Back to Blog

Find information about staking Cryptocurrencies, a process that consists of purchasing and allocating a certain number of tokens to become an active validation node.

Table of Contents

What Is Staking in Crypto?

How Does Staking Work?

Benefits And Risks of Staking Crypto

Final Thoughts 


Crypto staking is a trend that has emerged in response to the increasing energy demand arising from the Proof-of-Work (PoW) protocols used by the bitcoin (BTC) blockchain to verify transactions. In fact, identifying cryptocurrency involves owning and accumulating a certain number of tokens that will be used to validate transactions made through the blockchain.

Known as Proof-of-Stake (PoS), this innovative protocol has eliminated the need to use a lot of mining equipment to keep the blockchain secure. It is less energy-intensive, at least because it reduces it.

Many blockchains, including Ethereum (ETH), have adopted PoS protocols to strengthen their networks to respond to the growing environmental concerns about the growing adoption of cryptocurrencies. In this blog post, we will explain crypto staking in detail while talking about some of the best staking opportunities.

What Is Staking in Crypto?

Staking cryptocurrencies is a process that involves buying and allocating a certain number of tokens to become an active validation node for the network. By simply holding these coins, the buyer becomes an essential part of the network's security infrastructure and is compensated accordingly. Staking income is presented in the form of interest paid to the owner. On the other hand, rates vary from one network to another based on a variety of factors, including supply and demand dynamics.

As the number of PoS-based networks grows, new alternatives to staking crypto are emerging, including staking pools, staking providers, and the launch of group staking, also known as cold staking. These initiatives target to democratize get opportunities in staking to retail investors who own a small number of tokens of a particular blockchain.

How Does Staking Work?


The staking process starts by purchasing a certain number of tokens on the network. It should be noted that staking can only be done on a network that supports the PoS protocol. Once the purchase is complete, the user must now lock the assets by following the procedure specified by the developers of each particular network. In most circumstances, a stake can be executed within a few minutes by following your wallet's instructions.

On the other hand, cryptocurrency exchanges have made the staking process of tokens easier by offering features such as staking pools. These aim to increase the compensation from staking a particular network's tokens by increasing the number of coins staked at a particular point in time. In most cases, the more coins staked, the higher the number of transactions a particular node will be assigned to verify. Nodes are, in most cases, ordered by the number of coins they have.


In short, nodes with the largest number of tokens will generally receive higher compensation. This is why staking pools have become so popular these days. On the other hand, a user can stake tokens for a certain amount of time known as a fixed bet. Some providers also offer the possibility to engage in a more flexible scheme where the user can withdraw their token at any point - known as flexible betting. The rigid nature of the fixed bet results in higher interest rates available to the holder, while the flexible bet is likely to offer less attractive conditions.


Benefits And Risks of Staking Crypto

Crypto staking has grown in popularity recently, thanks to the attractive rewards that crypto holders receive from this activity. As of this writing, interest rates offered by staking can range from 6% per year offered by well-known networks like ethereum (ETH) and Cardano (ADA) to 100% offered by smaller networks like PancakeSwap for example.


At the same time, multiple factors can affect the performance and security of your staked tokens, suggesting that high crypto staking returns are not without risk. The first risk we should mention here is a cybersecurity possibility that could result in the loss of your tokens held on a particular exchange or online wallet. To eliminate this threat, some crypto investors have turned to cold staking, an activity that involves storing your tokens on a piece of hardware such as a hard drive.


Cold storage of your crypto assets protects your holding against cyber-attacks as the hardware will not be connected to the internet. At the same time, hardware loss or damage remains a risk when using this type of staking method. Another betting risk comes from possible drops in the price of the crypto asset during the betting period.


Since staking works by locking up your coins, you won't be able to cash out if the market goes wrong, so you risk losing some of your capital before you can reduce those losses by selling your coins. In short, there is a risk with the uptime of the validator node holding your staked tokens.


Final Thoughts 

The process of choosing the best coins to bet should not focus entirely on the rewards offered by the network. Other factors should be taken into account, including the lock-in period and the liquidity of the token. In terms of rewards, low-capital tokens can offer higher rewards than more established protocols like ethereum (ETH) to attract more demand.


However, if the coin is not very liquid, you may find it difficult to sell your earned coins. This means that daily trading volumes are low. Crypto staking has become an attractive resource for investors looking to generate income from cryptocurrencies, similar to how a bond or high dividend stock would work. The attractive APRs offered by some tokens recently have attracted billions of dollars to this activity, and the PoS protocol has also freed some networks from environmental concerns stemming from the energy-intensive nature of the traditional PoW protocol.


On the other hand, like any form of investment, crypto staking carries many risks, including the possibility of losing tokens held in your online wallet in the event of a cybersecurity breach or loss of principal from a sharp drop in coin price during the transaction.


Therefore, to ensure that you are adequately compensated for the risks you take, you should analyze the risk/reward ratio of staking based on market conditions, the reliability of the network, and the rewards offered by the blockchain for you to set aside your coins. We hope that this blog post will be beneficial for you. We will continue to create useful works in order to get inspired by everyone. We are sure that we will achieve splendid things altogether. Keep on following Finage for the best and more.


You can build your own staking environment with Finage free Cryptocurrency API key.

Build with us today!

Get a Free API key