processes thousands of transactions per second. 

The SOL blockchain has various smart contract functionalities that make it great for launching decentralized apps of all sorts, but the main focus of the Solana dApp sector is on NFTs. Solana is becoming a much cheaper alternative for launching NFTs compared to the high transaction fees on Ethereum.

Users can stake Solana across numerous exchange platforms and wallets. Solana is an especially popular crypto for staking because SOL staking rewards are quite high, between 5 and 8 percent.

Conclusion

Unlike crypto mining, which is reserved only for users who can afford expensive mining hardware, crypto staking is available to anyone with some PoS-based coins.

Many crypto exchanges allow users to start staking crypto with as little as a few US dollars worth of coins. The low entry barrier and the high-quality blockchains that support this feature make staking incredibly popular. 

With crypto staking, users can earn crypto without any additional investments or huge amounts of electricity. However, crypto staking also has its risks due to the high volatility of the crypto market, which might considerably lower the fiat value of staked coins and tokens if you’re not being careful.