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Crypto Staking Basics: How It Works and How You Can Use It to Earn

There are many ways you can earn crypto today without having to learn how to trade and risking your money or investing heavily in complex hardware setups for mining. Among these ways, staking is one of the most interesting. Basically, it’s a way you can earn substantial rewards for freezing a certain amount of crypto on your account.

Many online platforms out there provide staking options for their clients, but you should know how it works before investing anything. And we’re about to explain all the basics of staking to you.

How staking works

AAX staking is pretty much similar to how a simple savings account works: you deposit your coins to a special account for a certain amount of time. While your coins are staked, you can’t use them. The blockchain puts them to work, lending the coins out to other users or using them for the Proof of Stake consensus mechanism that helps the blockchain operate.

Why only certain crypto can be staked

You can stake only the cryptocurrencies that use blockchains with the Proof of Stake consensus protocol simply because only these coins support staking as a technical possibility. Other coins with different protocols use other mechanisms of verifying transactions that do not involve placing stakes, so you can’t earn rewards for keeping coins on your account.

Is it possible to stake Bitcoin

Unfortunately, you can’t staking Bitcoin. The BTC blockchain uses the Proof of Work algorithm that rewards users just for solving equations, not for keeping their coins locked for any period of time. But some exchanges, such as AAX https://trends.aax.com/buy-sell-bitcoin can offer a small percentage if you invest Bitcoin on their site. You can earn BTC rewards by mining it, but that’s a very different activity that requires much more initial investments.

What is Proof of Stake

Proof of Stake is a consensus protocol used by many cryptocurrencies, including Ethereum 2.0, Cardano, Solana, and many others. Instead of making users solve complex equations, this mechanism uses direct validation to process all the transactions. Validators invest in the blockchain by staking their coins and receive a reward for doing so, and that’s how you can also earn by staking coins. To put it simply: in blockchains based on Proof of Stake, staking replaces mining.

Pros and cons of staking

Pros

Staking is a very attractive way of earning crypto since it has a variety of pros:

  • It’s perfect for long-term investors who don’t want to trade and risk their money
  • You make the blockchain more secure by staking
  • Rewards are relatively high, and time periods are flexible

Cons

However, staking also has a couple of cons:

  • You have to freeze your funds, and sudden price changes may negate your profits
  • Not every platform is reliable, you should look out for scams

Best cryptocurrencies for staking

Today, there are many cryptocurrencies using the PoS mechanism. Ethereum 2.0 is probably the most obvious choice: it’s popular, secure, and profitable. Other great options include Cardano, Solana, and Polygon which allow you to earn about 5% annually on your staked coins.

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