Crypto Staking: Earn 3–10 % APY while hodling long-term
The classical “savings book” at the bank has long been dead. But now there is a new way to actually earn interest on deposited assets. This is possible through cryptocurrencies and a process called “staking”.
Want to earn passive income with cryptocurrencies without constant trading? Then crypto staking is exactly for you. You can get an annual percentage yield (APY) between 3–10+ % while holding your preferred crypto assets for long-term price appreciation.
Sounds great? It is.
And in this article, I will show you exactly how to do so.
Ok, but first…
DISCLAIMER: This is not financial advice. Please do your own research. You are fully responsible for the decisions you make. Be sure to check the “risks” section at the end of this post.
What actually is staking?
Staking means depositing or “locking up” your crypto tokens with a smart contract for the blockchain network of the respective crypto token or some other entity for a certain specified amount of time. This is done in order to act as a validator of that decentralized blockchain network — ensuring the continuity, integrity and authenticity of that blockchain network.
In return for staking your crypto tokens (which you cannot use during that time) that entity offers to pay you interest in the form of more of these tokens.
For example, if you stake Cardano (ADA) tokens with Binance right now, you can choose between fixed Cardano staking for a duration of 30, 60 or 90 days. Depending on the picked duration, you will get an APY in ADA between 6 to 8 %.
Staking is possible due to the proof-of-stake mechanism (PoS)
Staking has actually been developed as an incentive for the members of a decentralized blockchain network that validate transactions to act in the interest of the network and with integrity as to not to threaten the validity of the transactions confirmed.
Staking of cryptocurrencies or crypto tokens is only possible with cryptocurrencies that use the so-called proof of stake mechanism.
Every decentralized blockchain network needs a consensus mechanism which describes rules by which the members of the network agree on the validity and confirmation of proposed transactions.
Because Bitcoin’s proof-of-work (POW) mechanism is very safe but highly computing-intensive and detrimental to the environment, many blockchain networks have switched to the proof of stake consensus mechanism.
The interest earned through staking actually represents mining rewards
With POS, the members of a blockchain network buy and then stake crypto tokens of that network. Every member of the blockchain network that stakes a certain minimum amount of crypto tokens will take part in the transaction validation on that network (as staked tokens are assigned to a staking pool).
The mining rewards in that network will randomly be assigned to one or more members of that network, with the more tokens a crypto node owns, the higher the likelihood that he will receive full or part of the staking rewards.
This ensures that there is an incentive for nodes of the network to buy large amounts of the crypto-tokens in that network and hold them which then ensures that they have a high commitment and high incentive to act in the interest of that network (as they would otherwise threaten the value of the very investment and tokens they own).
Hence, if you buy crypto tokens of that network and then stake them in order to take part in the mining process, you will receive more of these crypto tokens over time.
The amount of crypto tokens you will earn in that time can either be fixed and determined upfront or it will be dynamic and change over time as the factors of the networks change.
Crypto staking is the easiest way to earn a passive income.
The great news about this process is that you do not need to buy graphic cards, a computer, servers or mining rigs and run them for long hours to earn tokens like you do with proof of work for Bitcoin.
No, you just need to buy a certain amount of crypto tokens of a POS network and you will basically earn interest in the form of additional tokens.
Crypto staking is better than the savings book ever was!!
Hence, crypto staking is a convenient and easy way to earn passive income on an asset that you may actually believe is going to increase in value over time. If you consider it this way, then crypto staking is much more attractive than savings books have ever been.
With savings books, you only got a fixed interest on the money deposited which loses value due to inflation. Even 10–20 years ago, savings interest rates barely covered the cost of inflation!
Hence, if you believe that the value of a certain crypto-asset is going to increase over the mid- to long-term and you want to earn passive income, crypto staking is probably the most interesting form of investment you can currently make!
So how does crypto staking work easily and effectively
There are actually various ways in which you can make use of crypto staking today, but for the sake of this tutorial, I want to give you the simplest and easiest way to get started today.
To do that, I recommend you to use the world’s largest crypto exchange called Binance. Getting started with crypto staking will take you four distinct steps:
Step 1. Register a Binance account.
If you don’t have one already, you will need to register an account with Binance. To this end, you need to enter the required personal information and details into the registration form and complete the registration process.
This process ends with account verification. For this, you need to provide a proof of identity and a proof of address. This is usually done by uploading a scan of your current passport and a utility bill that should not be older than 3 months and clearly state your address.
The verification process may take around 24 hours but then you have a verified Binance account that you can use to buy and trade cryptocurrency.
Step 2. Make a deposit with fiat money (or crypto).
Now you need to deposit money into your Binance account. You can use a number of deposit methods, most people prefer credit card/debit card. Unfortunately, bank deposits are currently not possible with Binance.
If you have crypto tokens already, you can also deposit them into the respective exchange wallet. However, for the sake of this tutorial we will assume that you have never bought crypto tokens before, and we will deposit fiat money instead.
Click the “Buy Crypto” button in the navigation menu, then click “Credit/Debit Card” and then follow the instructions to complete the deposit process.
3. Buy the cryptocurrency of your choice.
You can now buy crypto tokens of the cryptocurrency you want to stake. However, not every cryptocurrency can be staked because some of them use different consensus mechanisms.
Common cryptocurrencies that can be staked are e.g. Ethereum, Cardano, Polkadot, VeChain, and many more. You do this by using the exchange function on Binance and transact at the current market price.
The exchange tokens will then be sent directly to your respective exchange wallet.
4. Stake your crypto tokens with Binance Earn.
To stake the crypto tokens you bought, you open the Binance Earn tab at the very top on the navigation menu. Here you will find a list of all stakeable cryptocurrencies and current staking offers. Usually that entails plans for 30, 60 and 90 days of staking and the APY offered.
Obviously, the longer you stake, the higher the API you get.
Pick the crypto token and plan you want to use. Then click on the yellow button “Stake Now”.
A new window opens. Determine how many of the tokens you are going to stake and enter it. Activate the checkbox and then click on “Confirm”.
Remember that you will be paid the interest in additional tokens of that coin!
Risks of staking cryptocurrencies
Obviously, this post on staking cryptocurrencies would not be complete without mentioning the associated risks that come with it.
Smart Contract Risk
Binance will actually have you confirm that you have understood the risks of crypto staking. The biggest risk here is the risk that the smart contracts deployed for the staking may malfunction which could lead to a loss of a part of your tokens.
However, it has to be sad that over the last 12 months where Binance has offered staking, there has been no issue with their smart contract.
Another given risk is “market risk”. For example, if the price of your staked tokens goes down during the time of staking, you technically will still have made a loss during that time. However, contrary to popular opinion, I believe this risk is highly overrated.
Hear me out: You should only hodl crypto tokens you believe will increase in price over the mid- to long-term, right? Well, with staking you get more of these tokens for free.
If you can sit out short-term price fluctuations, you will get more of your beloved crypto tokens for free. And you only realize losses if you sell below your purchase price, always remember that!
For example, I’m a big believer in Cardano and have therefore bought a large amount of tokens that I have now been staking for multiple months and I don’t care about the current price fluctuations because I believe that ADA is here to stay.
What I care about is holding my ADA tokens and getting more of them basically for free. This is why I’m very happy with staking ADA tokens for the long-term.
You also have to consider that Binance does not offer the service completely for free. By providing the staking service in a user-friendly manner, they will cash in on a part of the staking rewards that your staked tokens get from the blockchain network.
However, compared to other crypto exchanges, the payout ratio is very high which is why I recommend you to use staking on Binance to make crypto staking easy, safe and effective.
The alternative would be to stake cryptocurrencies directly with the project’s own native wallet, you could earn a little higher APY.
But, keep in mind: You would have to invest much more time and energy into understanding and using that wallet. This you would have to do separately for every staked cryptocurrency.
For example, I will disclose that I am staking VRA tokens of Veracity. Í use Verawallet because only there I can currently earn 25,55 % for the VRA token that I believe has a great future.
If you make money with staking crypto assets, you of course also need to take tax considerations into account. I cannot give you financial or tax advice and I strongly urge you to check out the tax regulations concerning crypto in your own home country.
For Germany and Austria, I know that money you made from staking crypto assets is taxable. In Germany, you pay your respective income tax. In Austria, you pay a special tax that is currently 27,5 %.
Staking cryptocurrencies means that you buy crypto assets of that coin and deposit them for a specific amount of time via a smart contract during the time of which you cannot trade or sell these tokens.
In exchange for staking these tokens and taking part in the mining process and transaction validation of a blockchain network that uses the proof of stake mechanism, you get rewarded basically “interest” in the form of additional tokens of that crypto asset.
The two options to stake cryptoassets are usually directly with the network using their individual wallets which turns out to be complicated and time-consuming, or you use a crypto exchange that also offers a staking service.
My strong recommendation is for you to choose the latter option and use Binance, the world’s largest cryptocurrency exchange.
I have given you a four steps step-by-step guide in this article on how you can get started staking cryptocurrencies today and earning passive income while holding a crypto asset that you believe is going to increase in value over the mid to long-term.
Indeed, crypto assets taking is the easiest way to earn passive income starting today.