Crypto staking: pros and cons

Amidst an extremely unstable political and economic situation in the world, many are seeking new investment tools that would allow them to protect funds from the rising inflation of fiat and the centralisation of the traditional banking system.

Over the past few years, the popularity of cryptocurrencies, in which globally-known companies such as MicroStrategy, Tesla, Galaxy Digital Holdings etc. are already investing, has grown. Staking remains one of the easiest and most effective tools for making money with digital assets.

We are going to tell you about the pros and cons of this investment method.

What is staking crypto?

Crypto staking is the process of holding digital assets to keep the network running and earn rewards.

Cryptocurrencies are created using blockchain technology, where all transactions are verified by the system, and the received data is recorded and stored in the chain of blocks.

There are two main algorithms by which network consensus is reached and transactions are verified: Proof of Work and Proof of Stake.

Staking is used to maintain blockchain operations on the PoS algorithm – network users hold crypto in their wallet, thus helping to confirm transactions and reach consensus, and receive rewards in return.

This process can be compared with a bank deposit, when the owner places his assets into the bank and earns interest for a certain period. The financial institution uses this money for its own needs, and at the end of the deposit period, the owner receives a reward.

How does crypto staking work?

There are several ways that allow you to passively earn with crypto. In many ways, the choice depends on your technical knowledge and skills, start-up capital and your goals. In the beginning you should decide whether you want to be in charge of all processes by yourself, such as server connection and configuration along with validation of transactions, or delegate these tasks to a service that will undertake this for you.

Staking on a cryptocurrency exchange

One of the most popular ways is staking on a crypto exchange. The principle is simple: you choose one of the available cryptocurrencies and stake coins, which the platform then combines with other assets to achieve the required minimum stake. Your coins take part in the confirmation of transactions and the reward is divided among all network users.

Today, many platforms offer this option but it comes with certain risks. You entrust your private keys to the exchange as the majority of platforms are centralised and regulated by the authorities. It is important to understand the digital asset market because you will need to choose a coin and estimate its growth prospects by yourself.

Automated staking

If you don’t want to entrust your funds to an exchange, you can choose a dedicated staking platform such as aStake. It provides an automated system for passive earning with the MetaHash (MHC) cryptocurrency. All you need to do is register on the platform, buy MHC coins and hold them in your wallet. The system completely takes care of the technical part, connecting and maintaining the server, which means that this method is suitable even for beginners. Besides, aStake doesn’t store the private keys of clients, who solely manage and dispose of their funds by themselves.

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Self-staking

Self-staking is a method of making money with crypto, when you connect and maintain the server’s performance to validate transactions. This method is safe since you do not need to deal with other platforms in any way and have complete control of the process.

However, this method is not suitable for everyone. You will need to be tech-savvy to set up and connect the equipment. For instance, on the Ethereum network, you first need to generate validator keys, install all the necessary applications, specify the number of nodes you will work with, and then transfer ETH coins to ETH 2.0, using a smart contract.

This method also requires significant financial investments. In addition to equipment costs on the Ethereum network, you will have to hold a minimum of 32 ETH coins, which, as of March 2022, is almost $90,000 per ETH.

Pros and cons of crypto staking

Like any other way to make money, staking has its pros and cons. Let’s talk about the main advantages and disadvantages so that you can determine if this method is suitable for you.

Advantages

High yield

One of the main advantages of staking is its high profitability, especially in comparison with the classic bank deposit or mining. For instance, the annual interest for placing funds in a bank deposit ranges from 0.03% to 4% for dollar and euro deposits. You can get up to 9% for riskier fiat currencies such as hryvnia and ruble.

When it comes to crypto staking, staking reward typically starts at 4-5% and can reach up to 20%. On the aStake platform, the expected reward is 17% per year and this figure can grow with the increase of the MHC coin’s value. The second largest cryptocurrency by capitalisation, Ethereum, offers an average yield of 4.5%, but the percentage can be higher depending on the level of investment and the holding period.

Low barrier of entry

To make money with real estate or mining, you need serious financial and time investments. Staking’s main advantages is a low barrier of entry as you do not need to spend money on buying equipment or on electricity bills. Furthermore, you can start earning with small amounts: on aStake, the minimum deposit is 2048 MHC.

Suitable for beginners

This passive income method is suitable for beginners because the platform provides automated systems. Of course, you can manage the technical configuration of servers on your own if you wish, but this is absolutely unnecessary on aStake.

Disadvantages

Market volatility

The main downside to staking crypto is market volatility. It’s not a secret that crypto prices change very quickly. This can be both an advantage when the price of a coin rises, so does your income, and a disadvantage when the rate falls. That’s why you should thoroughly analyse the projects that you are going to invest in, and also evaluate their growth prospects.

Freezing of funds

Staking involves keeping cryptocurrencies in a wallet for a certain period. This means that you will not be able to use these funds until the contract expires. On average, it takes one year. For comparison, in venture investments, you can receive the first profits only after 3-5 years.

Summing up

Staking is an effective tool for earning passive income with crypto, which has a high return, doesn’t involve serious risks, is suitable for beginners and does not require special equipment and skills. 

The most important thing is to choose a promising cryptocurrency and a reliable platform; as well as protect your wallet from hacking using two-factor authentication.

Under no circumstances will you lose your investments, and profits may increase with the growth of the coin’s rate.

Frequently Asked Questions (FAQ)

How much can I earn from staking?

The profitability of this method varies depending on the chosen crypto and the period of holding coins in the wallet. On average, the annual remuneration is 5-7% and can reach up to 20%. On the Staking Rewards platform, you can always see the average profitability of different coins in real time and estimate the potential profit using a calculator.

Can I lose my money?

No, under no circumstances will you lose your investment, as the funds are simply stored in the wallet during a fixed period. The only risk is market volatility: the price of crypto can both grow and fall. Therefore, before investing in a project, you should thoroughly study it and analyse the coin’s growth prospects.

Do I need to pay income taxes?

The answer to this question depends on the country where you reside. Some countries have already regulated the cryptocurrency industry and introduced taxation rules, and in some states the digital asset market remains in a grey area. In Russia, the tax on profit from crypto related operations ranges between 6% and 15% per year, while in the US the rate varies between 15% and 20%. Before investing in digital assets, we strongly recommend you learn more about the tax regulations of your country. Tax evasion can lead to serious legal consequences.