Getty Images
Key takeaways
- Crypto markets have seen a significant downhill slide in recent months.
- Even during a crypto winter, investors have an opportunity to earn extra money.
- Crypto staking is an option for investors to earn passive income, but only for cryptocurrencies that use a proof-of-stake consensus mechanism.
The crypto winter is upon us. In other words, a major bear market has hit crypto investors hard. As long-term investors know, bear markets are a natural part of the business cycle. While the crypto winter might be particularly difficult to watch for crypto enthusiasts, there are still ways to earn extra money through your crypto portfolio.
Let’s explore what crypto staking is. Plus, learn how you can use this strategy (and invest in crypto) to earn extra money during the crypto winter.
What is staking crypto?
At the most basic level, staking crypto is a way to earn passive income from your crypto holdings. As an investor, you can think of staking crypto as similar to earning interest or dividends on a more traditional investment.
So how does staking work? Essentially, crypto owners can allow their cryptocurrency to be used to vouch for the accuracy of other transactions on an underlying blockchain network.
Blockchains contain a record of past transactions made with a cryptocurrency, and this record has to be agreed upon. Otherwise, investors would have no confidence in the legitimacy of the currency. Staking is one approach some cryptos take to validating their blockchains, which gets users to participate in the approving and validating of transactions on the blockchain.
Of course, the back end is relatively complicated. But as an investor, you won’t need to be involved in all of the technical details. You’ll have a couple of ways to go about this:
- Stake cryptocurrency through a crypto exchange: The exchange covers the technical aspects for you. In return for handling the back end, the crypto exchange will take a cut of your profits.
- Join a staking pool: This requires you to transfer your funds into a specific crypto wallet before moving forward with staking. Like the crypto exchange, a pool administrator will handle the back end, and take a portion of your profits.
As you earn from staking crypto, you’ll receive your rewards in a pre-determined cryptocurrency. With that, staking is a way to grow your crypto portfolio. But the downside of staking through a platform or pool is that a cut of the profits goes to the facilitator. Before moving forward with a particular option, shop around for a reasonable rate.
Advantages of staking crypto
As with all investment choices, there are advantages and disadvantages to staking crypto. Let’s start by exploring the pros:
- Passive income: If you are a believer in the staying power of crypto, you can grow your crypto portfolio through a passive investment. You won’t have to monitor your crypto’s validations. Instead, the proceeds from staking will show up as crypto in your portfolio.
- High returns possible: Investors on the hunt for relatively high returns can likely find them through crypto staking. Although the exact amount you can earn varies based on several factors, you’ll likely earn more through staking than you would through a crypto savings account.
- Crypto exchange handles the process: Crypto staking relies on a complicated back-end system. But when you work through a crypto exchange, you essentially outsource any complications. You can just sit back and enjoy the returns.
Risks of staking crypto
Crypto is a particularly volatile investment. If you pursue staking your crypto, there are risks to be aware of. Here’s what to know before jumping in:
- Volatility: Crypto is a volatile asset. Through crypto staking, you’ll earn rewards in the form of crypto. Although you may have more cryptocurrency, the value of these assets may rise and fall significantly over time. With that, your real rewards might be lower than expected.
- Lack of liquidity: When staking crypto, you’ll need to lock up the funds for an extended period of time. The time commitment can range from a few days to a few months, and in some cases, can be an unknown factor to the investor. Throughout the staking period, most exchanges have a lock-up period. Before committing your funds, make sure you are comfortable with any lock-up timeframes. . If the price of your asset is falling, you won’t have a chance to pull out your funds for sale. Additionally, staking a relatively unknown coin could make it difficult to sell on major exchanges.
- Loss of crypto possible: Crypto is an asset that seems particularly prone to theft, without many recourse options. With this risk in mind, it’s best to work with the most reputable platforms for crypto staking.
Which cryptocurrencies have staking opportunities?
When you dive into the world of cryptocurrency, you’ll find there are hundreds of coins out there. If you are interested in staking opportunities, you’ll need to find cryptocurrencies that offer staking options.
Some of the cryptocurrencies that offer staking include Algorand, Ethereum, Tezos, Cosmos, Solana, and Cardano. The amount you can earn through staking varies based on the platform and the cryptocurrency. For example, Coinbase offers staking opportunities for Ethereum with a 4.00% APY offering. Coinbase’s top offer for staking is 5.75% APY when you stake Algorand.
Some of the cryptocurrencies that offer staking include Algorand, Ethereum, Tezos, Cosmos, Solana, and Cardano. The amount you can earn through staking varies based on the platform and the cryptocurrency. For example, Coinbase offers staking opportunities for Ethereum with a 4.00% APYoffering. Coinbase’s top offer for staking is 5.75% APY when you stake Algorand.
Is staking crypto right for you?
Staking crypto is a useful option for long-term crypto investors who are ready to hunker down for a potentially long crypto winter ahead. You can put your crypto to work for you. If you aren’t concerned about getting out of the market on short notice, the time commitments to crypto staking likely won’t be a dissuading factor.
As you consider your cryptocurrency staking opportunities, shop around for the top APYs. But consider the stability of the crypto. While a smaller crypto might offer a higher APY, there’s also a higher risk of the crypto tanking. Additionally, make sure you are comfortable locking up your funds for an extended period of time before jumping in.
Crypto investing made simple
If you want to put your cryptocurrency to work, staking crypto is a worthwhile opportunity. But staking crypto comes with risks that not every investor is comfortable with. For investors who prefer a different strategy, Q.ai’s Crypto Kit might be the right move.
Q.ai uses artificial intelligence to monitor market changes. As market changes happen, Q.ai will automatically make the necessary adjustments to your portfolio to keep your holdings in line with your goals and risk tolerance.
Since the crypto markets are so volatile, harnessing the power of artificial intelligence is especially attractive. Even if you like to stay on top of changes in the crypto world, Q.ai can take some of the pressure off your commitment to portfolio management.
Download Q.ai today for access to AI-powered investment strategies.
