by Cody on 2021-02-21 filed under Crypto Investing
Staking crypto for passive income has proven to be a very lucrative investment strategy. In this artcle, we'll give a brief overview of staking, explain how it differs from traditional proof-of-work coins, and lay out an investment thesis for staking.
What Is Staking Crypto?
Staking means holding proof-of-stake coins in a wallet and receiving regular rewards. Just by holding staking coins in a compatible wallet, you help to confirm transactions and create new blocks. You get rewarded for this via the regular distribution of new crypto, similar to dividends in the stock market.
So what do you have to do, exactly? Very little. It's a fantastic, lazy man's investment. Just buy the right coin and hold it in the right wallet. If the price of the coin appreciates at the same time that you're accumulating your staking rewards, your assets grow even faster.
Proof of Stake vs. Proof of Work
Ok, staking sounds great but it also sounds different from traditional crypto like Bitcoin. What's the big difference?
You might have heard of Bitcoin miners. These are people who throw a ton of computing power at validating transactions and stamping new blocks of the blockchain. In reward for this, miners get rewarded with crypto. That's the simple story, but it actually gets a lot more complex. On Bitcoin for example, there are zillions of computers competing to solve intensive algorithms that allow transactions to be verified and posted to the blockchain. The mining reward goes to the first computer to validate this. As more and more computers compete, your odds of winning a reward go down and down. Since this validation is so important for Bitcoin, it's referred to as a proof-of-work coin.
Proof-of-stake uses a different model to validate transactions and create blocks. With staking coins, the creator of a new block is chosen based on the amount of coins they hold, or their stake. Those who contribute to this earn the transaction fee. Staking works because the stakers would lose their stake if they tried to subvert the system. The more you stake, the more you earn.
A good technical breakdown of proof-of-stake vs. proof-of-work can be found here, I'm giving you the Fisher Price version here.
Staking Coins and Staking Rewards
By now, we're all convinced that staking is a good way to earn passive income for crypto. We are ready to put 10000% of our assets into staking coins. But what are they?There are a few proven staking coins that we recommend and invest our money in. They are:
|Ethereum 2||8.5%||As the second biggest cryptocurrency, Ethereum's shift to staking in v2 will create the biggest staking crypto. This is key to Ethereum's scalability long term.|
|Polkadot||13.4%||Top performing staking coin of 2020, highest staking rewards, and created by one of the Ethereum cofounders.|
|Tezos||5.45%||One of the first, and most technically advanced, staking coins. Very easy to get started.|
|Algorand||6.5%||Newer staking coin, with a good blend of staking rewards and room to grow. Can be staked simply for no fees.|
There are a ton of choices for staking coins, you can see them all at Staking Rewards.
Getting Started with Staking
We recommend starting simply with staking. Top crypto exchanges like Coinbase and Binance offer the ability to stake coins today for a small fee. For example, just by buying Tezos on Coinbase, you will automatically start staking and receiving 4.5%. Every few days, you'll see new coins magically show up from the Staking Gods.
If you want to do slightly more work, you can easily stake Algorand from your phone with no fees. All you have to do is install the Algorand wallet for iOS or Android, published by the Algorand Foundation. Since Algorand itself creates the wallet, it doesn't take any cut of your staking rewards. It's free money every minute.
We think that staking is a fantastic investment that mitigates some crypto risk. You are not purely dependent on the market, instead making money just by holding coins. It's incredibly similar to holding bonds or dividend stocks. We love our staking rewards and recommend staking as a potentially high return investment in 2021.
Disclosure: I/we have a long position on Bitcoin, Ethereum, Tezos, and Algorand. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Big Time Crypto).
Additional disclosure: Disclaimer: I am not an investment advisor, and this article is not meant to be a recommendation of the purchase or sale of cryptocurrency. Investors are advised to review all documents and press releases to see if the cryptocurrency fits their own investment qualifications.