What Is Staking In Crypto, And How Can It Benefit You?

The world of cryptocurrency offers unique ways to earn high rates that traditional banks are no longer able to provide. Staking crypto is yet another strategy allowing users to earn rewards on their assets. So, how does it work and what are the benefits?

An Intro To Crypto Staking

Put simply, staking crypto begins with a crypto holder committing their assets to a blockchain network to verify the transactions that occur. Essentially, users lock up a portion of their crypto for a period of time to support the blockchain and earn crypto.

While we at Vauld offer similar options to build wealth, like crypto lending, staking requires a bit more work in order to earn rewards. Still, staking is only growing in popularity and is worth understanding.

It’s no secret that the energy consumption to mine specific tokens has been seen as problematic. In 2012, crypto staking was introduced as a way to counter not only this issue but also the unfairness that came with mining.

The solution offered through crypto staking is an energy-efficient alternative to mining. It also uses an algorithm to develop a fair way to choose interested parties to add blocks to the blockchain and earn the rewards that come with doing so.

Since the algorithm gives higher approval chances to users with more crypto, “stakers” have begun adding more tokens to their wallets in hopes of increasing their chances to earn.

Read on to learn more about this process and how to earn with it.

How Staking Crypto Works

There are a few fundamental parts of crypto staking required to maintain the blockchain. These will mostly be the same across the board, but it may also depend on whether a user is validating or delegating during the process.

Proof Of Stake

Before a user can begin staking, they must first be assigned a task. This system, known as Proof of Stake (PoS), offers users a high probability of receiving tasks to earn rewards based on how much crypto is staked in their wallet.

Validate Or Delegate

Person typing on a keyboard while staking crypto

If a user is staking, they are playing one of two critical roles: validating or delegating.

In delegation, a user picks validators for the hybrid PoS known as Delegated Proof of Stake (DPoS). While the delegator still owns their tokens, they are investing their assets for others to use for the purpose of producing blocks on the blockchain.

Validators do the work of verifying transactions before being added to the blockchain, and both earn a share of the crypto. You might be wondering why delegators are necessary if the validator is completing the work.

Delegators assign tokens to a validator candidate’s pool, essentially increasing their chances of receiving tasks and creating a block. The act of delegating is similar to pooling lottery tickets together. The odds of winning increase for everyone involved, and the rewards are shared accordingly.

Crypto Staking Exchanges

For those interested in staking, many crypto exchanges have begun offering staking opportunities so users can diversify and earn rewards. The main benefit of partnering with an exchange to stake is the large pool of users, which increases the odds of earning.

Two important factors to keep in mind when staking are that the user needs to have a solid internet connection to be online 24/7 and also have a wallet that supports staking. If a crypto exchange offers staking options, then it is safe to assume their wallets will support it.

But to be on the safe side, always verify the validity of your chosen platform before depositing. Not every exchange discloses everything a customer needs to know before partnering like we do at Vauld.

Benefits Of Staking Crypto

Whether a user decides to delegate or validate, there are many perks associated with successful staking ventures.

Coin with Bitcoin symbol

Earning Tokens

The tokens that a user can earn depend on which crypto they stake. For example, someone staking Ethereum would first deposit a designated amount to activate the validator software, then earn Ethereum in return for completing their tasks.

Although some deposit requirements can be high, many options require significantly lower ones. The downside is that lower deposits can result in lower earning rates.

Earning Transaction Fees

As a delegator, the validator candidates you invest in will at some point receive a task and add blocks to the blockchain. Once this has been completed, and they earn the reward for a successful stake, you (the delegator) receive a portion of the earnings.

Sustainability

Compared to crypto mining, staking poses no environmental threat. While the mining process requires high energy levels associated with fossil fuels, there is no increased risk or excess energy consumption with staking.

Risks Of Staking Crypto

Crypto staking can mean high returns, but there are still risks to keep in mind, both before and during the process.

Market Volatility

One of the unavoidable risks that comes with any crypto-related endeavor is the volatility of its value. A significant decline in value could be the difference between steady earnings through staking and almost no earnings at all.

The best way to avoid unforeseeable market volatility is by diversifying. Investing in multiple cryptos means that while some tokens go down, others might go up and offer a greater chance of stability. Be sure to keep an eye on the market.

Lock-up Periods

Lock symbols on a computer screen

Many staking exchanges come with lock-up periods. During these times, users are unable to liquidate their assets. Regardless of whether there’s a decline in the market or an exciting investment opportunity with a limited window, those tokens would be inaccessible.

Costs And Fees

The costs that come with crypto staking also pose a downside to users. Whether it’s electricity or hardware fees requested by a third party, users should be mindful of what charges are being demanded so they can stay on top of their total earnings.

Steps To Staking Crypto

1) Choose Which Crypto To Stake

Not all tokens can be staked, but the majority of them can. Common crypto to stake includes Ethereum (ETC), DAI, and Polygon (MATIC). At Vauld, we offer some of the best rates on the market for these tokens.

Choosing which crypto to stake might depend on which offers the highest return or even which has the most convenient entry requirements.

Once you’ve determined the best options for you, the next step will help you better understand how many tokens you’ll need to earn, or which you’ll need to trade for to begin staking.

When it comes to trading, choose Vauld to trade on a deep order book with all our supported tokens.

2) Research Individual Crypto Requirements

Some crypto has a high cost of entry to begin staking. For example, an individual user must have 32 ETH to stake Ethereum, approximately $136,000. Pool staking typically does not have such strict regulations, but fees like the ones mentioned above might apply.

Coin with Ethereum symbol

3) Configure Your Software And Hardware

Whether you use a crypto wallet provided by an exchange or download one that is compatible with staking, this is a necessary step. But it’s usually as simple as clicking on the website of your crypto of choice and downloading the online wallet.

An added perk of staking versus mining is that no extra costly equipment is needed. Aside from a typical desktop and nonstop internet connection, any necessary resources will likely be provided online.

Storing Your Crypto Assets

Finding the right ways that crypto staking can benefit you will largely depend on the crypto you stake and the exchange that you stake with. Although it’s not right for everyone, many have found financial success using this strategy.

Keep in mind the alternatives to staking offer similar benefits and can even cut some of the risks. Lending with Vauld lets users earn high rates without any lock-up periods or hidden fees, and earning with us is as immediate as your first deposit.

At Vauld, we know how important flexibility is to our users. We’ll never require you to keep your assets in a single place or complicate your wealth-building process. To ensure your assets earned from staking are secure, trust Vauld to help make the most of your crypto.

And users can also rely on our partner, digital asset trust and security company BitGo, for the safety of their crypto assets. We keep the worry out of your crypto endeavors so you can focus on your earning strategy every step of the way.

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