How to Select Coins for Crypto Staking?
In simple terms, staking is a way of validating the transactions (instead of mining in PoW blockchains). Those who validate the transactions in PoS blockchains are called validators.
Staking cryptocurrencies is a technique for investors to build their cryptocurrency holdings without buying more.
Investors that participate in staking get higher interest than they would in a traditional bank account; earning maximum passive income is a legal approach to increase the yields on one's current crypto assets.
Staking cryptocurrency can be done in a variety of ways. To begin, you have the option of validating transactions on your own computer. You can even 'assign' your crypto to someone you know and ask them to verify your identity.
Sounds Interesting? Let's understand how to pick coins for staking in this article.
Guidelines for picking coins to stake
Before you pick coins for staking, follow the tips below. But again, as the crypto industry is volatile, you shouldn’t invest more money than you can lose.
Choose proof-of-stake cryptocurrencies
For staking, you need to buy cryptocurrencies that use the proof-of-stake consensus method instead of PoW for mining. Ethereum 2.0, Cardano, Solana, Algorand, and Polkadot are such cryptocurrencies. You need to understand the staking rewards offered by these platforms and how they work. Next, you need to look into buying staking works on these platforms.
You must have a minimum of 32 ETH and the Eth1 mainnet client in order to stake on ETH 2.0. Go to the Eth2 Launch Pad to get started. Similarly, stakeholders that run full nodes for Agorand can earn an APY (annual percentage yield) of 8%.
Move your funds into a blockchain wallet
Usually, funds are available in an exchange wallet where you have purchased cryptocurrencies. If you have purchased digital assets supporting staking, you can directly stake on that exchange.
Otherwise, move your funds into a blockchain wallet to secure your crypto assets. Then deposit your crypto and select the type of cryptocurrency to generate a wallet address. Finally, go to the exchange which has your crypto stored to move your funds to the blockchain wallet.
Risk exposure
Another important metric for choosing staking options is your ability to bear risk. If you are a risk-averse investor, do consider stablecoins like USDC, DAI, USDT to hold your funds in a low volatile environment.
Binance offers a 3.49% yield to USDC holders, 5.47% to USDT holders. On the contrary, Coinbase offers a 0.15% yield to USDC holders, 2% to DAI holders.
Do not forget that Coinbase (as listed on the NASDAQ) is more secure. Invest wisely!
Soft staking or exchange staking
As mentioned previously, you can directly stake your holdings at an exchange where you have created an account or my moving funds to a blockchain wallet. However, you can also use Staking as-a-service platforms (dedicated to staking only) to earn a passive income. But, note that such platforms charge fees to cover their operational costs.
When it comes to staking virtual assets, MyCointainer users have three options: Power Max, Power Plus, and Basic. With on-chain staking capabilities, the platform supports the staking of more than 50 cryptocurrencies. The staking charges are different on the three levels.
Power Max users, for example, spend more than $10 per month, whereas Basic customers pay as little as $1 per month.
Check Reddit or Twitter
Never trust a founder's or protocol's team's word for whatever project they're trying to implement when it comes to new DeFi platforms, especially if you're not a techie. Check out what others are saying about the protocol on Reddit and Twitter. Dev users can generally detect the risk of a rug pull and warn the community if they discover any indicators of wrongdoing or code vulnerabilities.
Terms and conditions
Read the terms and conditions that govern the staking process before you start staking. The regulations address issues such as whether staked crypto must be unstaked after a cooling period, whether the wallet must be connected to the internet at all times, and a minimum staking value, among other things.
Coin's value
Avoid staking a coin with extremely high inflation rates. You may receive large payouts at first, but due to the volatile nature of the coin's value, you may end up with little to no profit.
Real-world applications
The demand for a cryptocurrency is mostly determined by the coin's real applications. It will continue to have a strong demand and price if it is widely employed for numerous applications in the real world, such as digital payments.
Is it possible to lose money by staking cryptocurrencies?
When it comes to investing, the first and most significant consideration is the level of risk involved. Is it safe to stake cryptocurrency?
Yes, it is, but there are a few dangers to be aware of. In general, you cannot "lose" money by staking cryptocurrency. Inflation and illiquidity, to mention a couple of items, are things to watch out for.
Given how volatile cryptos are, there's a potential the coin you're staking will lose value. For example, if you stake your cryptocurrency and it loses value despite earning returns after staking, you might theoretically still lose money.
You won't be able to use the coins for several weeks or months if you're a day trader, which means you'll miss out on lucrative opportunities. This is why it's critical to use caution while choosing which coins to stake.
Before staking, review the advice we gave in the 'Guidelines for picking coins to stake?' section to ensure you're making the appropriate decision.