March 10, 2025
For many years, the U.S. has lagged behind other countries in developing a clear staking policy. However, within the first month of the Trump Administration, staking has gained significant attention when discussed in Congressional hearings, prioritized by the SEC's newly established crypto task force, and is now at the center of a bipartisan letter.
In the evolving world of cryptocurrency, staking has emerged as a lucrative way to earn passive income while supporting blockchain networks. But what exactly is staking, and how does it work? Let's get started!
What is Crypto Staking?
Staking allows you to earn rewards by using your cryptocurrency to support a blockchain network. By helping the network stay secure and efficient, you earn more of the crypto you've staked. The rewards come directly from the network, and your crypto isn't being loaned out. It's a straightforward, secure, and popular method to grow your crypto while keeping it.
To clarify this further, staking is applied in networks based on Proof of Stake (POS). Consensus is achieved through validators (participants who stake their coins and verify and confirm transactions). They put their tokens in to help protect the network and get rewarded for it. To become a validator, you must first invest a certain amount of cryptocurrency. Then, you can earn staking rewards based on how much you've put in.
Let's say a blockchain network promises a 5% monthly percentage return staking reward. If you, as an investor, decide to stake 1000 tokens for a month, you'll get four extra tokens at the end of that month. This approach encourages people to hold onto their tokens long-term while also strengthening the network's security and keeping it decentralized. Unlike traditional mining, staking doesn't need fancy, expensive hardware. This makes it a more energy-efficient option, which is excellent for individual investors and the entire blockchain world.
When Does Staking Begin?
The staking process is done by setting up their clients and making sure their systems are both secure and current by the validators. After that, an algorithm randomly picks them to verify blocks of transactions.
Because these validators have a personal stake in how well the network performs, staking pushes them to act responsibly and keep the network safe, ultimately making the blockchain more stable. Moreover, the money they stake works like a security deposit, meaning they could lose it if they don't follow the rules. This setup strongly motivates them to be honest and act in the network's best interest since dishonest actions could cost them their deposit.
Now that we have discussed what crypto staking is and when it starts. Let's understand two significant terms integral to staking: 1. Proof of Stake (POS) and 2. Delegated Proof of Stake (DPOS).
What is Proof Of Stake (POS)?
Proof of Stake (PoS) is a blockchain consensus mechanism where participants lock up their cryptocurrency to help validate transactions and add new blocks to the network. Unlike Proof of Work (PoW), which relies on computational power, PoS selects validators based on the amount of crypto they stake. Since these validators have their own assets at risk, they are incentivized to act honestly and maintain the security of the blockchain.
Staking plays a crucial role in making sure that only valid transactions are recorded on the blockchain. By committing their tokens as collateral, participants compete for the opportunity to confirm new transactions and earn staking rewards. This process strengthens network integrity and allows users to generate passive income through their staked assets.
What is Delegated Proof of Stake (DPOS)?
DPoS, or Delegated Proof of Stake, aims to make the typical PoS method more accessible by adding specific rules for picking validators. The idea is to give everyone, even those with just a few staked coins, a better shot at being selected to validate a new block. All users don't handpick validators; instead, every user gets a certain number of votes based on how many coins they've staked, and these votes are used to elect representatives, who are called either witnesses or delegates.
DPoS systems witnesses take care of validating blocks, while delegates handle broader network responsibilities like keeping an eye on security, suggesting improvements, and guiding governance matters.
Since we have already understood the definition of staking crypto and the two significant integral terms POS and DPOS, let us see how staking works.
How Does Staking Work?
Staking allows cryptocurrency holders to earn rewards by locking their coins, helping secure the network and validate transactions. It's a lot like a savings account, where your money earns interest as long as it stays in the account. How much money you make from staking depends on how many coins you stake and how long you keep them staked.
To start generating yield with your staked crypto, perform the following five steps:
Select A Cryptocurrency That Offers Staking: Not every crypto uses PoS technology for staking, so you should be sure to choose the one that does.
Buy The Cryptocurrency You Want To Stake: You should use a well-known and trusted exchange to do staking. Plus, verifying whether the crypto exchange allows staking and the minimum amount you need to stake is a good idea.
Pick A Staking Method: When staking your crypto, you have a few options. You can go for direct staking, use an exchange for staking, or even join a staking pool.
Set Up Your Crypto Wallet: Whether you use software, hardware, or an exchange-provided wallet, make sure it supports the currency you want to stake.
Stake Your Cryptocurrency: This means the digital assets in your wallet will be locked into a blockchain for a set amount of time. You can monitor how your staked crypto is doing and earn rewards from staking.
Note: Never send your coins to a wallet that isn't yours. If a project tells you to transfer your coins to a different wallet address, it's a scam, and you'll lose your coins forever. However, if you're looking to stake your crypto, stake your liquidity pool tokens in a reliable and secure farming platform with potential earnings of up to 60% APR, Sperax.io is an excellent choice. Rest assured, your assets will remain safe.
Different Ways of Crypto Staking
There are many ways to stake your crypto, and your approach can vary depending on the specific mechanism, how much you want to be involved in the validation process, and the rewards you're aiming for. Generally, we can divide these methods into two main categories: active and passive.
Active Staking involves locking up tokens to participate directly in network operations, such as validating transactions and creating new blocks, in exchange for rewards. This method requires more involvement but often yields higher returns.
Passive Staking means you lock up your coins to help them keep the blockchain safe and running smoothly. It takes less time than active staking, but you'll earn fewer rewards.
However, there are many other types of staking crypto in existence, the chief among which are:
Delegated Staking: This way of staking lets people who hold cryptocurrency hand over their staking abilities to a validator node run by someone else. The earnings are split between the validators and those who delegate. It's a good option for newcomers who might feel daunted by the technicalities or time commitment of direct staking.
Pool Staking: A group of investors combines their tokens in a staking pool to improve their chances of earning rewards, which are then shared among the members according to their contribution to the pool.
Exchange Staking: Some cryptocurrency exchanges allow users to stake their tokens directly on the platform. The exchange manages the staking process and distributes rewards accordingly.
Liquid Staking: Investors receive tokenized assets in exchange for staked crypto, allowing them to trade or use these representative tokens while still earning staking rewards.
Direct Staking: In direct staking, you actively get involved in validating transactions. You lock your assets in a wallet, operate in a full node, and consistently stay connected to the network. In return, you earn staking rewards.
Also Read: Auto-Yield Stablecoins: The Future of Passive Crypto Income
With the knowledge of various ways of cryptocurrency staking fresh in our minds, let us understand the factors you need to consider before staking crypto.
Key Factors to Evaluate Before Staking Crypto
Before staking crypto, it is a good idea to consider several factors which might influence your decision, including:
Minimum Staking Amount
Depending on the network, you may be required to stake a minimum amount, which is substantial. As we've discussed before, one workaround is pool staking. Essentially, you team up with others and combine your assets to meet that minimum. However, not every platform supports pool staking.
Locked Tokens
Staking involves locking your assets for a set duration, which prevents you from selling or using them. It's essential to make sure the lock-up period suits your needs. You might also want to think about liquid staking, which gives you representative tokens you can sell or use.
Crypto Rewards
When you're getting into staking crypto, it's important to do your homework on things like the annual percentage yield (APY). Remember that APY can fluctuate depending on various factors, including how much crypto you've staked. You should also check out how often staking rewards are paid out, and generally, the more you learn about crypto, the better.
Technical Requirements and Skills for Staking Crypto
If you're considering running a validator node, you should know that you'll need to meet some specific requirements. These include having the right skills, the necessary hardware, a solid internet connection, and regular online availability. If you're unsure that you can meet all these criteria, participating through delegated staking might suit you.
Regulatory and Tax Concerns
The rules about staking and taxing your rewards can vary greatly depending on your location. It's also important to know that the Securities and Exchange Commission (SEC) can be stringent on crypto staking. They're concerned that cryptocurrency exchanges aren't fully informing customers about the potential risks.
Now that we have learned about the factors and methods of cryptocurrency staking, let's examine their pros and cons to understand them better.
Pros of Crypto Staking
The thought of making money from your digital assets is really appealing. Here are some great things about staking your digital tokens:
You can make passive income on crypto assets that you plan to hold for a while ("HODL," as the crypto world says).
Staking helps to make the network more secure and efficient.
The potential for rewards to appreciate in price makes crypto staking an attractive investment opportunity.
It might let you be more involved in the blockchain network.
Cons of Crypto Staking
Crypto staking comes with risks. There are several drawbacks to cryptocurrency staking:
When you stake your crypto, you can't easily access it or use it for other things until the staking period is over. Think of it like locking your money in a time deposit.
If the market prices are volatile, the rewards you earn from staking and the crypto you staked can decrease in value.
If you don't follow the network rules when staking, some of your cryptocurrency can be taken away as a penalty.
When lots of people are earning staking rewards simultaneously, there is a risk of cryptocurrency inflation.
If the blockchain network where you're staking gets attacked, your staked crypto could be at risk.
Cryptocurrency staking isn't heavily regulated, so you must be extra careful.
Staking is a great way to earn extra cash on the side without doing much, but it's not without its dangers. You'll have to deal with the market's ups and downs, be unable to withdraw your money quickly if needed, and the risk of getting hacked. If you want to give it a shot, it's super important to do your homework and plan well to avoid big problems. Still curious to earn more passive income? Why not visit the Sperax to give it a try?
So, before wrapping up, let's examine an essential question: "Can all cryptocurrencies be staked?"
Not every cryptocurrency lets you stake your coins. Usually, you can only stake with currencies that use the Proof of Stake (PoS) consensus algorithm or similar mechanisms. Coins based on Proof of Work (PoW) like Bitcoin cannot be staked, as transaction validation and block creation occur through mining.
Staking is a feature implemented in various blockchain protocols to increase network security and reward users for participating. Currencies like Ethereum 2.0 (ETH), Cardano (ADA), and Sperax (SPA) are prominent examples that support staking. Moreover, we can also stake certain stablecoins like USDs in DeFi protocols. Users can deposit their coins into a wallet compatible with the respective network to participate in block validation and earn rewards (staking rewards).
Wrapping Up
Staking your crypto is a great way to earn rewards over time while avoiding the stress of short-term price swings. However, like any crypto investment, it carries risks, including lock-up periods and market volatility. If quick access to funds is a priority, staking may not be the right choice. Selecting a secure and reputable platform is crucial for those who decide to stake. Be cautious of offers that seem too good to be true, and always do your research, as staying informed is the best way to maximize rewards while minimizing risks.
With Sperax, you can effortlessly stake your xSPAs to earn SPAs, all while benefiting from very low gas fees. Moreover, by locking up SPA tokens, you can receive veSPA, granting you voting rights within the DAO. The process is simple and user-friendly, allowing you to start earning rewards without any complex steps. Whether you're new to staking or an experienced investor, Sperax makes it easy to grow your crypto holdings.
Discover Sperax today to start staking your xSPAs and automatically earn yields on your stablecoins with ease. Enjoy a smooth, effortless experience while growing your crypto holdings!
FAQs
Q. What is crypto mining?
Cryptocurrency mining uses specialized computing resources to add blocks to a proof-of-work (PoW) blockchain. Adding a new block to a blockchain validates and records the latest batch of transactions and simultaneously mints new digital tokens.
Q. Is staking crypto safe?
Yes, staking is relatively safe, especially compared to other crypto activities. But it does come with its share of considerations.
Q. What is Sperax?
Sperax (SPA) is a blockchain-based protocol designed for decentralized applications (dApps), particularly focused on decentralized finance (DeFi) solutions. The SPA token serves as a governance token and a value accrual asset within the Sperax ecosystem.
Q. What is the minimum locking period to change one xSPA to one SPA?
The standard locking period to change one xSPA to one SPA is 180 days or 6 months.
Q. What are staking rewards?
Crypto holders can stake a portion of their coin holdings by participating in a staking pool, thereby contributing to the network's security for a set duration. Essentially, they're locking their tokens into the network associated with that particular coin. As a perk, they earn staking rewards, which can be quite an appealing return on their investment.