Staking cryptocurrencies is when you commit and lock your crypto for a certain period to support the blockchain network’s security & efficiency and verify transactions. It is a way to profit from your crypto without selling it and to get passive income. Сryptos offer interest rates for staking, which are sometimes quite high.
Why some cryptocurrencies can be staked and others cannot
Staking is only available with cryptocurrencies that use the proof-of-stake (PoS) model to process transactions, f.e. Ethereum (ETH), Cardano (ADA), Avalanche (AVAX), Solana (SOL), Shiba Inu (SHIB) and other popular steaking coins https://trends.aax.com/the-best-6-cryptocurrencies-to-stake-in-2022. Many cryptos like Bitcoin or Litecoin use the proof-of-work model which requires mining devices and leads to significant electricity usage. Proof of stake is greener and more energy efficient.
How staking cryptocurrencies works
First, you need to own crypto that uses a PoS model and then stake a certain amount of it. There are two ways to do it: staking on a crypto exchange or joining a staking pool. In the second case earned rewards are split between the pool participants.
After participants lock their coins, the algorithm chooses validators on several factors. As a rule, the more coins are at stake, the more chances. Users who are chosen as validators and whose blocks are accepted receive transaction fees paid in cryptocurrency. Each time a block is added to the blockchain — you get staking rewards.
Is it possible to stack Bitcoin and Ethereum?
Only cryptos using the PoS mechanism offer staking. So you can stack Ethereum as it recently shifted to this model. Bitcoin still operates on a proof-of-work mechanism and thus can’t be stacked. To buy and sell Ethereum you can use the AAX exchange.
What is Proof of Stake?
Cryptocurrencies use different consensus mechanisms. Proof of stake is one of the most popular. Under this system, network participants who want to support the blockchain must stake crypto. After proof-of-stake (PoS) protocols select validators.
What are the advantages and disadvantages of staking
Among the benefits of staking crypto are:
- opportunity to earn passive income without selling your crypto
- profitability, the potential for high returns, and getting more crypto (some cryptos offer huge interest rates f so you can earn 10-20% annually)
- easy to start — no need to use any equipment for staking
There are also a few disadvantages of staking crypto:
- crypto prices are volatile and can drop fastly, it could plummet your assets in value with little warning and thus incur losses in interest
- staking can lock up your coins for a certain period, sometimes for weeks or months, during which you’re unable to cash out or trade your tokens
- the unstacking process can take seven days or more if you decide to unstake crypto to trade it again
What are the best cryptocurrencies for staking
- Ethereum (ETH) 7%: has the most validators on its PoS testnet out of any blockchain, allowing earning about 7% annual interest.
- DAI (DAI) 6% to 8%: the best option for risk-averse investors. DAI is a stablecoin tied to USD, so you won’t be exposed to the volatility of cryptos.
- Cardano (ADA) 4.6%: Cardano is a leading PoS blockchain and staking network handling 75 000 transactions per second. Here can stake ADA to get a 4.6% annual interest rate.
- Cosmos (ATOM) 9%: Although the Cosmos blockchain has higher interest rates for staking, it’s more volatile than Ethereum or Cardano. While high volatility presents more risk, it can result in higher upside potential for smaller market cap coins, such as ATOM.
- Algorand (ALGO) 6%: Algorand is a novel PoS concept that uses Pure Proof-of-Stake (PPOs) staking protocol. The blockchain aims to solve the problem of the blockchain trilemma: you can’t improve scalability, decentralization, or security without sacrificing 1 of these other factors.
- Solana (SOL) 5%: is called a potential ‘Etherium Killer’ and lets to earn over 5% annually by staking
- Avalanche (AVAX) 11%: сrypto providing high returns to network delegators — from 11 up to 25 % annually
