What is Staking?

In simple terms, staking is a way to earn rewards on your crypto assets. These rewards are earned in percentage terms and known as Annual Percentage Yield (APY). Instead of storing your crypto assets in your wallet, staking is a way for you to put your crypto assets to work. Important to note, you are not “lending” your crypto assets, the yield you receive is generated from the protocol itself.

When you stake your crypto assets on a blockchain, you are locking up your assets to contribute to securing the blockchain and validating the transactions on it. Therefore, staking is only possible for cryptocurrencies that use a consensus mechanism called “Proof of Stake” like Ethereum. Bitcoin, for example, uses Proof of Work consensus mechanism so it is not possible to stake your bitcoin. To summarize, you lock up your crypto assets for a certain period, the blockchain benefits from your crypto assets as collateral, and you earn rewards.

The amount of rewards you receive varies from each cryptocurrency to another and depends on several factors, such as the amount of cryptocurrency you stake, the length of time you stake it, and the current APY of the network. Generally, the longer you stake your cryptocurrency, the higher the rewards you can earn.

Staking is a popular way to earn passive income in the crypto world, as it allows you to earn more cryptocurrency without having to trade or invest in the market actively. It also helps to support the network by ensuring there are enough validators to process transactions and maintain the blockchain.

However, it's important to note that staking comes with risks, such as the potential for market fluctuations and the possibility of having your staking rewards slashed if you do not follow the validator rules of the protocol. All investments carry risk. When staking, the biggest risk is that you will not be able to sell or transfer your crypto assets during the lock-up “vesting” period. It's important to do your research and only stake what you can afford to lose.