Is crypto staking worth it?

Crypto staking – what it is, and how does it work?

Normally when you buy cryptocurrency, it just sits in your wallet, doing nothing except changing value relative to traditional currencies.

However, there are many more “things to do with my crypto” to make it work harder for you, and one of them is staking.

Staking is, generally, when you take your coins out of circulation or transfer control of them to a third party so you can get rewards. That might be more of the same token, rewards in another token, or a combination of the two.

There are really two kinds of staking: when you do it yourself (running a node, becoming a validator, taking responsibility for the technical end of things) and when you entrust your coins to someone/something to do it for you (generally called “delegating”). Delegating could be lodging the coins with a staking provider or using a wallet to choose validators/nodes to entrust your coins to.

Some things that look like staking aren’t actually staking: for instance, yield-bearing crypto accounts such as those offered by AQRU. It’s important to know the difference because the detail is all-important. What’s the lock-in? Can your stake reduce as well as increase? What’s the yield? Could it change?

What are the best cryptocurrencies to stake?

This is the most important part of this whole equation. If you earn 100% on a coin that’s worthless, then the result is worthless too.

It’s quite common for a crypto coin to change value against traditional currencies by more than the yield (down or up). This is why you need to pick a good coin that will survive any bear market and stick in there.

The most survivable coin is, of course, Ethereum. It’s going nowhere and offers a reasonable APY wherever you stake it.

Other coins worthy of note include Cardano (ADA), Tezos (XTZ), Polkadot (DOT) and Algorand (ALGO). It’s worth checking on the current and historical news for blockchains and coins. Coindesk is a reputable place for crypto news.

You might be surprised what you find! Some staking coins such as EOS and Solana (SOL) have been going through difficult periods and/or teething issues, for example. And some coins that looked like a good deal two months ago now look dodgy: LUNA for instance, which was a clever idea for a stablecoin/crypto balancing combination that turned into a disaster. Crypto is very fast-moving, so keep an eye on the news anyway.

The unstakeable

There are also lots of cryptocurrencies that you can’t stake: Bitcoin being the prime example, but any “proof-of-work” crypto (where coins are issued as a reward for solving maths puzzles) would have the same limitation, including coins such as Litecoin, Bitcoin Cash, and others.

You can still earn interest on unstakeable cryptos by lending them out (for instance, you can get a percentage return on Bitcoin from AQRU), but nothing gets staked on a blockchain when that happens: it’s a simple “deposit for interest” scenario reliant on the company offering the service.

Is staking crypto worth it?

Well, the returns are good! In general “worth it” is a judgement for you, not us: we have no idea what your risk/reward appetite is.

But in investment terms, a 5-12% return on an asset in a year is an astonishing performance in this environment, and sometimes worth the risk (if you’re investing money you can afford to lose). And for the right coins that you think have a future, your rewards would not only be the yield on staking but any increase in the underlying dollar value of the coin. If there’s a big shake-out of the market, only the strong will prosper. ETH is generally strong, Cardano is a survivor, but insert research here!

One rule in crypto seems to be that returns decrease as the amount of value “locked” into a blockchain increases. So the more coins staked, the less the return. And if a return is too good to be true (like 20%), it probably is.

Is staking crypto safe?

Staking crypto directly into a blockchain probably is because blockchains are unhackable by nature (even if you can hack stuff on them, like smart contracts).

You should be aware, though, that if you’re directly staking in the blockchain and it doesn’t like what you’re doing, it might decide to slash your stake. Generally, this happens more for dishonesty, but shirking your validation duties can leave you with lesser payouts, and there’s a technical requirement and minimum stake for all blockchains.

If you’re staking indirectly with smaller amounts (like most people) then your main issue would be whether you trust the staking provider or validator you’ve given your coins to. The weak link in any system is always people (and companies). Companies and exchanges can get hacked. Wallets can get hacked. Safety is all because 100% loss is not good for your investment.

No crypto, of course, is safe from its value in US Dollar terms being volatile: while the market size is so small (relative to traditional finance), this will always be the case. That’s a risk you just have to ride out, safe in the knowledge that you’ve chosen a coin with a future, and that’s a mixture of technical competence and real-world business use case.

There are extra risks with smaller blockchains. They can be attacked in ways other than hacking: for instance, if a malign actor gets control of 50% of a blockchain’s resources or governance rights, that blockchain might well be toast.

Or, a whale dumping or pumping can pull the token value all over the place, affecting the whole ecosystem and its tokenomics (tokenomics = the economics behind the token, how it runs). If a coin isn’t fully decentralised, that can be a real problem.

Ethereum is a blockchain that’s simply too big to take over like that, so that’s one less risk that you get using established crypto. A factor with Ethereum, though, is that to be a full Ethereum staker (“validator”) you have to deposit 32ETH (that’s a lot – even at today’s lesser prices, that is over $32,000). And, surprisingly, as yet, there’s no mechanism for getting it back, because the upgrade to ETH 2.0 hasn’t happened yet and the “unstake” function hasn’t been programmed in!

As an aside, this is why someone had the bright idea of creating another token that you can trade your staked ETH for: which means you can have your stake and eat it too.

This might be another clever idea that falls apart under the glare of reality though.

Conclusion

If you choose the right crypto that has a future (despite the volatility) and the right technology or company (with a good track record, solid finances, and excellent security), then staking (or something equivalent) is worth it because of the returns that traditional finance simply isn’t giving small investors.

If you want a shortcut, then head off to AQRU to open a yield-bearing crypto account with a safety-first company you can trust. It’s less scary than staking, with competitive interest rates, has bank-quality security, and even has a proper exchange built-in.