What Is Crypto Standing & How Does It Work?

What Is Crypto Standing & How Does It Work?

While many crypto investors mine in order to gain more assets, there is another option available to some investors: Crypto staking. 

What is crypto staking? 

“Staking is a term used to refer to the delegating of a certain number of tokens to the governance model of the blockchain and thus locking them out of circulation for a specified length of time,” says Nicole DeCicco, the owner and founder of CryptoConsultz, a cryptocurrency consultancy in the Portland, Oregon area. 

Crypto staking is similar to depositing money in a bank, in that an investor locks up their assets, and in exchange, earns rewards, or “interest.”

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  • Crypto staking involves “locking up” a portion of your cryptocurrency for a period of time as a way of contributing to a blockchain network. In exchange, stakers can earn rewards, typically in the form of additional coins or tokens. 

A particular network’s protocol locks up an investor’s holdings — similar to depositing money in a bank, and agreeing not to withdraw it for a set time period, which benefits the network in a couple of ways, according to DeCicco.

First, this can increase the value of a token by limiting the supply. Second, the tokens can be used to govern the blockchain if the network uses a proof-of-stake (PoS) system. A PoS system — as opposed to a proof-of-work (PoW) one, which incorporates “mining” — can be fairly complicated, especially for crypto newcomers.

In PoS systems, coins are staked to forge new blocks in the blockchain, for which participants are rewarded. “Winners are selected through randomization, ensuring no single entity will gain a monopoly over forging,” says DeCicco. The process is simplified for crypto exchange users, says Jeremy Welch, chief product officer at Kraken, one such crypto exchange. On Kraken, Welch says staking is as easy as “going to the staking page [on the user’s interface], specifying the amount you want to stake, and hitting submit.”

Welch also says that setting up a staking system on your own can be quite difficult. “You need to maintain and run a node yourself. And you need to know the crypto’s infrastructure,” he adds, which may require background knowledge many investors won’t have. Depending on how much of their total holdings are being staked, and the length that they’re being staked for, a staker can earn a proportional reward by forging. Stakers can also pool their holdings to meet any required minimums, too, into a “staking pool.” It’s also possible to “cold stake” on some networks, which involves staking coins or tokens that are held in a “cold” wallet, or one that is kept offline. 

Quick tip: The potential rewards you can reap from staking are directly influenced by how much you’re willing to put at, well, stake. Keep that in mind when deciding what percentage of your holdings that you stake or delegate to a staking pool. Coins you can stake

Staking rewards  There are many benefits and rewards to staking. Here are some of the most prominent:

Ethereum: Previously employed a PoW system, Ethereum is now moving to PoS. To stake Ethereum on your own, you’ll need a minimum of 32 ETH to become a validator, and you’ll then “be responsible for storing data, processing transactions, and adding new blocks to the blockchain,” according to the Ethereum site.Cardano: Investors can also delegate Ada — the Cardano network’s cryptocurrency — to staking pools to earn rewards. Cardano users can even set up their own staking pools, too, assuming they have the technical know-how to create and administer one. Solana: Solana, or SOL, can likewise be staked or delegated to a staking pool, assuming an investor uses a digital wallet that supports it. From there, it’s a matter of selecting a validator and deciding how much you’d like to stake.  While not every cryptocurrency can be staked, most can. For instance, DeCicco says that seven of the ten most popular current coins can be staked. Here are some examples: