- Staking is the best way to support crypto
- What is staking?
- How much can you earn with staking?
- What are the aims of staking? What are the potential risks?
In recent years, many people have become wealthy thanks to crypto. Many others have lost their money. However, one thing is certain — the industry is developing constantly. The new market offers great opportunities for anyone interested.
“For the industry as a whole, we expect staking to become a big business,” says David Lawant, head of research at Bitwise Asset Management and a co-author of the CFA Institute’s book on the crypto industry.
Some investors are already making quite a good passive income with annual rates exceeding one thousand percent by staking.
Staking stands for locking your crypto assets on proof-of-stake (PoS) blockchains. Each participant becomes a network node and earns commissions for validating transactions. This is a new alternative to traditional mining.
Major currencies such as Bitcoin and Ethereum operate on the proof-of-work (PoW) mechanism, where miners confirm transactions and mine coins by solving complex puzzles. This is a very energy-consuming process that is often criticized due to its negative effects on the environment.
The PoS mechanism is eco-friendlier. David Lawant believes in staking as an integral element of crypto’s future.
In the case of PoS, transaction validation depends on the number of staked coins. By contributing more coins, you increase your chances of being chosen as a transaction validator and earning a reward.
For validating a transaction, you can earn an APY, with the percentage depending on the specific blockchain.
Ethereum has announced earlier that it will undergo an upgrade later this year. As soon as it has migrated to the PoS mechanism, validators staking Ether will be able to earn profits.
Currently, Ethereum implements both the PoW and PoS mechanisms at the same time. Both chains have validators, but only the PoW is used for processing transactions. After the merge, Ethereum will switch to the PoS mechanism known as the Beacon Chain. Subsequently, PoW mining will no longer be used by the Ethereum blockchain.
According to David Lawant, users who are willing to support Ethereum and make a profit can already stake Ether at around 4% to 5%. He adds that “once the merge is implemented, these yields are expected to expand significantly because stakers will start receiving additional income.”
Some specialists expect staking yields to reach 7 to 12 percent after the merge.
Some of the blockchains are already operating on the PoS mechanism. For example, by staking Solana’s token, users can earn rewards of 5.8% per year. In the case of Polygon’s token MATIC, the potential reward is as high 19.5%.
Naturally, the requirements of various blockchains differ, and the risks are not the same for every platform.
Staking ensures the viability of a cryptocurrency. By contributing tokens to the blockchain, users help it and support the operation of the entire system. At the same time, they may face certain risks.
According to The Business of Business, “these rewards often come as tokens of the cryptocurrency itself, and if the underlying coin becomes worthless, your staking rewards become worthless too.”
Some platforms have restrictions on the period of staking, penalties for not validating transactions, and minimum staking amounts.
In spite of that, investors are interested in staking. Some crypto platforms have mentioned the significant profits their users have made from staking.
“You can already spot early glimpses of that in the earnings results of companies like Coinbase, which cites staking as one of its leading products aside from crypto trading,” adds Lawant.