What does it mean to stake crypto?

To stake crypto means allocating your coins to help power the blockchain on networks powered by the proof-of-stake model (POS model). This is a type of consensus mechanism.

When people talk about crypto staking, they can be referring to two slightly different things.

We will be covering both subjects, so you can feel confident in joining the conversation when it turns to this subject. You will also get some valuable insight as to why you might want to learn more about the matter and see if it’s something you want to do yourself.

When you stake crypto currencies, you help the community and achieve rewards.

Two ways to stake crypto

– Staking on-chain (Actual staking)

With your crypto you run a validator node. This is the fuel that helps execute transactions on the blockchain network. To stake on a blockchain you need to allocate a certain minimum of crypto coins. This minimum is different from blockchain to blockchain and can vary from an amount equal to a few hundred dollars to more than a hundred thousand dollars.
A cheaper way of staking on-chain is by allocating your crypto coins to another validator staking pool. You can allocate a smaller amount to these pools and the pool then runs the validator node. The purpose of these pools is to cluster coins and achieve some economies of scale. 

– Staking off-chain (Also referred to as “earn”, “lending” or “soft staking”)

Some trading platforms will offer you rewards for lending them your crypto coins. These offers will often be marked as “earn programs” and can have different names on the various exchanges. It follows the same idea as allocating your coins to a validator pool. However, when you are lending your coins to a trading platform or exchange, you have no certainty that they place your coins on-chain. Trading platforms will likely reinvest your crypto in the market according to their own investment strategy. 

When you stake crypto currencies, you help the community and achieve rewards. When staking coins on-chain the reward is a sort of payment for the work you are doing. When you lend your coins to a third party the reward is more like a classic interest on your loan. It is important to be aware that on-chain and off-chain variations can have wildly different terms and conditions. 

What is staking in the world of crypto?

Why is staking crypto interesting?

Staking crypto is a way to grow your crypto fortune, rather than letting your digital assets sit idle in your crypto wallet. Many crypto currencies have – like many fiat currencies – a built-in inflation. This means that the value of crypto is naturally decreasing over time, as more and more coins are produced or released. When you stake your crypto coins you counterbalance this inflation process by receiving more coins, called staking rewards. Most crypto projects are also designed to let you earn a surplus on top of the inflation. This acts as a motivation for users to participate and can be a way to add a passive income stream – remember that all types of investments carry a certain risk.
Some crypto projects are dependent on people staking for them to work e.g. Ethereum (ETH), Polkadot (DOT) and Cardano (ADA) . By adding you coins to a validator node, your staked coins help the crypto project achieve lower transaction fees, support decentralization, and add “fuel to the machinery” that lets the blockchain technology run efficiently.

Can you stake all types of cryptocurrency?

No, you cannot “stake” all cryptocurrencies. This method is used for crypto projects that run a “Proof of stake” consensus protocol. Many coins, such as Bitcoin (BTC), which uses “Proof of work” model in the mining process, which is what calculates the transaction blocks, can still be lent out in earn programs as described in the second bullet above.

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