What is staking? Passive income in the crypto space

Cryptocurrency staking: the meaning

Staking is a way of passive earning in the crypto market when tokens are blocked in an account to support the blockchain’s operation associated with transaction verification. In most cases, holding digital assets in the network for interest is only available for coins with the Proof of Stake consensus mechanism and its modifications.

Cryptocurrency staking implies delegating funds to an exchange, cryptocurrency wallet, or another platform to receive rewards. Therefore, it is like a deposit account in a bank, which is opened at an interest yield.

The amount of revenue depends significantly on the market conditions of the digital currency you are transferring to the staking. Profits can range from 0.3% to 30%, depending on the investment period. This fact makes staking attractive when choosing a dividend option.

What are the types of staking?

Classic PoS. Staking that allows earning by freezing cryptocurrency in a participant’s wallet. Each cryptocurrency wallet serves as a node – a device connected to the network for its functioning.

The idea is to buy a token that supports this service and send it to a smart contract of the blockchain or transfer it to a validator – a node that is responsible for moderating transactions and issuing new blocks of the network.

DPoS-staking. DPoS is a subtype of Proof of Stake with the prefix delegated. A person with tokens on the staking votes for a validator to whom to delegate transaction verification responsibilities. The cryptocurrencies of the blockchains Cardano and Solana operate using this system.

Staking pool. In this case, it is necessary to transfer the purchased cryptocurrency to a common fund, merging the funds with the assets of other depositors. Everyone receives income commensurate with the share of the staking. A pool is created if the cryptocurrency has a high minimum deposit for this function, which is typical for ETH.

Provider staking. Specific apps that offer a simplified service of saving tokens at interest by providing ready-made staking pools to choose from. A person sends cryptocurrency to the selected fund through the provider’s wallet for a fee and receives interest after a set time.

DeFi staking. Various companies use it as staking liquidity. In this case, tokens are blocked in the account, and the user receives a reward (governance tokens, NFT, interest, free access to the service, and so on). This type is popular with crypto exchanges, decentralized finance platforms, and GameFi projects.

How staking works: the general mechanism

Participants’ coins are transferred to the cryptocurrency protocol and blocked in the account. The code selects validators who must verify and validate transaction blocks. The more cryptocurrencies are pledged, the higher the chance of becoming a validator. 

When a block is added to the blockchain, new coins are created. The investors receive them as an interest.

The security of the new blocks is ensured by the Proof of Stake mechanism, in which transactions are verified by people (validators) who invest in the blockchain using staking.

In short, staking is analogous to mining, in which a participant is also chosen to add a block to the network and receive a reward in return. However, it is much more ecological, less resource-consuming and complicated.

The positive and negative aspects of staking

The main positive thing is the opportunity to make additional profits with minimal effort. Staking can be seen as an alternative to the classic deposit in a bank.

The social advantage of depositing funds to a blockchain is that the user maintains the security and efficiency of transactions. Blockchain becomes more resistant to hacker attacks and processes transactions faster.

Unless you are a crypto-expert and claim to be a validator, you don’t need software and a powerful computer to stake.

The reverse side of this process is that the cryptocurrency is often blocked and cannot be used, sold, or withdrawn. Also, some projects may have very high requirements for the amount invested. Finally, if the price of the coin you have blocked in your account decreases significantly, the income can depreciate.

How to stake cryptocurrency on an exchange?

The easiest way to make money on staking is to use crypto exchanges. There, the conditions for storing tokens at interest are boiled down to a few clicks of the mouse. For example, the WhiteBIT platform has created a special section for this purpose. It is called SMART staking.

By going to it, the users can explore the list of cryptocurrencies available for staking, the storage terms (from 10 to 360 days), and the interest rate (from 0.4% to 30%) that they will receive. All you have to do is to make a deposit with the appropriate cryptocurrency and choose a tariff plan. Options that can be used for passive income include USDT staking, Polkadot staking, Solana staking, as well as LTC, XRP, TRX, SHIB, and others. In addition, BTC staking is available on the WhiteBIT exchange, even though bitcoin uses the Proof of Work consensus mechanism.

Whichever staking you choose, remember that we do not provide any financial recommendations.