How To Stake Crypto
Many people are entering the crypto space, and some choose to invest in short-term trading, but others invest in cryptocurrency as a long-term investment. However, did you know that you can also generate a reward while you hold your crypto?
Staking allows crypto holders to earn crypto rewards while holding their crypto assets. It's a simple process when done through a trusted trading platform like NDAX.
This article will cover the fundamentals of staking and how anyone can get started.
What is staking?
Staking is a method of securing a blockchain and validating new transactions. It was developed to address the inefficiencies of the proof of work (PoW) consensus mechanism used by Bitcoin and other cryptocurrencies. Proof of Stake (PoS) is considered faster, more efficient, and easier to scale.
Now, many of the world’s most popular cryptocurrencies operate on a PoS blockchain. This includes Polkadot (DOT), Cardano (ADA), and Ethereum 2.0 (ETH).
By staking your crypto to the blockchain, you play a part in its efficiency and security. And in exchange for contributing your stake, you earn staking rewards. For example, on NDAX, you can earn daily or weekly payouts in ETH, DOT, and ADA.
By staking your crypto assets, you generate a reward for allowing the blockchain network to use the right in your staked assets to maintain the blockchain and validate new transactions. You do not have to transfer your crypto assets from your NDAX account, and your crypto always remains in your control, but by staking, you are entitled to a portion of the network transaction fees. The larger your stake, the greater your rewards.
To explain it in a little more detail, a proof of stake network is made up of many independent validator nodes. Whenever a transaction takes place, it’s up to these validators to approve it and cross-reference each other to verify the information.
A group of verified transactions is grouped into a block, which gets added to the official blockchain and established as a permanent record. The amount of crypto that each validator stakes determines their level of participation in the network.
What coins can you stake?
Any coin that operates on a Proof of Stake blockchain can be staked. After all, this is how the network validates transactions and maintains security.
There are hundreds of different staking coins. Some of the most popular are:
· Ethereum (ETH) *Ethereum 2.0
· Cardano (ADA)
· Polkadot (DOT)
· Solana (SOL)
· Terra (LUNA)
· Algorand (ALGO)
· Cosmos (ATOM)
· Polygon (MATIC)
However, the method of staking varies by platform. Some cryptocurrencies, like Cardano, can be staked by anyone with a compatible crypto wallet. All you have to do is select a delegator and wait for your staking rewards to come in. Other coins require a high minimum stake amount to gain permission to the network.
On NDAX, we’ve streamlined the staking process for three of the most popular staking coins: Ethereum (ETH), Cardano (ADA), and Polkadot (DOT). These cryptocurrencies offer relatively high yields and can be staked right from your account dashboard.
What are the ways you can stake?
There are multiple ways you can stake crypto based on your technical expertise and the size of your holdings. We’ll cover the three most common methods below.
Run a validator node
Running your own validation node is an option if you have a lot of crypto to stake as well as technical expertise. However, it’s not very accessible for beginners or users who only want to stake a small amount of crypto.
To run a validator node, you must have the required technical infrastructure to always keep your node secure and online. The specific requirements vary depending on the blockchain and the operating guidelines. For example, some blockchains will slash your staking rewards if your node goes offline or validates fraudulent information.
Setting up your own node can also require a significant investment. For example, in the case of Ethereum 2.0, you need a minimum of 32 ETH to become a validator.
Overall, running a validator node might be out of reach for the average crypto user. However, it's an excellent opportunity for technical users who want to participate in the operation of a blockchain directly.
Stake through a trading platform
Many crypto trading platforms operate their own validator nodes. Since the platform is responsible for running the technical operations, users can stake their crypto with minimal investment or technical knowledge. You don’t need any special computer hardware or technical knowledge to participate. All you need is some cryptocurrency.
By staking through a trading platform, you don’t need to transfer ownership of your coins to a validator. Instead, you always remain in control of your crypto and can unstake your coins when you choose.*
When choosing a trading platform to stake with, pick a company that has a positive reputation and high-security standards. Be sure to review the staking conditions carefully. What interest rates are promised? If they seem too high to be true, approach with caution. The interest rates for any given coin shouldn’t be much higher or lower than on other platforms.
In addition, is there a lock-up period? This is the amount of time you’re required to leave your crypto locked into the staking protocol. Similarly, the unstaking period tells you how long it takes to withdraw your assets. Before staking, ensure that the terms and conditions match your personal staking preferences and your financial goals.
Staking through a delegator
Staking through a delegator is similar to staking through a trading platform. You delegate your stake to a validator node that stakes on your behalf. In a trading platform for their services, the delegator takes a commission from your staking rewards.
Cardano is a prime example of a cryptocurrency primarily staked through delegators. Around three-fourths of ADA’s current circulating supply is delegated.
Delegation is usually done through your own crypto wallet. Fortunately, you can delegate your stake without your coins ever leaving your wallet.
Steps to start staking crypto
Staking on NDAX is a straightforward process. Simply follow these steps, and you’ll have your staking account set up in just a few minutes.
1. Go to the NDAX menu and click Staking on the left-hand panel.
2. Select one of the eligible coins (ETH, ADA, DOT). Each one has a different APY.
3. Next, choose your preferred staking plan. Make sure you take note of the staking terms, such as the minimum stake, lock-up period, and unstaking period.
4. After your crypto is staked, you can track metrics such as total rewards, average APY, and more.
For more information related to staking on NDAX, click here.
· Is there a minimum amount I need to start staking?
Yes. NDAX offers very low minimum staking amounts. For Polkadot, the minimum stake is 0.1 DOT. For Cardano, the minimum stake is 1 ADA. For Ethereum, the minimum stake is 0.001 ETH.
· Can I use my assets when they are staked?
No. Once they are locked into the staking protocol, you can’t use your assets for anything else until they are unstaked. Fortunately, the unstaking period for both Cardano and Polkadot is instant, depending on the plan. For more details on the unstaking and lock-up periods, read this.
· What’s the difference between mining and staking?
Both mining and staking are used to validate transactions on blockchain networks. Proof of Work blockchains like Bitcoin, use mining, while Proof of Stake blockchains like Cardano use staking. Mining requires participants to solve complex cryptographic puzzles to create new blocks. Staking requires participants to contribute tokens to the network to win the chance of validating new blocks.
· Can I stake Bitcoin?
No. Bitcoin operates on a Proof of Work consensus protocol. Staking does not apply to this category of blockchain.
· How much energy does mining use compared to staking?
Mining is a highly energy-intensive process. Staking protocols require far less energy than mining and are considered more environmentally sustainable.
· I thought Ethereum was Proof of Work. How does staking ETH work?
The Ethereum network is transitioning from a Proof of Work blockchain to a Proof of Stake blockchain. However, staking withdrawals are not yet live. Withdrawals will be live once the transition is complete.
Please note that staked ETH and ETH staking rewards will be locked until the Ethereum 2.0 network transition is complete. This transition may take months or may never occur. NDAX has no control over this process.
· How much can I earn through staking?
This entirely depends on what crypto you stake and how much. For example, the average APY for DOT is 12% and if you stake 100 DOT for 12 months, you will receive 12 DOT as a reward, which is equivalent to around $265 (as of April 4, 2022).
Try out our staking calculator to see how much you can earn through staking ADA, DOT, and ETH on NDAX.
· Why should I stake my crypto on NDAX?
The main benefit of staking is the rewards. The barrier to entry is low, and you don’t need any expensive, complicated equipment to get started on NDAX.
We wanted everyone to have access to staking. That’s why we made the process fast and easy. It only takes a few seconds to set up your staking plan. In addition, you can take advantage of daily or weekly payouts.
NDAX was developed with high quality, security and compliance standards. Rest assured, you’re not just earning rewards for yourself, your crypto is safely stored and does not leave our cold wallets. You’re also contributing to the security and trust of the entire network. It’s a great way to support the projects that you believe in.