Staking Crypto for Beginners

Staking crypto for beginners

Cryptocurrency seems like it’s a gambler’s playground. The only way to make money in crypto is buying and selling at crazy prices, right? Well, not quite. You can make passive income by staking crypto.

How? Let’s dive in..

What is “staking”

Staking cryptocurrency is a way people can use their cryptocurrency holdings to earn percentage rewards (generally in the currency their staking) over time. Staking can only be done on certain cryptocurrencies that use a specific proof-of-stake model. Some of the most popular crypto currencies you can stake in are Ethereum, Cardano, Polkadot and Solana.

How does it work / How to stake

First you need to own a cryptocurrency that uses a proof-of-stake model such as the few listed above. The next step is to have your cryptocurrency in a place where you can stake it. Most exchanges allow you to stake directly on the exchange where you bought it such as Binance, Coinbase, and Kraken. If this is not the case then you need to transfer your currency to a crypto wallet. There are many free software crypto wallets available as well as some hardware wallets that some people may prefer.

How does Staking Crypto make you money

Staking makes you money through percentage return on your crypto. When you stake crypto and are chosen to validate transactions you will receive the crypto returns. In some cases you can earn 10% to 20% per year on your crypto holdings!

Dangers / Disadvantages of Staking

The main danger when staking crypto is that crypto currencies values change very frequently and drastically. If the crypto you are staking suffers a large price drop the interest you earn could be very insignificant in comparison to the amount of value your crypto assets have lost. Some other disadvantages of staking are the periods where you cannot sell them. When you start staking you are generally (on most exchanges) required to lock up your crypto for a certain amount of time when you cannot sell or withdraw them. When you want to withdraw and unstake your crypto there is also an unstaking period (generally 7 days or longer) as well.

Mitigating the risks of Staking Crypto

A good rule to mitigate the risks of staking is to only stake cryptocurrency you are not actively trading and plan to hold long term. This is a way to not have any unexpected surprises if you need to withdraw and trade your cryptocurrency actively. You should also not stake more crypto currency than you can potentially lose, this will allow you to not be overly affected by the drastic price fluctuations most crypto currencies have.

How do you find a reputable staking service

As previously mentioned the crypto exchanges that many people buy crypto currency on allow “exchange staking” such as Coinbase and Binance. However, there are also many other staking services that can be researched and have their own various benefits. Some key things to look at when you are trying to find a staking service is reliability (servers are up close to 100% of the time), staking fees (commissions for the staking service) and size (mid-size services are the best).

Staking Crypto Pros/Cons

Earn Interest on your cryptoVolatility (if your coins value drops significantly)
Support a more eco-friendly model (Proof-of-stake)Locked-in period (minimum period you must stake for)
Low entry requirements compared to mining cryptoLack of liquidity (unstaking period during withdrawal)

What do I do with all of this information?

Staking cryptocurrencies could be another stream of passive income for you. Of course you have to own crypto first. And there are fees involved with buying and staking crypto. So make sure you know what your costs are going to be.

Of course, if you’re still not sure about actually buying crypto yet, you can also invest in crypto stocks. We wrote an article specifically about that here, if you want to check it out.

Otherwise, we’ll see you next week.

Happy trading,

🍒Cherry & Erwin
P.S. These stock options strategies make a great side hustle. If you’re interested in finding a new side hustle, we’ve put together a new case study that examines the four most popular side hustles for passive income in Canada. You can download this case study for FREE right now if you sign up for our email newsletter.

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