What is Staking in Cryptocurrency?
You might all be aware of many people making money using the concept of Cryptocurrency mining. These people are called miners. They mine Crypto. Well, ‘Staking’ is a new way of mining Cryptocurrency. The people who stake cryptocurrency are called ‘Validators’. Unlike the previous mining process, this does not involve all the technical difficulties and costly mining hardware. Instead all you need to do is buy the crypto coins of the respective Blockchain and hold it. Thats all, and the POS( Proof of Stake ) algorithm takes care of everything else. Based on the number of coins you own( stake ), you will be chosen to validate transactions automatically. And you will be rewarded. All of this happens without any effort from your side.
What is Proof of Stake( POS )?
In very simple words: The more stake or ownership a person has in the Blockchain, the more power he gets to decide and validate transactions. It is an alternative to the Proof-of-Work( POW ) algorithm employed by certain Blockchain protocols like Bitcoin. You get to own more stake in the Blockchain by owning more Crypto/ Coins/ Tokens of the respective Blockchain ( Ex: Tezos, Tron, Neo etc. ). Like how we have ‘Miners’ in the POW blockchains, we have ‘Validators’ in the POS blockchains. Your priority and weightage as a ‘Validator’ increases as you own more coins of the protocol.
What are the advantages of Staking over Mining?
- Though the word ‘mining’ seems simple, it is still not for everyone. Setting up a mining process requires a fair amount of technical knowledge, Skillset, time and effort. You would need to either join mining pools and understand the nitty gritties of it. Or you would need to employ mining hardware, software etc. and manage it. On the other hand, ‘Staking’ removes all the above hurdles to entry. You just choose a good and trusted exchange or app ( Ex: Binance, Kraken etc. ). Spend money and buy the coins you would like to Stake. And Voila! you are in the game 🙂 You get rewarded on a regular basis as a ‘Validator’ for your contribution. Its that simple.
- Experts say that POS( Proof of Stake ) algorithm is more secure than the POW( Proof of Work ) algorithm. They believe that in future when there are less miners, low crypto left to be mined and transaction fees comes down…. hackers may get hold of 51% of the computational power. This would give them the power to create fraudulent blocks of transactions in the POW model. While in the Proof of Stake model, one needs to buy out 51% of the supply. And why would someone owning 51% want the crypto to go down? Also as someone keeps buying out the supply, the price keeps increasing drastically. The Staking concept also includes penalty on validators who violate the protocol rules ( slashing ).
Ok, lets do a live exercise of staking cryptocurrency.
The most convenient and quickest way to start staking cryptocurrency is via. exiting portals like Exchanges, Staking-as-a-Service platforms, Apps etc. These platforms take a very small fee for the service and its totally worth it. If you were to do everything by yourself, you would need to host and run a staking node of the respective blockchain on your server. We also explain how to do this in this article, but for starters lets stake crypto via. existing platforms like:
Kraken is a well known and trusted exchange in North America, Europe etc. Has millions of users from across the globe. As of now Kraken allows to only stake Tezos ( XTZ ) coins. As they keep adding more tokens and coins, we will update this article.
Step 1: Login or Register in Kraken.
You will need to hold at-least 1 Tezos ( XTZ ) tokens to be able to starting staking. You can do this by directly depositing the tokens in your Kraken wallet. Or you can buy new Tezos ( XTZ ) inside your Kraken account. ( here & here are quick ‘how to’ videos to buy )
FYI: Here is a also a guide to using Kraken
Step 2: Once you are inside Kraken, On the top menu click on the link that reads “Staking”. This opens the page dedicated to Crypto staking.
Step 3: You will be able to see the information you need to know. Please read the information. As of today we see that ‘Tezos’ gives a 6% annual returns on your investment. Once you have read the information, you can click on the ‘STAKE’ button -or- the ‘ + STAKE COIN ‘ button.
Step 4: This opens a pop-up that shows your XTZ Balance, Reward payout interval ( which is Twice a week ), Yearly rewards of 6% etc. The ‘Grow Rewards’ option is enabled by default ie. the rewards you obtain from staking crypto will be reinvested in your campaign and staked. You will need to enter the number coins you want to be staked in the text box and click the button ‘STAKE COIN’. That is all you need to do, and everything else is taken care of.
Once you have done that, your funds( tokens ) have been initiated for staking. You will see all the details under the transactions section in the ‘Staking’ page. It may take a few minutes for your action to be approved. Once approved you will receive a confirmation mail from Kraken about your coins being successfully staked. If you login to your Kraken account and navigate to the ‘Staking’ page, you will be able to see the Staked cryptocurrency under the ‘Staked Coins’ section.
Tip: In certain platforms, the concept of Staking Tezos is also called as Baking. It all means the same.
Incase you decide to liquidate your staked funds ( un-stake ), you can do that instantly. Click on the hamburger icon( … ) on staked crypto row. You get three options:
- + Add Coins: You can use this option to top-up your account with more crypto to the staked.
- Settings: This again opens a pop-up box that shows these 3 options in detail.
- Unstake: Clicking on this option Un-Stake’s the crypto, so you can liquidate it. The Un-Staked crypto falls back in your Krken wallet automatically.
Note that in case you are staking crypto that has a bonding period, you may not be able to liquidate until the bonding period is complete.
Is there a minimum lock-in period of your funds/ crypto while staking?
This is called ‘Bonding period’ in the world of crypto staking. Certain crypto tokens require this bonding period ( Tezos does not require ). Bonding is like expressing your commitment towards the network by allowing to lock your funds for a certain time period. Its like a gesture to prove your trustworthiness to be a validator in the respective protocols POS network.
Next lets look at how to stake cryptocurrency in Binance. Well, what can I say 🙂 Binance has made staking of crypto super easy ie. there is no separate page or process for staking crypto in Binance. If you just hold the respective coins/ tokens in your Binance wallet, the respective tokens are staked automatically for the duration.
Binance provides the staking rewards as AirDrops periodically for different tokens. Your rewards will be dropped into your respective wallets regularly. Binance allows you to stake a wide variety of Tokens: NEO, Tezos, Stellar, Komodo, QTum, Tron, ATOM, Algorand, Loom, Kava etc. As of the date the tokens that provide the maximum returns for staking are: Kava ( 14% – 16% ), Algorand ( 16% – 20% ), Loom ( 10% – 12% ), Fetch.ai ( 8% – 12% ).
So, How do you Stake Cryptocurrency in Binance?
Step 1: Register -or- Login to Binance.
Step 2: Click on the link that reads “Wallet”. In there you will find a search box. Start typing the name of the token there ex: ‘Tron’. Binance will pull the search results as you type.
Step 3: On the right side of each row you will find a link that reads “Deposit”. Clicking on the link will open the deposit page of the respective crypto. On this page you have 2 options to fund your wallet with the respective tokens. (1) You can find your unique deposit address on the right side. You can send tokens to this address from other wallets (2) Binance has the option to also purchase crypto using VISA/ MASTERCARD. On the right side of this page you will find the text that reads “Buy BTC/ ETH with credit card”. Using this option you can purchase Bitcoins, ETH using your Credit/ Debit card > Then convert these to the respective tokens by trading them in the exchange. FYI: Here is a also a guide to using Binance
You can also find the entire list of crypto to stake Binance here.
Once your wallet gets funded with the tokens, Binance will start staking it for you. Thats it!