What is Staking?
The world of crypto can be complex and is filled with terms and ideas that can be difficult to wrap your head around – staking might be one of those. This article looks at what is staking and how you can stake your crypto with Finst.
In simple terms and probably the key takeaway, staking is a way of earning rewards while holding onto certain cryptocurrencies. Let’s take it a step further and look at how staking works.
How does Staking Work?
You can stake the following cryptocurrencies with Finst: Ethereum (ETH), Cardano (ADA), Solana (SOL), Polygon (POL), Near Protocol (NEAR), Cosmos (ATOM) and Polkadot (DOT). When you hold one or more of these, you can opt to stake them and earn a reward over time. When you stake with Finst you can earn the following rewards on your crypto.
*APY stands for annual percentage yield. It is a way to calculate interest earned on your crypto including the effects of compound interest.
When staked, the blockchain puts your crypto to work, that’s why you earn rewards. More specifically, these rewards are referred to staking rewards.
Cryptocurrencies that allow staking use a “consensus mechanism” called Proof of Stake. This makes sure that all transactions are verified and secured without a bank or payment processor in the middle. When you choose to stake your crypto it becomes part of that process.
What is Proof of Stake?
Proof of Stake (PoS) is a consensus mechanism used in blockchain networks to validate and authenticate transactions and create new blocks. Unlike Proof of Work (PoW), where miners solve complex mathematical puzzles to validate transactions and create new blocks, PoS selects block creators in a deterministic manner based on the amount of cryptocurrency they hold and are willing to "stake" as collateral.
How Proof of Stake Works
- Staking: Participants in the PoS network (often referred to as validators or forgers) are required to lock up a certain amount of cryptocurrency as collateral. This is their "stake" in the network.
- Block Creation: Validators are chosen to create new blocks and validate transactions based on various factors, often including the amount of cryptocurrency they have staked. The more cryptocurrency a validator has staked, the higher the chance they have of being chosen to create a new block.
- Validation: Validators are responsible for validating transactions and ensuring the integrity of the blockchain. They do this by confirming the validity of transactions and adding them to the blockchain.
- Reward: Validators are rewarded with transaction fees and sometimes newly minted cryptocurrency for their efforts in creating and validating blocks. The reward they receive is typically proportional to the amount of cryptocurrency they have staked.
Proof of Stake has several advantages over Proof of Work, including energy efficiency (as it doesn't require vast amounts of computational power), reduced centralization risks (as it doesn't favor entities with the most computational resources), and potentially faster transaction confirmation times.
Advantages of Staking
A key advantage of staking is that if you’re looking to invest in crypto long-term, it’s a way of making your assets work for you by earning staking rewards, rather than just sitting in your crypto wallet.
In terms of putting your crypto to work, staking is similar to putting your EUR savings into a high yield savings account rather than letting the money sit in your everyday bank account.
Another advantage of staking is that it contributes to the security and efficiency of the blockchain projects. When you choose to stake your crypto, not only are you generating rewards, you’re also making the blockchain more resistant to attacks and strengthening its ability to process transactions.
Check out the comparison chart below to see the advantages of staking with Finst.
Risks of Staking
It is quite common that when you choose to stake your crypto, you encounter a lockup or vesting period. This means that your crypto can’t be transferred for a certain period of time. Why does this matter? If prices shift, you won’t be able to trade your staked assets during this period.
To avoid encountering this issue, make sure to look for staking services that offer full flexible staking. This means that you can sell, withdraw and unstake your crypto at any time. With no lockup period and no minimum amount required.
Also important to note, look out for providers that are offering both crypto staking and crypto lending. While you will earn rewards for both, they are different methods. When you stake your crypto you are allowing the blockchain to put it to work, using Proof of Stake. When you lend your crypto, you are lending your assets to a borrower for which you receive interest.
Before you start staking your crypto make sure that you are fully aware of the staking terms of the crypto provider of your choice.
How to start Staking with Finst
Once you have an account with Finst and have bought one or more of the following cryptocurrencies: Ethereum (ETH), Cardano (ADA), Solana (SOL), Polygon (POL), Near Protocol (NEAR), Cosmos (ATOM) or Polkadot (DOT), you can easily enable staking via the mobile app or the desktop platform.
Staking via the mobile app
- Login and tap on the Menu icon in the bottom righthand corner
- Tap on Staking
- Tap on the cryptocurrency you want to stake
- Tap on Enable staking
- Make sure to read the T&Cs carefully
- Tap on Enable staking to get started
*Please note that when you enable staking it will be automatically applied to all stakeable cryptocurrencies and Bundles in your Wallet.
Staking via the desktop platform
- Login and tap on the Staking section on the lefthand side
- Tap on Enable staking
- Make sure to read the T&Cs carefully
- Tap on Enable staking to get started
*Please note that when you enable staking it will be automatically applied to all stakeable cryptocurrencies and Bundles in your Wallet.
Your staking rewards are paid out every Monday.
Staking Summary
To wrap up the article, let’s summarize all the important points to consider when staking.
- Look for a fully regulated crypto provider that offers completely flexible staking
- Make sure that when you stake your assets, these are staked and not lent to borrowers
- Compare the annual percentage yield you receive on your crypto when opting to stake
