We’re all aware of the copious benefits that owning and trading crypto provides. But, as the crypto landscape continues to expand and transform, investors are constantly seeking new ways to engage with blockchain technology aside from standard trading.
There is already an abundance of innovative trading strategies to choose from, each armed with its own advantages and disadvantages. One such strategy that is beloved by traders and crypto enthusiasts alike is crypto staking.
Crypto staking puts a new twist on owning cryptocurrency assets and offers an alternative route to the energy-intensive mining process. Suitable for beginner and experienced traders alike, staking has become an accessible way for anyone to earn passive income from their holdings.
However, this strategy is not without its own drawbacks and risks, meaning it may not be your best option. In this article, we’ll discuss the key pros and cons of crypto staking that you should consider before participating in this activity yourself.
What Is Crypto Staking?
Crypto staking is a type of trading strategy where investors pledge their cryptocurrency assets toward helping the validation of transactions on the blockchain. Cryptocurrencies that allow staking, such as Ethereum, Solana, and Cardano, use a consensus mechanism called Proof of Stake (PoS). This ensures that all transactions are verified without the need for an intermediary such as a bank.
Put simply, staking is when you lock your crypto assets for a set time period in order to assist the operation of a blockchain.
The main incentive for staking crypto is earning rewards in return. You will receive income in the form of the cryptocurrency you’re staking for helping to validate and regulate blockchain transactions. Therefore, you can consider this as similar to earning interest on a savings account. In some cases, staking participants can even earn governance tokens as a reward. This gives them the right to vote on the development of a select blockchain project.
Typically, the bigger stake you make, the greater chance you get of adding to the blockchain and receiving rewards. Additionally, a stake doesn’t always consist of a single investor’s coins. Instead, you can participate in a staking pool where you combine your resources with other traders to increase your chances of receiving rewards.
The Pros of Crypto Staking
Cryptocurrency staking can be a highly effective and accessible strategy for traders. Let’s check out the key advantages of choosing to stake your crypto:
Possibility of Passive Income
Unlike day and range trading and other strategies, crypto staking doesn’t require your constant attention. You don’t have to analyze trends or even try and capitalize on market volatility. This makes it an ideal option for anyone looking to make a passive income with little effort. After completing the initial process, you can simply sit back and wait to receive exciting staking rewards!
Increased Security
Since, after you stake your crypto, your assets are secured as collateral, you can rest assured that they’re safe from potential hacks. You’re also playing a key role in amplifying the security of the blockchain as a whole, as well as maintaining the network’s integrity and making it more resistant to hackers.
Furthermore, crypto staking offers something that many other strategies cannot – predictability. You’ve probably heard time and time again that it’s impossible to predict the outcome or performance of various coins. That’s partly why trading is considered a high-risk activity. Although staking doesn’t completely erase these risks, it can at least allow traders to predict their potential awards for their participation.
If you decide to participate in crypto staking, you can gauge your reward size based on factors such as how many tokens you stake and the network’s current parameters. This can help you plan your overall strategy and allow you to adjust the rest of your portfolio accordingly.
Suitable for Beginners
With so many different investment strategies to try out, staking is arguably the most beginner-friendly. In fact, after reading this article, you’ll have all the information you need to begin staking your assets. You won’t need to run any software protocols or have any technical knowledge and instead can leave that in the hands of the experts.
Additionally, staking gives anyone the opportunity to contribute to the industry without needing specialized or energy-intensive equipment. This means staking is not only highly accessible, but it’s also a greener choice for traders compared to participating in the Proof-of-Work (PoW) projects.
The Cons of Crypto Staking
Of course, no trading strategy is perfect, as they all come with their own drawbacks and limitations. So, let’s address the main disadvantages of staking cryptocurrency:
Loss of Liquidity
When you stake your tokens, they will be tied up for a long time period and unavailable for trading or any other uses. For instance, if you choose to stake your crypto for a year, then you will not be able to access those assets for that entire time. This can be highly inconvenient, especially if you need to quickly manage your holdings for whatever reason.
Minimum Stake Needed
Most staking networks require a minimum amount of crypto to be staked for traders to be able to participate. For example, to solo stake Ethereum, you will need to provide a minimum deposit of 32 ETH. At the time of writing, this is equivalent to approximately £42,000. Although lesser-known PoS coins, such as Avalanche (AVAX) and Polkadot (DOT), have smaller minimum deposits, this can still deter many investors from participating.
Market Risk
Similar to all other strategies, staking carries risk. Although your assets are locked away, they are still not immune to market fluctuations. If your staked assets experience a large price drop, it may outweigh any rewards you earn from them. Similarly, you may miss out on various opportunities and potential gains by staking rather than actively participating in the market.
How to Stake Crypto
To be eligible to stake crypto, you’ll need to own coins that use the Proof of Stake blockchain. So, if you’re interested in staking or participating in a staking pool, you’ll need to first invest in PoS cryptos. Other coins that use the Proof of Work (PoW) consensus, such as Bitcoin, generally don’t support staking. Therefore, your first step will be to rebalance your profit by investing in at least one PoS cryptocurrency.
Top Coins for Staking
Here are a few examples you can consider buying before you begin staking:
- Ethereum (ETH)
- Solana (SOL)
- BNB (BNB)
- Avalanche (AVAX)
- Polkadot (DOT)
- Cardano (ADA)
- Dash (DASH)
- Toncoin (TON)
- Algorand (ALGO)
- Cosmos (ATOM)
You can invest these coins or any other PoS cryptos you discover through a crypto exchange such as Kraken. Alternatively, if you’re a beginner trader, then you can turn to a crypto broker for additional guidance. Typically, these brokers have a range of tools at hand, such as trading bots, that will help you optimize your trading strategies.
By signing up for a crypto platform such as Quantum AI, for instance, you can connect with a suitable broker who will assist you as you trade and stake cryptocurrency. It will also help you avoid making common mistakes and ensure you set off on the right track.
Staking Platforms
Now, you’re ready for the most exciting step! The simplest way to stake your crypto is through a staking platform. These platforms simplify the process and offer competitive rates so you can make the most of staking your crypto.
We highly recommend using a platform if you’re an inexperienced trader, as they can help make the process feel much less daunting. They typically have beginner-friendly interfaces and take control of all the technical aspects on your behalf.
When deciding on a staking platform to use, it’s important to consider questions such as:
- How many cryptocurrencies do they support?
- Have they implemented enough security measures?
- How are their fees calculated?
- What rewards will I earn from staking?
- Are there any other features I can benefit from?
Once you’ve checked out all your options and decided on a staking platform to use, all you need to do is create an account. After this, your chosen platform will guide you towards successfully staking your crypto so you can enjoy earning rewards from your investments!
Other Popular Crypto Trading Strategies
If you’re unsure whether staking crypto is a good option for you, you can instead turn to another strategy. Fortunately, there are various crypto trading strategies that may be more suited to your personal preferences and goals. So, if staking isn’t for you, then take a look at these other cryptocurrency trading strategies to try out in 2023:
Day Trading
With this strategy, investors are buying and selling crypto assets during a single trading day to profit from rapid price fluctuations. As we know, the cryptocurrency market is incredibly volatile, and day trading is the perfect way to take advantage of this. However, day trading requires a lot of time and attention, so if you’d prefer a more passive way to profit from crypto, then this might not be the best strategy for you.
Range Trading
To range trade, you will need to find entry and exit points within the market. Similar to day trading, this strategy requires taking quick positions in price movements rather than focusing on long-term trends. To benefit from range trading, many crypto investors utilize helpful tools such as pivot points, oscillators, and volatility indicators.
Trend Trading
Through this trading strategy, investors aim to identify market trends and act accordingly. Successful trend traders are able to utilize the market momentum by trading in the same direction as a trend to make a profit. It’s advisable to use technical analysis tools such as momentum indicators and trend lines when trend trading.
Summary – Should I Stake My Crypto?
Overall, staking crypto is a straightforward, beginner-friendly, and potentially lucrative trading strategy. If you’re looking to make a long-term, passive income with your crypto assets, then staking may be a viable option for you. It can be a terrific way for traders to make the most of their holdings without needing to dedicate much of their time.
However, crypto staking doesn’t come without its own risks. After all, you are dealing with cryptocurrency. This asset is notoriously volatile, and even when staking your assets, you’re not safe from the effects of this volatility. Furthermore, there is a minimum stake required for more staking projects, which might be out of your budget.
Therefore, it’s important to consider your personal goals, risk tolerance, and budget when deciding whether you should stake crypto. If you decide that staking is a good option for you, all you need to do is join a staking platform to get started. Good luck and happy trading!
