These days, crypto is knocking at the door of the mainstream louder than ever before. For traders and investors, staking crypto means earning passive income or even replacing their regular payslips with a record on the blockchain. This article will talk about staking crypto, why it's on fire, and how it works.

You're about to learn about the following:

1. What is staking crypto?

1.1. How does staking work?

1.2. Rules of the staking process

1.3. What cryptocurrencies can you stake?

1.4. How to start staking?

1.5. Staking on a cryptocurrency exchange

2. What is a staking pool?

2.1. What is a proof of stake system?

2.2. Proof of stake vs proof of work

2.3. Benefits of proof of stake blockchains

2.4. Why not all blockchains use proof of stake consensus

3. What are the benefits of staking crypto?

3.1. How much you can earn through crypto staking

4. What are the risks of staking?

5. Staking at Wizardia

TL; DR. Staking is a way to earn rewards by locking up your crypto assets. This process is similar to putting money in a savings account at a bank to earn passive income, but the returns are usually way bigger. Staking works with cryptocurrencies based on the proof-of-stake (PoS) consensus mechanism that verifies and secures transactions. Although the proof-of-stake model is energy-efficient, scalable, and secure, not all blockchains use this type of consensus due to its limited accessibility and 51% attacks. Staking has opened up more opportunities for less experienced crypto enthusiasts, but certain risks prevail.

1. What is staking crypto?

Staking is a way to earn rewards by locking up your cryptocurrencies to verify and secure transactions on the blockchain. This process is similar to putting money in a savings account at a bank to earn passive income. 

When a person deposits funds in a savings account, the bank locks them up and lends them to people that need loans. In return, the bank pays interest depending on how much and for long people keep money in their savings accounts.

Similarly, when you stake your digital assets, you lock up your coins in crypto pools to help blockchains confirm transactions, stay safe, and run smoothly. The key difference is that interest rates at banks are much lower than rewards from staking crypto.

Staking allows traders and investors to put a particular digital asset to use and make passive money by selling it. Staking crypto is like depositing money in a valuable retirement plan.

1.1. How does staking work?

Staking works with cryptocurrencies based on the proof-of-stake consensus mechanism that verifies and secures transactions without involving a bank. You become part of this process if you stake crypto, so stakers are also known as validators.

More often than not, validators establish staking pools to raise funds from a group of token holders. Anyone can participate in the staking process as long as they have coins to delegate to pool operators that work hard to validate transactions on the blockchain.

At the end of the staking process, the system automatically pays out rewards to all validators. It comes without saying that the more significant your stake, the higher your chance to propose a new block and collect the rewards.

1.2. Rules of the staking process

The golden rule of the staking process is being online during the validation period. A validator will receive a staking reward if they're responsive for most of the staking period, so they can't go offline for too long.

Other rules for stakes vary greatly across blockchains. For example, the Ethereum ecosystem requires depositing 32 ETH to activate validator software, which is more than USD 60K at the moment of writing this article.

1.3. What cryptocurrencies can you stake?

The most common coins you can stake are:

• DeFi Coin (DEFC)

• Lucky Block (LBLOCK)

• Ethereum (ETH)

• Cardano (ADA)

• Solana (SOL)

• Polkadot (DOT)

Accordingly to Business 2 Community, DeFi Coin is the best staking coin in 2022 as it offers outstanding rewards (up to 75% APY for staking DEFC). Whichever cryptocurrency you decide to go with, remember that staking is possible only with cryptocurrencies based on proof of stake blockchains.

1.4. How to start staking?

Follow these steps to begin staking crypto:

1. Buy stakeable digital assets.

2. Transfer the assets to a blockchain wallet.

3. Research the staking pools available in crypto exchanges at the moment.

4. Choose the most appealing pool for you.

5. Join the pool by depositing your tokens to it.

It's possible to run your own staking pool. This way, your reward will be significantly bigger. You'll also be able to provide services for other participants interested in staking crypto. 

However, becoming an independent validator requires a lot of expertise and much more attention to the ongoing trends in the crypto market. Not to mention that independent validators need to possess huge funds before they can even begin staking.

1.5. Staking on a cryptocurrency exchange

When you purchase crypto, you have it on the exchange where you bought them. Some exchanges have their staking programs in selected cryptocurrencies. In this case, it's easy to place crypto on the exchange straight away.

Yet, by putting your digital money on cryptocurrency exchanges, you give your assets to a third party in the process of validation. Exchanges aim at making their customers' crypto investments profitable, so they handle all the administrative work for you, but most of the time, for a fee.

On top of that, finding an exchange to join isn't entirely riskless. There are dozens of cryptocurrency exchanges, so it might be tricky to find a credible one, especially when looking for smaller, less-known exchanges.

2. What is a staking pool?

A staking pool is a shared wallet where multiple stakeholders combine their computational resources to have a higher probability of being rewarded for validating new blocks on the blockchain. It's a tool for crypto enthusiasts to unite their staking power to verify new blocks.

Compared to independent staking, staking pools provide smaller income because the rewards are split among all the pool participants. Most pools also charge fees. 

On the other hand, joining staking pools means taking part in more predictable and frequent staking, which is particularly important for beginners. Additionally, staking pools enable stakeholders to earn passive income without setting up, maintaining, and running a validating node.

2.1. What is a proof of stake system?

Proof of stake, or PoS for short, is a method that enables cryptocurrency owners to validate new blocks based on the number of coins a validator stakes. Traditionally, the system is said to randomize who gets to validate blocks. In reality, the decision isn't that random.

For example, nodes that carry the lowest hash value but the highest stake often become the validators. Staking age, i.e. how long the tokens have been staked, may also be considered.

2.2. Proof of stake vs proof of work

Proof of stake was born as an alternative to proof of work (PoW), the original consensus mechanism that selects validators based on how much computational power they use to verify transactions. They both have the same goal - to reach a consensus about securely adding new blocks to the blockchain. 

The approaches to achieving this goal differ significantly, though. Instead of using computing power to validate transactions, validators have to stake coins, which suggests that PoS dramatically reduces the energy consumption needed.

	Proof of stake	Proof of work
Requirements	None, or minimal amount	Miner (computerized device)
Use of energy	Low	High
Method of validation	Staking of coins	Computing power

Most new blockchains often use the proof of stake model because it is:

• Energy-efficient

The chance to become validators depends on the value of staking coins rather than the computational energy of solving puzzles.

• Scalable

There's no need to have ample energy supplies or many physical machines to generate consensus, so adding validators to the network is easier and cheaper.

• Secure

Staking embraces the concept of honesty. If the network spots a fraudulent transaction, validators lose part of their stake and sometimes even the right to participate in the future. Therefore, staking encourages validators not to process fraudulent transactions as they'd lose more coins than they'd gain with deceitful activity.

2.4. Why not all blockchains use proof of stake consensus

Although proof of stake seems to bring a lot of benefits, some blockchains prefer the proof of work model mainly because of two reasons.

First, the accessibility of PoS is limited. To begin staking, you need a blockchain's native tokens. Therefore, you might need to purchase cryptocurrencies using fiat money or change crypto coins to compatible native cryptocurrencies. With proof of work, you can get (or even rent) mining equipment for a small price and start validating transactions more quickly.

Second, PoS is more prone to 51% attacks. The 51% attack is when a participant or pool of participants acquires control of the blockchain after gaining more than 50 percent of mining power. 

Both PoW and PoS are susceptible to such attacks. However, if the blockchain has a low market capitalization or the price of its token crashes, it might not be that expensive to get more than 50 percent of the tokens and control the network.

3. What are the benefits of staking crypto?

Below are the key benefits of crypto staking:

• As mining is hard and takes away too many resources, staking has become a common way for less experienced individuals to enter the crypto world and earn passive income.

• Staking is possible with various cryptocurrencies, so it's become another path to diversify assets.

• No special equipment or mining devices are needed for crypto staking, unlike for crypto mining.

• Some exchanges offer better transaction rates if you stake your coins, so staking might reduce transaction fees on the blockchain.

• Staking is more environmentally friendly than crypto mining as it's not based on computing power.

• By staking your crypto, you contribute to maintaining the security and efficiency of the blockchain.

3.1. How much you can earn through crypto staking

The number of staking rewards varies depending on the staking platform, cryptocurrency, and the number of staking users. The staking rewards of minor digital currencies can exceed 100 percent, but the story is different when it comes to more popular coins.

According to Eddie Rajcevic, a research team member at tastytrade, the most popular currencies, including ETH, ADA, or DOT, typically allow earning somewhere in the region of 5 to 20 percent. While this amount may not sound too impressive, it's still considerably more significant than returns from traditional savings accounts.

Whichever coin you choose to invest in, there are cases when staking has been exceptionally profitable. Fortune has reported that some crypto investors earn over 1,000 percent annually by staking, so many experts say that staking is the next big business in crypto.

4. What are the risks of staking?

Like all kinds of investment, staking isn't a riskless endeavor. Consider the following aspects when using crypto.

• Volatility

Crypto prices are volatile. If your staked cryptocurrency suddenly suffers a large price drop, the fall might outweigh any interest you earn on it. Savings accounts at banks have principal insurance included, so price swings might be less relevant.

• Fraudulent platforms

Some staking platforms aim to advertise a high return of investment to lure customers without a thorough understanding of the business they intend to enter. Depositing and staking tokens on such platforms may result in losing funds and rewards. In fact, many smaller crypto projects offer high rates, but their prices often end up crashing.

• Hacking 

Any software or platform, especially the one used by dozens of millions, is prone to hacking and cyber-attacks. As a result, some investors opt to stake tokens in hardware wallets.

• Locked assets

Staking often requires you to lock up your coins for a certain period, sometimes even 180 days. During this time, you won't be able to take or sell your staked assets.

• Long unstaking process

Although the staked crypto is still yours, you need to unstake it before trading it again. More often than not, there's a minimum lockup period. The unstaking process might last seven days or longer.

5. Staking at Wizardia

Wizardia has launched its staking program, allowing Wizardia token (WZRD) holders to reap generous token rewards and special NFT prizes. Staking rewards include Arena Genesis NFTs (worth $12,000) and Wizard NFTs (worth $7,770).

Wizardia has three staking periods: 4, 8, and 12 months. Try out our calculator to see how much you could benefit. When the chosen staking period is over, you'll receive staking rewards on the same wallet from which you chose to stake your WZRD tokens.

You can purchase WZRD tokens on Gate.io as a WZRD/USDT pair and PancakeSwap as a BUSD / WZRD pair.

CTA: <Visit Wizardia staking>

Frequently asked questions about staking

How does staking crypto make money?

Staking pools are organized to raise funds from a group of token holders. They delegate their coins to pool operators that work hard to validate transactions on the blockchain. At the end of the staking process, the system automatically pays out rewards to all validators.

How much money can you make in staking crypto?

Crypto rewards depend on the staking platform, cryptocurrency, and the number of staking users. The rewards of small digital currencies can exceed 100 percent, but the most popular coins like ETH, ADA, or DOT usually bring 5 to 20 percent earnings. In some exceptional cases, crypto investors may earn over 1,000 percent annually just by staking their crypto.

When should you stake crypto?

As staking might require you to lock up your assets for an extended period, the best time to stake crypto is when you aren't planning to trade your crypto in the near future. Traders and investors purchase crypto for staking when they believe it's an excellent long-term investment.

Can you stake any cryptocurrency?

No. Staking is only possible with cryptocurrencies that are based on proof of stake blockchains, e.g. DeFi Coin (DEFC), Ethereum (ETH), Cardano (ADA), etc.

What is the risk of staking crypto?

All types of investment entail some risk. In terms of crypto, prices might drop sharply. Moreover, there are many dishonest staking platforms, and hacking might occur. Lastly, staking implies locking up your assets for a particular time, while the unstaking process might take seven days or longer.

Disclaimer: This article does not imply investment advice on any product or service and contains information of general nature. This article does not constitute an offer to make a contract to purchase a financial asset or an invitation to submit an investment or sell any particular digital property or product.