Cryptocurrency Staking Beginner's Guide

Staking is a technique that has the potential to produce a passive income. Simply place coins in a savings account for a certain amount of time to receive interest.

But what exactly is staking? How does it work? How do I stake? Who is capable of doing it? In this guide on the basic concepts of Staking tokens, let's uncover the answers to all these questions and more.

What Is Cryptocurrency Staking?

Staking is the process of locking up cryptocurrency for a predetermined amount of time to maintain a blockchain's operation. You gain extra cryptocurrency by staking your existing coin.

It works with cryptocurrencies that handle transactions using the proof-of-stake methodology. In comparison to the previous proof-of-work paradigm, this is a more energy-efficient option. 

Because certain cryptocurrencies pay out high-interest rates for staking, it might be a great method to use your cryptocurrency to get passive income but It's crucial to completely comprehend how crypto staking works before you begin.

How Does Staking Crypto Work?

Traditionally, staking is the process used by cryptocurrencies that employ the proof-of-stake model to add new transactions to the blockchain.

Staking was developed for the proof-of-stake consensus process, which is a way used by some blockchains to choose honest members and validate new blocks of data uploaded to the network.

When a new block is added to the blockchain, new crypto coins are created and given as staking rewards to the validator of that block. Most of the time, the payouts are the same cryptocurrency that the holders are staking on the blockchain.

Some projects, however, employ a different form of staking rewards.

Staking is not available for all forms of cryptocurrencies. It is only accessible for coins that employ the proof-of-stake model, and select altcoins.

To stake cryptocurrency, you must hold a cryptocurrency that uses staking technology, then you may decide how much you wish to stake.

Many centralized cryptocurrency exchanges allow you to stake cryptocurrency.  Alternatively, staking can also be done through decentralized applications (dApps).

In Decentralized Finance (DeFi), altcoin developers such as PancakeSwap have been developing staking pools to reward their holders with the ability to grow their position and achieve passive income.

New staking technologies now allow crypto investors the opportunity to "auto-stake" or "self-custody staking" altcoins and NFTs.  Read about self-custody staking with the Cryptolic Token, or auto-staking Growbat NFTs.

How Do I Stake My Cryptocurrency?

1. First, ensure the crypto you hold has staking options.
2. If the token developers haven't created a staking pool, one may be available via a third party.
3. In the case of DeFi, users may have to pay high gas fees to interact with a staking pool.
4. Ensure that you are aware of how long your crypto will be staked, you may have to wait to withdraw it.

For further detail, see our full walk-through on staking crypto step-by-step.

How Do I Unstake My Crypto?

1. First, you must be using the wallet which you had originally staked the crypto from,
2. Unstaking crypto usually requires a higher gas fee than traders are used to, be sure you have enough to cover the gas fee.
3. If the staking pool you used has a time lock, you must wait until it becomes unlocked.
4. Check with a block explorer tool to see if your crypto unstaked successfully, in case the front-end data hasn't refreshed.

What Are The Benefits Of Staking Crypto?

Get paid passively. If you don't intend to sell your cryptocurrency tokens anytime soon, you can make passive income by staking. 

Starting is simple. A crypto wallet or exchange can help you get up and running quickly with staking. It only requires creating a cryptocurrency wallet, adding cryptocurrency to it, and selecting the "stake" option on validators or staking pools from the wallet app.

Support your favorite cryptocurrency initiatives. Staking also contributes to the security and efficiency of the blockchain projects you support. By staking a portion of your assets, you enhance the blockchain's resistance to attacks and its capacity to handle transactions.

What Are The Risks Of Staking Crypto?

There are a few risks of staking crypto to understand:

• Cryptocurrency values are volatile and prone to sudden drops. Any interest you earn on your staked assets can be outweighed by a significant price decline of those assets.

• Your coins may need to be locked up for a set period if you want to stake them. You aren't allowed to do anything with your staked assets during that time, including selling them.

• There might be a seven-day or longer unstaking time when you wish to unstake your cryptocurrency.

Final Thoughts

Both those active in the cryptocurrency realm and those outside of it may benefit greatly from the staking process.

Stakers may benefit from interest payments on their bitcoin investments, potentially raising the value of their holdings, and supporting a vibrant cryptocurrency ecosystem.

Cryptocurrencies that offer Proof of Stake, benefit from faster transaction times. For individuals who want to stake independently, setting up and maintaining a staking node will cost far less than purchasing a Bitcoin mining machine.

Staking is thereby effective, lucrative, and environmentally friendly. Looks fantastic, doesn't it?