Guide to Crypto Staking
Learn more about crypto staking and get started with this investing modality that is taking up the center stage in the crypto world.
Much like other concepts in the crypto universe, staking can be a simple or complex idea depending on how much one understands blockchain technology and its mechanisms. Getting to know staking a little deeper can prove helpful for investors and traders, as this process is one more way to earn money with crypto.
With crypto staking, you can receive rewards by supporting a token as you lock yourself out of selling it for some time. In this article, we’ll go through the whole process of staking and teach how to do it. Come along!
What is crypto staking, and how does it work?
In short, crypto staking means locking up a number of coins for some time to earn a percentage-rate revenue over time. It has become one of the most popular types of crypto investment over the past few years, especially for newbie investors that need to start with less complex investments.
Let’s take a step back and understand the technical structure behind staking.
As blockchains are decentralized networks, there are no intermediaries or well-known institutions to analyze and validate new activity across the chain. Instead, some networks use an unchangeable historical record of blocks of recent transactions to prevent fraud and errors. This process is called the Proof of Stake consensus mechanism.
Proof of Stake or PoS algorithm arose as an alternative for the Proof of Work security method, an energy-intensive process that requires users to contribute with computer power. PoS is proving to be more energy-efficient to all the networks adopting this new approach.
Staking happens when users create a new block or vote to accept a proposed one, as they have to put some of their own assets at risk. However, if the block is accepted, the stakers will receive percentage-rated interest over time through transaction fees. The more is at stake, the higher are the chances of receiving a great reward.
However, not all cryptocurrencies use PoS. Like Bitcoin, some networks still use PoW as their consensus mechanism and can’t be staked. Because of that, it is essential to check if it allows staking before purchasing it for investment interests.
Benefits and risks of staking crypto
For some investors, staking can generate some passive income while also contributing to the security of a network, making it more resistant to attacks.
Staking offers a higher annual percentage yield than a traditional savings account and presents less risk than other crypto investing modalities. It doesn’t require the investor to have advanced computing equipment and has a limited environmental footprint compared to the PoW mining process.
Nonetheless, staking has its risks, like any other type of investment. This process is at the mercy of the market, meaning that if the APY is high, but the staked cryptocurrency decreases in value over the year, the investor is still losing.
There is also the lockup and rewards duration factor. Staking often requires a lockup period where investors can’t move their crypto. For example, if the coin increases in value but is staked, the investor can’t trade it. At the same time, the staking rewards also take a long time to be distributed, as some staking assets don’t allocate the rewards daily.
How to stake crypto
You now know what staking is, how it works, and its pros and cons. If you want to start making a profit from this method, now is the time! Here you’ll learn the step-by-step to stake your coins on the BullPerks platform:
1. Buy BLP tokens and transfer them to your wallet
As stated before, you need to buy a stakable cryptocurrency, in this case, BLP tokens. You can purchase BLP on supported centralized exchanges as well as decentralized ones and transfer it to your MetaMask wallet.
Learn more about how to purchase BLP tokens here.
2. Log into your BullStarter account
If you are already registered on the BullStarter platform, you can log in and proceed to the Pools > Staking Pools page. If not, you need to register and complete the Know Your Customer procedure.
3. Join a staking pool
On the Staking Pools page, you’ll be able to see all the available pools. Choose a pool and click on Deposit to type in the number of tokens you want to stake. Approve and confirm the operation, click on Deposit and confirm the transaction again.
Congrats! You have staked your coins with BullPerks! Now you can check your investment on the Your Stake dashboard.
Is it safe to stake crypto?
As in any other crypto-related service, the safety of crypto staking depends on the exchange or stake pool you choose to complete your staking process. For example, some platforms penalize validator nodes if they don’t uphold 100% uptime or include fake transactions into the blockchain. Choose a platform that has precise security mechanisms.
Can I lose money staking crypto?
There is a possibility that asset value will decrease fast, impacting the interest earned from staking paid in the same currency. Therefore, you should analyze the volatility of the crypto coin before staking it.
What is the difference between crypto staking and farming?
Both investing methods require holding coins for some time to make a profit. However, staking makes investors lock up their crypto assets, being less risky and having a more stable return rate. On the other hand, farming requires that investors deposit crypto in early-stage liquidity pools, being riskier but presenting higher short-term returns.
How does NFT staking work?
NFT staking uses the same system as crypto staking: you need to lock up NFTs to earn revenue based on annual percentage yield while preserving the ownership. However, not every NFT can be staked, so investors need to check if staking is one of the asset’s features before acquiring it.
Disclaimer. This material should not be construed as a basis for making investment decisions or as a recommendation to participate in investment transactions. Trading digital assets may involve significant risks and can result in the loss of invested capital. Therefore, you must ensure that you fully understand the risk involved, consider your level of experience, investment objectives, and seek independent financial advice if necessary.