What is crypto staking and how does it work? It’s a complicated process and often new investors don’t understand how it works, but it’s really quite simple.
Think of crypto staking like a CD or savings account. You put your money away in the bank and it earns a percentage interest over time. The problem with most bank accounts is that they usually offer a very small percentage, often less than 1% which gets entirely eroded away by inflation.
Crypto, however, offers a way for holders to earn a percentage interest of more than 5% annually, with some holdings boasting more than 50% interest per year. But how does this work?
The answer lies in the consensus system used by the blockchain, the two most common are proof of work and proof of stake. Proof of stake blockchains have staking rewards attached to those who pool their money.
But what are the risks? Those who choose to stake lock their crypto for a certain amount of time, varying by each project, and the algorithm uses their stake in crypto to validate transactions in exchange for a reward fee given to the staker. As a staker, if the project suddenly drops in value you might not be able to unstake and sell your crypto before it’s too low.
For investors looking to invest for the long term, staking is a great option because although the price of the crypto may fluctuate, over time your assets will work for you and generate rewards.
How do I start staking? Services like Coinbase and Crypto.com offer staking from their website and make it easy for beginners to test the waters and sell out quickly if they choose to. For people looking for higher rewards and more exciting projects and options heading over to a swap exchange like PancakeSwap or SushiSwap and using a wallet is best.