Crypto Staking 101 💰

Hey hey!

Another Tuesday, another post. Thanks for tapping in with me for the past month! We’re now a community of 340+ people growing & learning together in this space. I hope you’ve been enjoying the content! As always, let me know if there are certain topics you’d like for me to cover in detail and I’ll make sure to add it to the queue.

Last week, we talked about the basics of blockchain technology, Bitcoin, and Ethereum. This week, I want to build upon this foundations and talk about crypto staking! I first learned about staking earlier this year from the Blacks N Crypto team, so shoutout to the work they’re doing to educate the community. In this post, we’ll cover the following:

• What is staking?

• How staking works

• Potential risks of staking

• How to start staking

This post may be a little dense, but it’ll definitely be worth the read! I tried to keep it relatively short while sharing the most important things to know about staking. Let’s dive in!

What is Staking?

At a high level, staking gives you an opportunity to passively earn rewards (more 💸) for holding certain cryptocurrencies. Instead of having your crypto sit in your wallet and collect dust, you can “stake” it to generate more returns.

The term staking refers to the Proof of Stake or "PoS" system. In this system, coins are used to verify transactions on the blockchain. This is an alternative to mining (used for Bitcoin), which uses a Proof of Work system in which computers solve puzzles to verify transactions.

Since cryptocurrency doesn’t rely on any centralized authority, like banks or payment processors, transactions are recorded publicly on the blockchain. Blocks on the blockchain are comprised of transactions that must be verified by what's known as a consensus mechanism, like mining or staking. Whoever participates in successfully creating a new block is rewarded, which is why you get rewarded by contributing your cryptocurrency to the staking pool!

It’s important to note that not all cryptocurrencies are able to be staked. Staking can only be done with certain cryptocurrencies whose blockchains use the PoS consensus mechanism. For example, Bitcoin uses a Proof of Work model and cannot be staked. Whereas coins bought on blockchains such as Ethereum, Polkadot, Solana, and Polygon can be staked because they use the Proof of Stake model.

How Staking Works

Staking your cryptocurrency allows you to generate passive income using your crypto the same way that putting your money in a high yield savings account allows you to generate interest. When you stake some of your holdings, your crypto usually gets contributed to a staking pool. This means that your crypto earns rewards by being in the staking pool because the blockchain is putting your crypto to work!

Basically, you’re allowing the blockchain’s developers to use your cryptocurrency to improve the technology behind the project. In return, they give you rewards. I’ve seen anywhere from 8% returns to 400% returns for the most risky projects. This is WAY better than the 0.000001% these “high yield savings accounts” give you. Side-eyeing you, Marcus by Chase…🙄

According to Coinbase, “staking has the added benefit of contributing to the security and efficiency of the blockchain projects you support. By staking some of your funds, you make the blockchain more resistant to attacks and strengthen its ability to process transactions. (Some projects also award “governance tokens” to staking participants, which give holders a say in future changes and upgrades to that protocol.)”

Potential Risks of Staking

There’s one main caveat to staking that’s important to mention before you put your entire portfolio into the staking pool. Staking often requires a lockup or “vesting” period, where your crypto can’t be transferred for a certain period of time. This means that you won’t be able to trade staked tokens during this period even if prices shift. Before staking, it is important to research the specific staking requirements and rules for each project you are looking to get involved with because they can vary!

This week’s recommended action: Set up an account on Binance & start getting rewards!

For most users, the easiest path will be to begin staking through a crypto platform like an exchange! It's as simple as depositing your coins and consenting to stake them. Popular exchanges such as Binance, Coinbase, and Kraken all offer staking options.

Check out this video on how to get started staking using Binance Earn!