The ongoing crypto crash has forced many investors to sell off their assets in a panic, trying to salvage at least a fraction of their investment. However, not everyone is following suit. Some have decided to ride the wave hoping that the market will bounce back, unwilling to just write off a huge percentage of their funds. During that time, staking has become a dominant and logical choice for parking their crypto. An opportunity to earn 5 or 10% on your parked assets is just too good to pass up in these trying times. If you are toying with a similar idea, here is how to stake crypto in 2022.

What is Crypto Staking?

The basic principle of crypto staking is similar to that of earning interest on your bank deposit. One significant difference is that banks usually offer very low interest while staking crypto can earn you some significant margins. Between 5 and 10% is the usual rate, but you can find even higher ones on the market.

It is a combination of a bank account and stock investments, as you can earn interest, but at the same time are subject to market volatility. The reason why you can stake crypto and earn interest on it is because of the staking pool. It is an asset fund that utilizes your crypto for various transactions that create profit.

Can All Cryptocurrencies Be Staked?

Not all crypto coins have the ability to stake. The essential part of learning how to stake crypto is discovering which ones do. Bitcoin, the world’s most famous digital currency, can’t be staked, for instance. There are several reasons for this, mostly of technical nature and the way the crypto in question was created. The key distinction of cryptocurrencies is decentralization, meaning that there is no central authority to regulate them as national banks do with fiat currencies. Instead, crypto communities rely on something called a consensus mechanism to make decisions. To do this, they employ Proof of Work. It is a process of validation of each transaction on both ends, including miners, and it uses massive amounts of processing power to run.

For older and simpler tokens like bitcoin, this isn’t much of an issue, despite a high number of transactions per second. On the other hand, more complicated networks like Ethereum can experience slowdowns, since Proof of Work often becomes a network bottleneck. There are entire systems that run on top of such blockchains and are subject to verification by the Proof of Work process. Since no operation on the network can be completed without it, the entire network can grind to a halt. Every transaction will take more time and cost more due to the ever-increasing demand for processing power.

To avoid these problems, a solution called the Proof of Stake has been created. This new consensus mechanism was designed to increase the speed of transactions and lower costs at the same time. In other words, it is created with the sole goal of alleviating the existing issues that threatened to shut down entire blockchains in times of high demand.

How Does Proof of Stake Work?

Proof of Stake, as a more modern consensus mechanism, offers many advantages over the older Proof of Work. Among them is staking. It works similar to mining and is designed to reward users based on the size of their stake. The precise mechanism differs from platform to platform, but the basics are the same across the community.

How Profitable Is Crypto Staking?

Staking offers an excellent long-term investment opportunity for people who aren’t interested in trading their crypto for whatever reasons. According to some research, an average yield for the top 261 staking assets is over 11% annually, which represents an excellent ROI. Rewards change over time, often increasing, but there are cases of platforms reducing them in certain cases.

Fees are an important part of staking and they are subtracted from the rewards, affecting the overall yield. If you want to learn how to stake crypto, you need to fully understand the fee structure, when they are applied, and what exactly you are paying for. Less savory crypto staking platforms often offer a high yield staking plan, only to deduct most of your reward through fees.

Pros and Cons of Crypto Staking

Pros of Crypto Staking

Allows users to earn interest on their inactive assets

Provides a source of passive income that doesn’t require constant babysitting and watching the market 24/7.

Increases the stability of the network and makes it more resilient to outside influences

Provides a liquidity pool

Add a safe haven for parking crypto assets during the times of crises

Cons of Crypto Staking

Assets are locked during the staking period and can’t be retrieved without taking a loss

Sudden changes in the market during the staking period can’t be exploited

As with all crypto assets, staking pools can be hacked, resulting in the total loss of all funds. Granted, this is an extremely rare occurrence these days, but the risk is still there.

How to Choose a Staking Platform in 2022?

As staking has become a widespread method of investment, more and more platforms are offering it to their users. Apart from the obvious benefits of increased competition, there are some drawbacks as well. One of the bigger ones is that it makes it hard for a new user to choose one, as they all look similar at the first glance. Here are a few tips that can help you choose the best staking platform in 2022.

Don’t get fixated on annual rewards and try to look past them for more details. There are plenty of other factors to consider before you agree to hand over your assets, like the platform’s reputation and credibility. Often high rewards are just honey traps for naïve investors.

Research the platform thoroughly before committing. That includes not just going over their terms and conditions, but also scouring their social media like Twitter and Facebook for any negative mentions. IT may sound tiresome and time-consuming, but due diligence always pays off in the end, and spending a few hours on reading can save you a lot of grief down the road.

Make sure that your analytics source is a valid one. There are plenty of examples of platforms paying for favorable analytics that skew and obscure the real truth about their business model. Use only analytic sites that you are 100% sure are genuine and honest.

Read the fine print in the Terms and Conditions to prevent any nasty surprises later on. Especially pay attention to the details of the staking process, as it differs from platform to platform. There are plenty of minute details that can’t be assumed, and missing one or two can make all the difference between a successful investment and a bust.

Finally, if you are still not certain about your choice, listen to the Vox Populi and go for the more popular platforms, even if their terms are not as tempting. A reputable platform with millions of users and glowing reviews offering modest returns is almost always a better choice than some shady startup that no one has heard of, even if the rewards are amazing.

Conclusion

We hope that this article explained the basics of crypto staking, as well as gave you advice on how to stake crypto in 2022. Armed with this knowledge, you can now start staking your crypto assets.