Web3 101: How To Stake Your Crypto

Staking is one of the many ways crypto has revolutionized how we think about finance and earn income beyond traditional investments. It allows crypto holders to earn passive income by participating in a blockchain network. If you’re new to the world of staking and are not sure where to start, this guide will help you understand the basics and how to get started with three examples.

But first…

What Is Staking?

Staking involves locking up a certain amount of cryptocurrency to support the operations of a blockchain network. In return, participants (the stakers) earn rewards, most often in the form of additional cryptocurrency of that same token.

Staking is commonly associated with blockchains that use a Proof of Stake (PoS) consensus mechanism. Unlike Proof of Work (PoW), which requires vast amounts of computational power, PoS relies on validators who are chosen to create new blocks and validate transactions based on the number of coins they hold and are willing to stake.

Why Stake Crypto?

Passive Income: The primary benefit of staking is earning rewards, providing a steady stream of passive income
Supporting the Network: By staking, you contribute to the network’s security and efficiency
Lower Entry Barrier: Unlike mining, staking doesn’t require expensive hardware or high electricity costs
Compounding: Staked coins can earn interest over time, leading to compounding gains

How To Stake With Cardano

Staking with Cardano (ADA) is a straightforward process thanks to its user-friendly ecosystem. Here’s a step-by-step guide to get you started:

1. Get a Cardano Wallet: First, you need a wallet that supports Cardano staking. Popular options include Daedalus and Yoroi. Download and install your chosen wallet, then create a new wallet or restore an existing one.
2. Fund Your Wallet: Transfer ADA to your wallet from an exchange or another wallet. Ensure you have enough ADA to cover both your staking amount and any transaction fees.
3. Choose a Stake Pool: In your wallet, navigate to the staking or delegation section. Here, you’ll find a list of available stake pools. Each pool has different metrics such as performance, fees, and saturation levels. Research these pools to choose one that aligns with your goals.
4. Delegate Your ADA: Once you’ve selected a stake pool, follow the wallet’s prompts to delegate your ADA. This process involves confirming your choice and authorizing the transaction. Your ADA remains in your wallet, and you retain control over your funds.
5. Earn Rewards: After delegating, you’ll start earning rewards. These rewards are typically distributed every epoch (about five days). You can monitor your earnings and switch pools if needed.

How To Stake With PolkaDot

Staking Polkadot (DOT) involves participating in the network as a nominator, which supports validators responsible for securing the network.

1. Create a Polkadot Wallet: You need a wallet that supports Polkadot staking. Polkadot.js is the official wallet, but other options like Ledger also support staking. Set up your wallet and securely store your seed phrase.
2. Fund Your Wallet: Transfer DOT tokens to your wallet from an exchange. Ensure you have enough DOT to cover staking and transaction fees.
3. Select Validators: In the Polkadot.js interface, navigate to the staking section and choose “Account actions”. Here, you’ll add your account as a nominator and select multiple validators to back. It’s recommended to choose reliable validators with good performance records and reasonable commission rates.
4. Bond Your DOT: Once you’ve selected validators, you’ll need to bond (stake) your DOT. This involves locking up your tokens for a certain period. In the staking interface, specify the amount of DOT you want to stake and confirm the transaction.
5. Monitor and Earn Rewards: After bonding your DOT, you’ll start earning staking rewards. These rewards are distributed at the end of each era (approximately 24 hours). Regularly check the performance of your chosen validators and consider changing them if necessary.

How To Stake With Tezos

Staking with Tezos (XTZ), also known as “baking,” allows you to earn rewards by helping to secure the network. Here’s how you can get started:

1. Get a Tezos Wallet: Choose a wallet that supports Tezos staking such as Kukai, Ledger, or third-party wallets like Atomic Wallet. Set up your wallet and back up your seed phrase securely.
2. Fund Your Wallet: Transfer XTZ to your wallet from an exchange. Make sure you have enough XTZ to meet the minimum staking requirement and to cover any transaction fees.
3. Choose a Baker: Unlike other staking mechanisms, Tezos allows you to delegate your XTZ to a baker (validator). Evaluate their reliability, fees, and baking history before making a choice.
4. Delegate Your XTZ: In your wallet, find the delegation or staking section. Enter the baker’s address you want to delegate to and confirm the transaction. Your XTZ remains in your wallet, and you maintain control over your funds.
5. Earn Rewards: Once delegated, your baker will include your XTZ in their staking pool. Rewards are typically distributed every cycle (about three days). Keep track of your rewards and the performance of your baker. You can switch bakers if you’re unsatisfied with their service.

What Are the Risks?

Lock-Up Periods: Some staking protocols require you to lock up your coins for a specific period. During this time, you can’t withdraw or sell your staked coins.
Validator Risks: If you’re using a staking pool, choose a trustworthy validator. Validators who act maliciously or fail to maintain the network properly can incur penalties, affecting your rewards.
Market Volatility: Cryptocurrency prices can be volatile. While you earn staking rewards, the value of your staked coins can fluctuate.
Total Annihilation: While rare, it’s possible for a token to cease to exist/completely go to zero, trapping your funds in that venture.

Final Thoughts

Staking is an excellent way to earn passive income and contribute to the health of blockchain networks. By understanding the basics and following the steps outlined above, you can start staking and make the most of your crypto investments beyond waiting for “number go up.”

As with any investment, do thorough research and always consider the risks involved!