Crypto Staking 101: How to Earn Passive Income with Digital AssetsStaff Writer
Cryptocurrencies like Bitcoin, Ethereum, and XRP are all part of an exciting new asset class that is taking the world by storm. Gone are the days of traditional investing through brokers and banks — as the world becomes increasingly digital, the future of money is online.
Crypto staking is an exciting feature of this brave new world, allowing you to earn 5-10% interest per month on your cryptocurrency holdings. By simply buying cryptocurrency and storing it on an online staking platform, you can earn generous profits without lifting a finger.
What is Crypto Staking?
As cryptocurrencies evolved beyond Bitcoin, developers created new methods of securing, storing, and validating transactions on digital networks. Known as ‘consensus methods’, these processes use complex algorithms to define how cryptocurrencies function within a decentralized environment.
Proof of Stake (PoS) is a consensus method designed to help reduce the environmental impact caused by Proof of Work (PoW), which requires excessive amounts of electricity to operate. Rather than using warehouses full of computers to validate transactions on the network, PoS is secured and managed through staking: an act of faith and commitment from its users.
In order to reward faithful users for their efforts in securing the network, staking rewards are paid out monthly at varying interest rates. These typically fluctuate between 5 and 10% and are defined by how well the network is performing. Users who stake coins on the network also get to vote on certain project decisions, similar to shareholders.
Nowadays, most major crypto exchanges like Binance, Kraken, and Huobi allow staking directly on their platforms. In addition, many software and hardware wallets such as Ledger and Exodus also allow staking so you can maintain ownership of your private keys.
Benefits of Staking Crypto
Many people choose to stake crypto as a means to increase their profits without the risk of having to actively trade. In many cases, users who stake crypto make similar returns to those who actively trade crypto on a daily basis. Unless you are a highly experienced trader with spare time on your hands, it makes far more sense to stake crypto as it’s low risk and requires no time commitment.
Due to market movements, staking crypto is not entirely without risk but it does give you an additional backup should the market drop. For example, if the market value of your staked asset decreases by 2% but you earn 10% interest that month, you’ll still come out in profit.
At the end of the day, most cryptocurrency investors have a significant amount of capital stored on the blockchain – so why not make that money work for you? If you’re worried about market volatility, there are even some stablecoins that offer staking with high returns of up to 10%. These coins avoid volatility by maintaining a price matched equally (1:1) to the US dollar, euro, or any other fiat currency.
What are the Best Staking Coins?
Cryptocurrency is a fast-moving sector with new developments occurring on a daily basis. New projects pop up frequently, presenting competition to existing projects and creating ripples in the market.
To choose the best staking coin, you should look for one that has been around for a few years, has a large market cap, and consistent annual growth. Some newer coins might offer higher returns than older ones but their low market cap and resultant volatility make them a risky investment. Solid, long-running, and reliable projects like Ethereum (ETH), VeChain (VET), Neo (NEO), or Tezos (XTZ) are low-risk investments that provide decent monthly staking returns.
However, choosing the right staking coin for you also depends on how much capital you have to invest. Ethereum, currently the second-largest cryptocurrency by market cap, is an 8-year old project that recently changed its consensus method to Proof of Stake. To stake Ethereum, you would need to deposit at least 32 ETH at a cost of around $76,000 as of April 14th, 2021.
Never fear though, as many smaller projects require no minimum investment, so you can start earning staking rewards with as little as $1.
Pros and Cons of Staking Coins
Staking cryptocurrency is an excellent way of making passive income but it does have its downsides. The most notable is the large initial investment required. With most coins, you can stake as little as you like but until you’ve managed to build up your investment, the interest you earn will be negligible.
Ideally, you’ll want to invest as much as you can in order to get the best returns. Even an investment of $10,000 will only return a few hundred dollars a month, so you’ll need some decent capital to really get started. However, research shows that any money you stake will almost always provide better returns than a traditional savings account.
Another con is the relative risk involved. Although cryptocurrencies are now a staple feature in most investment portfolios, they still represent higher volatility than other assets. To minimize your risk exposure, always ensure you choose a well-established and trusted coin to invest in.
A Range of Investment Opportunities
As cryptocurrencies continue to gain widespread adoption around the world, more and more financial products are being created to take advantage of this exciting new asset class. Aside from crypto staking, you can also invest in your favorite cryptocurrency through EFTs, index funds, investment trusts, and IRAs.
Coin IRA offers services to help you convert your existing 401(k), Roth IRA, or Traditional IRA into a Cryptocurrency IRA. This provides you with a safe, custody-backed way to benefit from the exceptional gains that cryptocurrencies offer while also securing your retirement. Speak to a Coin IRA advisor today and discover how easy it is to become a crypto investor.