How to stake coins and generate income
Mining cryptocurrencies have become exclusive to large players who can pay for extremely expensive equipment and huge operating costs. Because of this, proof of stake has been the go-to alternative for confirming transactions and earning digital tokens.
Even if you’re not trading or mining cryptocurrencies, you can still earn passive income through a process called staking.
What is Staking?
If you hold cryptocurrencies, you can stake your coins for passive income. Staking is essentially using your coins to validate transactions. As payment for staking, you’re rewarded with additional coins like how you earn interest in bonds.
You can only validate as many tokens as you have staked. This means that the more you stake, the bigger the interest you’ll earn from the process. Joining stake pools is the best way to get chosen as a validator and obtain more coins.
If you want to establish a stake alone, you have to satisfy the minimum investment requirement. The criteria are often too high though, so it’s better to participate in group pools to collect more tokens and generate greater validating power.
Proof-of-Work vs. Proof-of-Stake
You can earn more coins by staking in cryptocurrencies that use a proof-of-stake system instead of proof-of-work. Proof-of-Stake is a consensus mechanism to validate transactions in a blockchain. In this system, nodes in the chain must agree with the present state of the blockchain, confirming which transactions are valid.
Compared to proof-of-work systems that consume huge amounts of energy to solve a blockchain puzzle, proof-of-stake is much more efficient. Smaller players also get the chance to participate and earn rewards for staking their coins. Staking also doesn’t require any equipment unlike in crypto mining.
Since any holder of the digital coin can stake their assets and earn interest almost without doing anything, it has become a popular choice for earning passive income.
How To Make Money By Staking
- Sign up
Sign up on a crypto exchange platform. The most reputable platforms are Coinbase, Binance, Kraken, and Coinex.
- Study the cryptocurrency
Study about the crypto you want to stake. Not all cryptocurrencies use a proof-of-stake system to validate blockchains, but more are using it now because of its efficiency. Cardano (ADA), Solana (SOL), Polkadot (DOT), Terra (LUNA), and Tezos (XTZ) are the most popular coins that use the proof-of-stake model.
Compare different cryptos, including their lock-up period for staking, minimum staking requirements, and Annual Percentage Yield (APY) before you stake. Some cryptos have complex validator requirements and demand that you have a desktop PC with 24/7 internet connectivity.
- Buy the crypto
Purchase the chosen crypto tokens. Buy one from an exchange platform with a built-in staking feature.
- Stake the amount you can
Choose how much you want to stake. The best choice to get chosen as a validator is to join staking pools. Rewards are proportional to how much you stake.
- Earn rewards
When you’re selected as a validator, all you have to do is wait for the process to finish. Rewards are split among the participants of the staking pool. Also, the pool owner may take a small fee for their service.
If you have extra or idle crypto assets you don’t actively trade, staking may be a profitable option to consider.