Cryptocurrency staking can satiate your hunger for passive income by making your cryptocurrency work for you.
In the words of Warren Buffet, the greatest investor of all time and probably the most hated person in the crypto world.
If you don’t find a way to make money while you sleep,
You will work until you die.-Warren Buffet
What is Staking?
Crypto staking simply means to stake your crypto coins in a certain place to earn staking rewards. It is mainly comprised of a few strategies and a proof-of-stake mechanism which is somewhat similar to proof-of-work but uses a different mechanism to mine crypto coins.
In crypto staking, the user holds a certain amount of crypto coins in a wallet and then stakes them or locks them for a certain period of time and by doing so earns a good chunk of interest for holding the crypto assets and this whole process is called crypto staking.
Crypto staking gives us an even better alternative to these archaic systems, which often don’t pay enough to be worth it. Crypto staking takes the mechanism of CDs (Certificate of Deposits) and stock dividends and attaches a flux capacitor to it. That means crypto staking provides a whole other level of value.
Crypto staking is a great alternative to the proof-of-work system that bitcoin uses. So the big ASIC mining farms and the GPU mining farms are basically rendered useless in crypto staking and it is a great alternative to that system because it uses a lot less energy which is a lot better for the environment.
Below is the average APY (Annual percentage yield) of crypto staking for some cryptocurrencies:
- Polkadot (DOT): 18.4%
- TRON (TRX): 14.90%
- Tezos (XTZ): 9.15%
- Cosmos (ATOM): 8.01%
- DASH (DASH): 11.05%
- Synthetix Network Token (SNX): 37.33%
However, you do need to own the crypto coins to get rewarded with crypto staking.
Crypto staking rewards can be earned via the following strategies:
- Native Wallet Staking
- Cryptocurrency Exchange Staking
Native Wallet Staking
The first and the easiest way to get crypto staking rewards is by storing your crypto coins in a hardware wallet that is in combination with the native wallet.
For example, Neon is the native wallet of Neo (NEO) and it is just a program that you can use to start earning crypto staking rewards by holding your Neo coins.
Just connect Neon with your hardware wallet or you can also do it without the hardware wallet but I would not recommend that because it is not a safe approach. So if possible always use a hardware wallet. Now open your neon wallet, connect it with Trezor or Ledger, or any other hardware wallet that is being supported by the neon wallet and then deposit your neo coins in the neon wallet and automatically get your crypto staking rewards.
Another example of a cryptocurrency is ICON (ICX) which offers a very high staking reward in its ICONex wallet.
There are many cryptocurrencies and almost all of them have different native wallets and applications with their own set of rules that user needs to follow to enjoy staking rewards.
There are also wallets that support multiple cryptocurrencies and still offer crypto staking rewards. One such wallet is the Trust wallet.
Also, remember that lesser-known cryptocurrencies offer higher crypto staking rewards but they also come with an increased level of risk.
The APY (Annual percentage yield) for crypto staking in the native wallet is anywhere between 6%-10%.
Cryptocurrency Exchange Staking
Another easy way to stake your cryptocurrencies is by putting them on an exchange that is offering crypto staking rewards.
The biggest exchange for crypto staking is Binance which is also the biggest and the most trusted cryptocurrency exchange in the world.
The reason why I recommend Binance for crypto staking is that it offers a 100% refund to the users if it’s ever hacked.
Binance is not very difficult to use. All you need to do is deposit your cryptocurrencies on the exchange onto your wallet and basically, it automatically starts accruing crypto staking rewards. You don’t need to do anything else to start crypto staking and you receive your staking rewards at the predetermined time such as every week or month.
Some noteworthy crypto staking rewards on Binance are:
|CRYPTO||30-Days APY||60-Days APY||90-Days APY||Amount Required|
The cryptocurrency mining in proof-of-stake adds new blocks to the blockchain and just like any basic blockchain, it is also composed of just a chain of blocks but unlike proof-of-work, the algorithm of proof-of-stake chooses a miner randomly and in most cases from a pool of bound wallets so the wallets that have staked coins inside them also gets to mine and validate new transactions on the network.
Compared to a proof-of-work system where the computer validates the transactions and that uses a lot of power and resources, proof-of-stake builds new blocks that are proportional in size and rewards the users that have staked coins.
The easiest way to explain this is with the example. Suppose a node has one percent of all the crypto staking in a certain cryptocurrency, then one percent of all the transactions of that particular cryptocurrency will be mined by this node, and depending on the coin you could get one percent of the mining rewards but that too depends entirely on the coin.
There is a safety system in proof-of-stake so if someone does anything dodgy with a node i.e. tries to hack the network or increase the output as opposed to other people, then he will just be removed from the network. The active security systems built into the network actively work to remove dodgy nodes from the network and it’s the best system that currently exists.
However, in proof-of-work, one can just keep setting up new computers and not worry about getting removed from the network.
Here are a few examples of some proof-of-stake coins.
- Tezos (XTZ)
- DASH (DASH)
- Tron (TRX)
- NEO (NEO)
- Cosmos (ATOM)
- VeChain (VET)
- Ontology (ONT)
However, there are many variations on this system but this is the basic outline of what proof-of-stake really is and how it works.
Proof-of-Stake Vs Proof-of-Work (POS vs POW)
|Proof-of-Work (PoW)||Proof-of-Stake (PoS)|
|Consumes a high amount of energy||Low energy consumption|
|Risk of Centralization||Relatively lesser centralization risk|
|High day-to-day expenses||Low expenses|
|Significant hardware investment||Low hardware investment|
|Consistent profit||Consistent Profit|
|Asset depreciation||Asset Depreciation|
So how does proof-of-stake stand up against proof of work proof-of-work?
Both these mechanisms give a continual gain of cryptocurrency so you’ll continually gain cryptocurrency on top of what you already have. Proof-of-work uses resources while proof-of-stake uses the crypto coins to generate continuous income. So with proof-of-stake, you do need to start from a point of having quite a few of the coins.
The proof-of-stake has less risk of centralization because there are many algorithms built into the system. Additionally, the more coins you stake, the harder it is to maintain, and the higher reward you get for providing a node for the network, and therefore it gets harder and harder almost exponentially in order to centralize a coin.
Passive Income With Proof-of-Stake
Many financial products and strategies have a fixed interest rate and timeframe in which they are paid out to holders. With cryptocurrencies, it operates in a similar manner, except the returns are exponentially higher than most traditional assets.
The way it works is pretty simple. You send your crypto tokens to a specific wallet or platform, your tokens are considered collateral, and in exchange, you are designated to receive a percentage share of the pool where the rewards are generated from.
Once your crypto coins are in this pool, you reap the rewards daily just by the act of staking your crypto tokens.
There are many top projects that utilize the concept of crypto staking or proof-of-stake to incentivize investors to HODL their tokens in order to earn passive income.
Some of the most notable being Cardano (ADA), Tezos (XTZ), Cosmos (ATOM), and Ethereum (ETH), and many new cryptocurrencies are supposed to be adopting a proof-of-stake consensus algorithm along with the Ethereum 2.0 upgrade.
One of the best and my personal favorite site to use for tracking all the data relating to crypto staking is Stakingrewards because it tracks more than 150+ crypto-yielding assets, including the ones just mentioned above.
This website is extremely helpful for aggregating all the information you need to know about which projects are giving the best crypto staking returns. It also provides information about staking providers and pools that reward the highest payout. For example, you can stake your Tezos (XTZ) in a Trust Wallet and can put Cardano (ADA) in a Daedalus wallet.
So if you decide to stick with the project, crypto staking with proof-of-stake will prove to be the best way to earn a passive income because it is one of the low-risk ways to earn interest on your crypto with the APY of crypto staking far exceeding the most traditional offerings.
Proof-of-Stake: Drawbacks and Risks
- The first and foremost risk of crypto staking or proof-of-stake is associated with its biggest benefit i.e once your coins are locked up for a set period of time, you can’t sell them easily and if the asset depreciates in value, you assets will also lose value and you won’t be able to do anything about it.
- There is always the risk of asset depreciation with proof-of-stake. Suppose you buy a good amount of a certain crypto coin to stake them against the network but the asset decreases in value which keeps happening in the crypto world all the time because of the huge volatility, you will encounter asset depreciation.
- Crypto staking with proof-of-stake is very difficult for beginners as it requires active knowledge of a crypto asset that you’re going to stake in and because it also does not have anything to do with mining.
Masternodes are potentially a way of getting passive income and usually when you hear the word masternode in the crypto space, it is tied to a scam but masternodes are not necessarily scams.
Masternodes are a good way to earn passive income when you don’t necessarily have the time to do trading or active research to find the best new coins.
What are Masternodes?
At its core, a masternode is just a server or node in a broader blockchain network but it also has some special features that make it stand out against the normal nodes.
Masternodes hold the blockchain, relay transactions, and constantly indulge in adding more privacy to transactions and at the same time making the transactions instant. Masternodes even have a say in voting and governance for different changes to the blockchain network and they can even execute smart contracts.
DASH (DASH) was the first cryptocurrency to implement masternodes into its protocol and since then many other cryptocurrencies have followed the path.
- High investment – Necessary to buy and stake a lot of coins
- Linux Server – 24 hours active server required to serve as a masternode
- IP address – Needs a dedicated IP address so other nodes on the network know how to reach that server
Depending on the coin, there can be other unique requirements but these are some main ones that are pretty prevalent throughout.
Note: Setting up a masternode is not for beginners, it usually requires the help of IT experts.
Passive Income With Masternodes
First of all, masternodes give a share of the rewards for every time the blocks are added to the blockchain and the extent of rewards depends entirely on the coin and the rules set by its developers.
There are two ways to earn passive income with masternodes.
- High investment
- Low investment
High Investment Masternode
This simply means that a single person or an entity owns a full masternode.
The rewards for a full masternode go straight to the wallet address that is tied to the masternode which makes it pretty convenient.
Also, the amount of reward is different and depends on many factors so you have to calculate the price depending on the coin, whether the price of the coin appreciates or depreciates in value, the number of coins that you bought, and the periodicity of when you received them. All of these factors need to be taken into account when you’re trying to calculate and forecast how much you’ll earn from a masternode.
For example, DASH (DASH) has a two-tier model where the miner secures the blockchain and gets 45% of the mining reward, and then there is the masternode that does the same but on a higher level and provides higher tier level services and gets 45% of the total block reward.
For the DASH masternode, 1000 DASH coins are required as collateral in order to set one up.
Low Investment Masternode
This simply means that a user owns a partial share of a masternode.
Well, there are people who have created a thing called a masternode pool where many people pull their coins together to get enough investment to reach the threshold of a full masternode. These pools are usually managed by third-party operators and they’re the ones in charge of distributing the payouts to the people who contributed to the pool.
This is quite risky as well because as you can imagine there is a big chance of getting scammed by other people and third-party operators. They can easily run away with your coins so definitely be very careful before joining such a masternode pool.
However, there are also some masternode pool operators that create these pools via smart contracts. They are not very huge but it would be much safer to join the masternode pools handled by smart contracts rather than the ones that are handled by third parties.
Masternodes are somewhat similar to proof-of-stake because for masternodes you have to lockup or stake your coins and if you move them away or unstick them, your master node will be removed from the network. So proof-of-stake requires masternodes but masternodes don’t necessarily mean it’s a proof-of-stake coin.
Furthermore, masternodes are also set up to benefit the network by incentivizing participation and enhancing security.
Tips To Choose A Masternode
There are many sites out there where you can take a look at all the different coins and look at various metrics to do your calculations and determine which one you’re interested in. Before that, I recommend that you consider the following things:
Check the vision behind the cryptocurrency, what the coin is, and what is it trying to do.
Check how active is the developing team of the cryptocurrency, if they have any commitments on GitHub, how actively is the team developing the project.
Community support is very important to check if the community support is huge for the masternodes.
Conduct proper research before setting up a masternode because masternodes take substantial investment and time to get started so you don’t want to just dive into some random coin with some random masternode and expect to get juicy returns.
Masternodes: Drawbacks and Risks
- It costs a lot to set up a masternode
- It is prohibitive for someone to get a majority of Masternodes and take over the network by 51% attack or other types of strategies.
- Because of the high startup costs, users are incentivized to play fair and abide by the rules because nobody wants the drop-down in prices.
- Some projects just add masternodes to entice investors. Beware of such projects and I encourage you to stay far away from them because they don’t provide any real value and they’re just doing it for financial gains.
Warning: Be extra careful with any project offering outlandish APY returns.
That’s it, folks.
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