How To Pick The Best Staking Coins For Passive Income
Staking cryptocurrencies simply means locking your coins or token on a blockchain for a certain period and earning a reward at the end of the period.
During the staking period, your coins cannot be accessed.
Investors that avoid or fear the risks associated with trading crypto stake their holdings instead, which turns out to be a way of earning crypto passively.
Although, staking can work for some cryptos that run on the proof-of-stake mechanism which is more efficient, scalable, and sustainable than the proof-of-work system. Some of these cryptos are (Ethereum, Tezos, Cardano, Algorand, Solana, Cosmos).
PoS requires interested persons to stake their holding and become a validator. Validators are the backbone of the blockchain and they run the verification process that authenticates all transactions running on the PoS blockchain. Validators are similar to miners if we are to consider the PoW
In this article, I will be explaining to you how staking works and what to look out for when picking a coin or token to invest in.
Key Takeaways
• Staking cryptocurrency is an excellent way to add extra income to your major source of income.
• You can only stake cryptocurrencies that use the proof of stake mechanism and not the proof of work.
• Staking cryptocurrencies with relatively stable prices is important if you want to benefit from crypto staking.
• Should you decide to stake, crypto coins that have a fixed supply are very advisable to use.
SEE ALSO: How To Join The Waitlist For Ethereum Staking On Coinbase
SEE ALSO: 7 Best Staking Pools For Cardano
SEE ALSO: Staking On Coinbase? 5 Key Things You Should Know
Let’s get to the details.
How Crypto Staking Works
Just as explained earlier, staking entails dedicating your crypto to a particular blockchain to carry out transactions and other blockchain activities while you get rewarded for that.
Moving on, staking starts with investors donating their cryptocurrencies to a crypto protocol with the hope of being accepted as crypto validators.
The downside about staking is that not everyone will be selected as a crypto validator and for some cryptocurrencies, you will need to stake an expensive amount of cryptocurrencies to even be considered.
For instance, Ethereum has a 32-ETH minimum staking rule. Convert that amount to fiat and you understand that staking ETH will be quite difficult for most people.
Moving on, if you eventually do get selected as a crypto validator, you will be tasked with adding blocks to the blockchain and overseeing transactions.
When that is done, new crypto gets minted and you get rewarded in the same crypto you are staking for your efforts in most cases (some blockchains opt to reward their validators with a different type of crypto).
Staking as an activity is passive, which means you are carrying out a passive activity when you donate your crypto for staking, and this can be stopped at any time should you wish to trade your cryptocurrencies instead of staking them.
For some blockchains, you can withdraw your crypto instantly; for others, however, you will have to stake for a particular amount of time before you can unstake your coins.
Take note that not all cryptocurrencies are eligible for staking as only those who use the proof of stake mechanism are eligible to do so.
Other cryptocurrencies which make use of the proof of work mechanism do so through mining, which requires a lot of computing power.
Proof of stake is superior in that it handles a larger number of blockchain transactions and has a faster processing speed than proof of work.
Best Coins to Stake for Passive Income
Knowing the best cryptocurrencies to stake is usually great, especially when it comes to how much you can make as a passive income from these cryptocurrencies, which is why I will be listing the factors you need to take note of before selecting a coin for staking.
The value of the Coin or Token
One particular aspect you need to be on the lookout for in a coin you want to stake is its price value.
You must pick a fairly stable coin, and by fairly stable, you should know that meme coins and shit coins are automatically ruled out.
These coins fluctuate a lot in terms of their prices and are generally not recommended. At first, you might earn significant rewards, but these are inconsequential considering that you will begin making subsequent losses after that when the value of the coin changes.
As such, staying away from coins with high inflation rates is a first step towards choosing the right coin for staking.
Fixed Supply
A cryptocurrency that is not unlimited in supply is a good sign that it is stake-worthy as long as it supports the proof of stake mechanism.
A coin that has a fixed amount of supply in circulation means that it will attract the right demand for it and the right price.
Variety of Applications
A crypto coin that can be used for a wide variety of applications would be in high demand because of its versatility and would most likely be a good choice for staking activity. Crypto coins such as Ethereum, Cardano, and Solana are typical examples.
Unique Selling Point
In this case, you are looking for specific features that the cryptocurrency has that you believe will be favorable for staking and will potentially increase the currency’s value.
Finding a crypto coin with that particular feature that will fit well with staking procedures is a good thing to note before deciding to stake.
The Coin’s Roadmap
If the team behind the coin’s existence has given an official roadmap on the coin, then you can evaluate the coin’s potential to determine if the crypto coin is worth staking or not.
The Development Team
Every crypto coin has a development team that always provides information on the goals and visions behind the cryptocurrency.
Following this up with the latest information and trends on the crypto coin will give you an inkling as to how serious the crypto project is and whether it will stand the test of time.
Estimated Return on Investment (ROI)
With some cryptocurrencies, you can predict the estimated amount of potential income you expect to earn if you stake them.
Cryptocurrencies such as Ethereum, considering that it is one of the top cryptocurrencies in the market today, can help you make future crypto investment plans when you can have an idea of how much you stand to gain as rewards for staking it.
In essence, these are some of the factors you should take note of if you want to stake the best coins and expect an impressive passive income in return.
There may be more factors out there, but these are the most important, and checking the boxes concerning the abovementioned factors more than means that you can proceed to participate in crypto staking.
Frequently Asked Questions (FAQs)
How do you stake a coin?
The first thing you need to do is to make sure that the coin you want to stake supports the proof of stake mechanism. Then you choose the amount you want to stake and proceed to stake on popular crypto exchanges such as Coinbase or Binance.
Can you live off of staking crypto?
It is not advisable to live off of crypto staking. Crypto staking is a passive activity, and as such, you should have a major source of income while you engage in staking as a side hustle.
Final Thoughts
Staking cryptocurrency is an exciting activity and one that you should consider if you want to earn passive income in the process.
Nonetheless, conduct a thorough examination to ensure that the cryptocurrency is compatible with the proof of stake mechanism and that it meets the above-mentioned criteria for a good coin.
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