Slowly but steadily, crypto is taking over traditional investment methods. What started in 2009 with only one crypto- Bitcoin has now grown to over 25,000 cryptocurrencies accessible to traders. Not only this but out of these, over 40 have a market capitalization of over $1 billion, thanks to the increase in the crypto user base to over 560 million.
With the growing popularity of cryptocurrencies, your option to earn a profit is not restricted to trading, where you invest in one digital coin and sell it when its price surges. Another investment method is ‘Crypto Staking.’ Although not very popular, staking lets you put your digital holdings to work and, in return, provides you with passive income without needing to sell your holdings.
What is Crypto Staking?
Crypto staking involves committing a portion of your cryptocurrency holdings to lock within a blockchain network. This mirrors depositing funds in a high-yield savings account, where the bank uses your money, and you earn interest in return.
Similarly, staking your digital assets means locking up coins to participate actively in a proof-of-stake (PoS) blockchain network and helping secure its operations.
The selection of the block creator in a PoS system relies on their stake, which is determined by the number of coins they possess and are willing to temporarily ‘lock up.’ The more coins you stake, the greater your likelihood of being chosen to create a new block and earn rewards.
Let’s say you have 100 units of a cryptocurrency called “Coin XYZ” in a PoS blockchain. You decide to stake all of your Coin XYZ. Doing this allows you to lock up your coins in the network for a certain period.
During this time, your staked Coin XYZ might validate transactions, secure the network, or add new blocks to the blockchain. As a reward for staking your coins and supporting the network, you might earn additional Coin XYZ.
Thus, if the network offers a staking reward of 10% annually, you would accumulate an additional 10 Coin XYZ over the year, increasing your total holdings to 110 Coin XYZ.
Benefits and Profitability of Staking in 2024
In 2024, staking continues to offer several benefits:
1. Passive Income
Staking allows you to earn rewards just by holding and staking your coins. For example, if you stake 100 units of a hypothetical crypto ‘XYZ’ that offers a 5% annual staking reward, you would earn 5 Coin XYZ over the year. This will increase your holdings without buying more coins.
2. Increased Network Security
Staking plays a crucial role in improving the security of the blockchain network. Increased staking of coins directly correlates with added network security.
For example, staking 100 Bitcoins, each currently trading at over $60,000, totals a holding valued at $6,000,000. Potential attackers must possess and stake an equivalent or higher amount of coins than mentioned to disrupt the network. However, doing so is a risky and costly affair for them.
3. Voting and Governance Rights
Some networks give stakers voting rights proportional to their staked amount. That means you can influence the future of the network.
For instance, if ‘Coin XYZ’ introduces a governance model, your stake of 100 Coin XYZ might give you a say in decisions like fee structures or upgrade proposals.
4. Reduced Volatility
Staking helps stabilize market volatility by temporarily removing coins from circulation. For example, if a cryptocurrency has 1,000,000 units in circulation and 500,000 units are staked, the circulating supply effectively decreases to 500,000 units. With fewer coins available for trading, the likelihood of significant price swings decreases, although external market influences remain pivotal in maintaining stability.
5. Better than Others
Crypto staking and traditional investments offer returns but have different risks and rewards. Crypto staking can provide high yields, but the risk is also high due to significant price swings. On the other hand, traditional investments like bonds can provide steady returns, but they may not offer the same high yields as crypto staking.
Risks and Challenges of Staking in 2024
Staking is not without risks. Here are some things to worry about if you consider staking your crypto investments.
1. Market Volatility
If you stake a coin when its value is high and the price drops significantly, your staked coins will also decrease. This could lead to substantial losses if you need to withdraw your stake and the market has not recovered.
2. Lock-up Periods
When you stake your crypto, it gets locked up for a certain period. During this time, you cannot sell or trade your staked assets.
For example, you stake your Ethereum on a platform with a lock-up period of 60 days. In that case, you won’t be able to access your Ethereum for those 60 days, even if the market conditions change drastically or you need funds to deal with a medical emergency.
3. Slashing Risks
In Proof-of-Stake networks, there is a risk called ‘slashing,’ where a portion of your staked assets can be taken away as a penalty for malicious actions or network unavailability.
For example, you could face slashing if you are staking on a network that requires your node always to be online and your node goes offline because of a power outage.
4. Smart Contract Risk
Staking your tokens in a DeFi protocol means trusting that the smart contract code is secure and bugs-free. However, if a vulnerability exists, hackers can exploit it.
For instance, in 2020, the Balancer DeFi protocol suffered an attack due to a bug in its smart contract, causing a loss exceeding $500,000.
5. Regulatory Risk
Regulatory changes influence cryptocurrencies. If a government opts to ban or restrict access to the PoS network you are staking on, it could impact your ability to stake or claim rewards.
For example, if you are staking Binance Coin (BNB) and the Indian government decides to ban Binance, you may have trouble accessing your staked coins.
6. Network Risk
The security of PoS networks hinges on having many active validators. If many validators cease participating, the network’s security could be jeopardized.
How to Start Staking: Essential Steps
Step 1: Choosing the Right Cryptocurrency
Staking is only supported by cryptocurrencies built on PoS or related consensus mechanisms. Ethereum 2.0, Cardano, and Polkadot are among the popular choices for staking.
When choosing a cryptocurrency to stake, consider factors such as the crypto’s market capitalization, its staking reward rate, the stability of the project, and the community behind it. It is also essential to understand the staking requirements. Some cryptos require a minimum amount to start staking.
Step 2: Choosing Between a Staking Platform or Own Validator
Decide whether to stake through a staking platform or run your validator.
Staking platforms are services that do the staking for you. They handle all the technical aspects and take a small commission from your staking rewards. This is a good option for beginners or those who want to avoid dealing with the technicalities of staking.
On the other hand, running your validator involves setting up and managing your node in the blockchain network. This option requires technical knowledge and comes with more responsibilities, but it also means you don’t have to share your staking rewards with a platform.
Step 3: Setting Up a Crypto Wallet
You have two choices: software and hardware wallets.
Software wallets can be set up as apps on your computer or smartphone. They are easy to use and usually free, but they are also connected to the internet, which makes them less secure.
Hardware wallets are physical devices that store cryptocurrency offline. They are immune to online threats and more secure than software wallets. However, they can be expensive and less convenient to use.
Once your wallet is set, you can transfer your cryptocurrency and start the staking process.
How to Stake Your Crypto Holdings using Mudrex
Mudrex Earn allows you to earn crypto rewards using the coins locked up in your Mudrex Wallet. Here’s how You can do this:
- Download the Mudrex app. After Completing your KYC, buy Crypto from Mudrex or Transfer Funds from your Wallet.
- From the bottom navigation bar, tap Coins and then choose Earn.
- Choose the coin from the list and Tap on Subscribe to Earn to proceed.
3. Enter the desired amount and tap Subscribe.
4. Your Earn subscription is confirmed. Tap Done to return to your Coins portfolio.
Future of Staking in Crypto
1. Recent Developments
Recently, CryptoHeap introduced exclusive staking plans designed to maximise users’ returns. This makes CryptoHeap an attractive platform for both novice and experienced investors. The platform also offers the potential to make at least 1000 per day through crypto staking.
2. Regulatory Environment
The rules and regulations for crypto staking vary with countries.
- USA: The regulatory landscape for staking is evolving. The US Securities and Exchange Commission (SEC) has been scrutinizing staking services, leading to existential questions about the future of staking. For example, the SEC’s action against Kraken’s staking service could decentralize the Ethereum network and force service providers to clarify how they earn yield for retail investors.
- UK Legislation: The United Kingdom plans to issue new legislation for stablecoins and crypto staking, exchange, and custody by June or July this year. This move is part of the government’s desire to make the UK a global hub for crypto.
- European Regulation: The Markets in Crypto-Assets (MiCA) regulation, set to go into effect in 2024, does not make any provision for crypto staking. That means staking in Europe is neither prohibited nor permitted.
Conclusion
Staking remains a viable and potentially profitable investment option in 2024. By locking up your cryptocurrency to support blockchain networks, you can earn passive income, gain voting rights, and experience reduced volatility. However, it is essential to be aware of the risks, such as lock-up periods, slashing, smart contract vulnerabilities, and network security issues.
Additionally, staying informed about the latest developments and regulatory changes in the evolving crypto market is crucial. If you are looking for a simple platform that allows staking, look no further than our Mudrex’s Earn feature. Mudrex offers an easy-to-use app that enables you to invest and trade in crypto and stake it to earn rewards without the hassle of traditional crypto staking approaches.
Download Mudrex app now and Start your Crypto staking journey
FAQs
Q. What is the best coin to stake in 2024?
Ethereum is considered one of the best coins for staking, offering a balance of security and potential rewards. Its transition to Proof-of-Stake has solidified its position as a top choice for investors looking to earn passive income through staking.
Q. Is staking good for the long term?
Staking can benefit long-term investors by providing a way to earn passive income through rewards while contributing to network security. It also encourages holding cryptocurrencies, potentially increasing their value over time due to reduced circulation.
Q. Which crypto will grow in 2024?
In 2024, Ethereum is expected to show significant growth, especially with the U.S. SEC’s rule change allowing the creation of spot Ethereum exchange-traded funds. This regulatory shift has already led to a positive market response, suggesting a promising trajectory for Ethereum shortly.
Q. How profitable is staking?
Staking can be profitable with annual percentage yields (APY) ranging from 1.5% to 30%. However, profitability is influenced by the price fluctuation of the staked coin.
