As more cryptocurrencies move to a proof of stake (PoS) method of verifying transactions, the term "staking" is thrown around more often. Many crypto investors have the option to stake their holdings for a chance to earn rewards, which could generate a source of passive income.
What exactly is staking though, and should you do it? While staking can be a smart opportunity to increase your earnings with crypto, it's not right for everyone. Here's what you need to know before you decide whether staking is a good move for you.
Image source: Getty Images.
What is staking?
Under a PoS protocol, transactions are verified through the process of staking. Investors pledge their coins for a chance to become a validator, and the more coins you pledge, the more chances you have to win. Those are chosen as validators will win more coins to add to their portfolios.
When you stake your coins, they're still in your possession. In other words, if you're not chosen as a validator, you won't lose your investment. You're also free to un-stake your coins if you want to sell or trade them, but some cryptocurrencies do require that you stake your coins for a minimum amount of time first.
Staking can be an easy way to earn interest on your crypto investments, and you don't need any expensive equipment to get started -- unlike crypto mining under a proof of work (PoW) protocol, which requires a powerful computer.
How to get started
The first thing you'll need to do is double-check that your crypto investments use a PoS protocol. Some of the most popular cryptocurrencies that allow staking include Ethereum (ETH 4.73%), Cardano (ADA 4.05%), and Solana (SOL 2.58%).
Some crypto exchanges, such as Coinbase (COIN 3.00%) and Gemini, have their own staking programs, which allow investors to stake their holdings through the exchange itself. This is the easiest way to get started, and you may be able to begin staking in just a few minutes.
If your exchange doesn't have this type of program, you may need to transfer your funds to a blockchain wallet, or crypto wallet. From here, you can join a staking pool, where many users combine their coins to increase their chances of winning. This method results in smaller earnings than if you stake alone, since the earnings are split several ways, but you're also more likely to win when you join forces with other stakers.
Is staking right for you?
Staking may sound complex and confusing, but it's not as difficult as it might seem. If you have the option to stake through your crypto exchange, it's similar to earning interest on your money in a savings account.
For long-term investors, staking can be a smart way to increase your earnings. If you're planning on keeping your money invested for many years, you might as well put your investments to work during that time.
The key to successful staking, however, is to choose the right cryptocurrency. In order to generate passive income, the crypto itself needs to succeed. Rather than choosing your investment based on staking alone, then, focus on buying the cryptocurrency with the most long-term potential.
Of course, no cryptocurrency is guaranteed to succeed. But there are some investments, such as Ethereum, that are leaders in the crypto space and have the most potential to grow over time. Just keep in mind that there are no promises when it comes to crypto, so be careful not to invest more than you can afford to lose.
Staking can be a smart way to make the most of your crypto holdings, but be sure you're choosing your investments carefully. With the right strategy, you could grow your portfolio and maximize your earnings.
Katie Brockman owns Ethereum. The Motley Fool owns and recommends Coinbase Global, Inc. and Ethereum. The Motley Fool has a disclosure policy.
FAQs
The primary benefit of staking is that you earn more crypto, and interest rates can be very generous. In some cases, you can earn more than 10% or 20% per year. It's potentially a very profitable way to invest your money.
Is staking your crypto worth it? ›
Whether crypto staking is worthwhile depends on what kind of crypto owner you are. Generally speaking, cryptocurrency staking offers returns that exceed those you can earn in a savings account. However, staking is not without risk. You'll earn rewards in crypto, a volatile asset that can decline in value.
What does the Motley Fool recommend for crypto? ›
The Motley Fool has positions in and recommends Bitcoin and Ethereum.
Is there a negative to staking crypto? ›
Staking involves a risk of protocol penalties. Although Coinbase will replace assets lost to penalties in some situations, it is possible you could lose some or all of the crypto you have chosen to stake.
Which crypto will 1000x in 2024? ›
We have picked Pepe Unchained ($PEPU) as the #1 choice for coins that could soar by 1000x in the long-term. This is because Pepe Unchained offers low transaction fees, high speed, and huge staking rewards.
Is staking better than holding in crypto? ›
HODLing vs Staking: Key Differences
Here are some of the key differences. Hodling does not increase the number of tokens a person is holding. Staking, apart from blocking the tokens, also rewards the user for validation and other purposes the tokens are staked for. So, the number of tokens increases in staking.
Can you actually make money from staking crypto? ›
Staking rewards are a kind of income paid to crypto owners who help regulate and validate a cryptocurrency's transactions. In that sense, staking rewards are like a dividend or interest on a savings account but with much greater risk.
Does Motley Fool outperform the market? ›
Motley Fool Stock Advisor has a strong track record of stock recommendations with investment returns that have outperformed the broader market over the long term. Investors are still advised to diversify their portfolios with more than just Motley Fool Stock Advisor's picks.
What are the 5 stocks recommended by Motley Fool? ›
The Motley Fool has positions in and recommends Enbridge, Home Depot, Target, Tesla, The Trade Desk, Visa, and Walmart. The Motley Fool recommends Dominion Energy.
Which coin will reach $1 in 2024? ›
In the dynamic landscape of cryptocurrency, these ten coins, including TRON, Shiba Inu, Astar, Kaspa, Dogecoin, Stellar, Kava, Polygon, Cronos, and VeChain, present diverse potentials for reaching the $1 milestone in 2024. Investors keen on penny cryptos have a spectrum of options to explore.
Risk of Loss
Staking crypto assets may cause a loss of investment due to the highly volatile nature of the crypto market. Most Proof-of-Stake models require users to deposit their assets for a fixed period called the vesting period.
What is the best crypto to stake? ›
According to our experts, the best crypto coins to stake include Bitcoin Minetrix (BTCMTX) and TG. Casino (TGC), which may offer impressive returns. Stablecoins like Tether (USDT) and Ethereum (ETH) can also provide relative stability in volatile markets.
Can staked crypto be stolen? ›
Loss or theft is a significant risk when it comes to crypto staking. This risk involves the potential for your digital assets to be stolen or lost due to various factors.
Which crypto coin has 1000x potential? ›
Top of our 1000x potential list is Pepe Unchained. Pepe Unchained ($PEPU) introduces Pepe, the iconic meme avatar, on its own blockchain. Built on Ethereum's layer-two (L2) blockchain, Pepe Unchained offers unprecedented speed, low transaction costs, and high staking rewards.
Which crypto will skyrocket in 2025? ›
In my opinion, the top three cryptos will be worth much more in 2025 as more positive catalysts take shape. I will explore these catalysts with each crypto. As a note, by top 3, I am talking about Bitcoin, Ethereum (ETH-USD), and Solana (SOL-USD).
What is the next big crypto? ›
In this in-depth and meticulously researched guide, we have explored the five next big crypto coins to watch in 2024, including JetBolt, Kaspa, ICP, Aptos, and ThorChain. As the crypto market continues to expand, these exciting projects deliver unique attractive points and innovative features.
Is crypto staking still profitable? ›
As of July 2022, the crypto exchange Kraken offers a 4% to 6% annual percentage yield (APY) for Cardano (ADA) staking and 4% to 7% for Ethereum 2.0 staking. Because the Ethereum 2.0 network upgrade isn't complete yet, there are a few caveats on Kraken for staking Ethereum.
Which crypto is best for staking? ›
According to our experts, the best crypto coins to stake include Bitcoin Minetrix (BTCMTX) and TG. Casino (TGC), which may offer impressive returns. Stablecoins like Tether (USDT) and Ethereum (ETH) can also provide relative stability in volatile markets.
Is staking on Coinbase worth it? ›
Among the benefits that users get for staking include: Earnings: Staking is a good method of generating passive income for investors. User Friendliness: Coinbase's staking service stands out for its user-friendliness, featuring no setup or maintenance fees and a straightforward process for withdrawing funds.
Does staking increase value? ›
In that process, participants benefit by earning rewards and passive income, and can sometimes take part in network governance. Crypto staking also encourages hodling, which can potentially lead to an increase in a token's value when fewer coins are in circulation.
