What is Crypto Staking? Explanation and guidance in 2021
This crypto staking tutorial will shed light on exactly these details, explaining on the one hand the technical background and how it works, and on the other hand also showing the platforms where you can earn money through crypto staking. We also take a look at the level of staking returns and show those cryptocurrencies where you receive regular payouts through crypto staking of the coins, which is sometimes also referred to as a crypto dividend.
What is Staking?
The basics of crypto staking
To answer the question "what is staking?" in a little more detail, it's worth looking at both the technical and financial side of crypto staking.
What is Staking: the Proof of Stake Concept
In order to run a blockchain, a validation process is necessary, i.e. a consensus to confirm the next block or transaction. While this is based on the Proof of Work concept in classic cryptocurrencies such as Bitcoin and Ethereum, some newer coins employ the Proof of Stake concept.
Proof of Stake is based on the sum of all deposited coins, which give the network the necessary stability and thus validate the subsequent blocks on the blockchain. Anyone who provides liquidity to a blockchain in the form of cryptocurrencies is often called a validator and is rewarded for this with so-called crypto staking rewards. As a rule, the principle of proof of stake is that the more liquidity one provides, the higher the share of valid validations (and thus of payouts), as the blocks are distributed to all validators according to a percentage formula.
What sounds quite complex at first is much easier to implement, so that even beginners can do crypto staking. How this works exactly and which platforms are recommended for this is discussed below.
Difference between Proof of Stake and Proof of Work
To better understand the answer to the what is staking problem, it is also worth taking a look at other coins - namely Bitcoin and Ethereum in particular.
Bitcoin mining Those who have heard of Bitcoin mining know that Bitcoin is based on the so-called Proof of Work concept. This means that the next block is validated by solving a complex calculation problem. This requires expensive graphics cards and powerful computers. As a reward for the technical effort as well as the energy consumption, one also receives Bitcoin.
While the Proof of Work concept is based on mining, the Proof of Stake uses crypto staking, which is also referred to as minting. Compared to Proof of Work, Proof of Stake does not involve solving computational tasks, but providing liquidity.
In reality, this means that crypto staking is possible for everyone, whereas mining with Proof of Work blockchains is actually only worthwhile with a high level of computing power, which is hardly feasible for an average consumer.
Where does the money for crypto staking come from?
As can be seen below, the crypto staking rewards for the various cryptocurrencies and coins usually range between 4% and 12% per year. Sometimes a staking return of up to 30% is paid out, although these offers should be treated with caution.
But where do the Crypto Staking Rewards come from?
The earnings, i.e. the rewards for validating the blocks, come from a previously provided pool. This was reserved when the cryptocurrency was created or the blockchain was programmed and serves precisely this purpose. The pool can be replenished over time through transaction fees, so that crypto staking is sustainable and theoretically infinite, which is why one can also speak of crypto dividends. Similarly, payouts fluctuate depending on the number of validators, so the interest rate can change and the Crypto Staking rewards pool can decrease. However, as often only a percentage of the total pool is paid out, it will never be empty.
In the end, however, the exact payout method as well as the long-term Crypto Staking forecast depends on the specific cryptocurrency, as each blockchain is programmed differently and has different parameters.
How does Crypto Staking work?
After the detailed definition of the question "What is Staking?", we now turn to the practical application - how can you earn money with Crypto Staking?
While the technical background is certainly not always transparent for beginners, the practical implementation of Crypto Staking is much easier.
In principle, only the following steps need to be fulfilled for Coin Staking:
Step 1: Create a wallet:
If you don't have a crypto wallet yet, all you have to do is register with an online broker (e.g. eToro) or a crypto exchange (e.g. Binance) and create a wallet there. The specific providers for crypto staking are mentioned in the next section.
Step 2: Buy cryptocurrencies:
As soon as the account or crypto wallet is verified, you can buy the corresponding cryptocurrencies. Here, too, you will find the Staking Coin list below, i.e. those cryptocurrencies that are based on the Proof of Stake principle. It is therefore important that you only buy those currencies for staking that are also listed as Crypto Staking Coins.
Step 3: Enter into Crypto Staking:
If you now want to earn money with the cryptocurrencies, you have to enter them into the Staking. This means that the cryptocurrency is frozen or fixed for a certain period of time, often 90 or 180 days - similar to the classic time deposit at the bank. Thus, blocks can be validated with this liquidity that one provides to the blockchain, for which one in turn receives the Crypto Staking Rewards. Some providers, such as eToro, do not freeze the stake so that the money is available at any time.
With which cryptocurrencies is Staking possible?
Staking is not possible with all cryptocurrencies, but only with those that are based on the Proof of Stake mechanism. For this reason, the following Staking Coin List helps to get an initial overview of which cryptocurrencies are suitable for crypto staking. Only the 10 largest staking cryptocurrencies are taken into account here.
The 10 Biggest Staking Coins | symbol | Market capitalization in billion USD (July 2021) |
|---|---|---|
Cardano | ADA | 37.0 |
Polkadot | DOT | 12.0 |
TRON | TRX | 3,6 |
EOS | EOS | 3,3 |
Solana | SOL | 7,2 |
Algorand | ALGO | 2.4 |
Cosmos | ATOM | 2.3 |
Tezos | XTZ | 2.0 |
NEO | NEO | 2.0 |
Avalanche | AVAX | 1,8 |
As can be seen in the list of crypto staking coins, the most well-known cryptocurrencies, Bitcoin and Ethereum, are not represented. Therefore, anyone who wants to buy Bitcoin cannot achieve a staking return. Bitcoin Staking is therefore not possible. Nevertheless, there are possibilities similar to crypto staking with which one can also earn money passively with Bitcoin, whereby these are not dubious and often dubious Bitcoin bots. Which methods are described in more detail below in the article in the context of crypto staking alternatives.
It should also be noted that this staking coin list is not exhaustive, because there are many other cryptocurrencies for which crypto staking is possible - but the proof of stake mechanism does not always trigger the payments. For example, you can stake the Binance Coin and receive distributions and crypto dividends in return, which partly consist of the transaction fees of the platform.
Where can I stake crypto?
If you want to stake your coins in crypto, there are various providers and options to choose from. Below is an overview of the platforms where you can earn money by staking your crypto assets and receive regular distributions.
 | Trade real cryptos and crypto CFDs |
 | Wide range of assets |
 | Broker fully regulated |
 | User-friendly platform 0% commissions Deposit from 20€ |
 | Good selection of cryptocurrencies |
Online Broker Crypto Staking
In the meantime, more and more online brokers are offering cryptocurrencies, as the online broker comparison also shows. However, only a few of these providers already offer crypto staking, as this is still a very new form of investing.
The pioneer among online brokers is eToro, which has offered crypto staking since 2020. Initially, only 2 cryptocurrencies are Staking compatible with Cardano and Tron, but this will be continuously expanded in the coming years.
An online broker like eToro is especially recommended for easy entry, so is particularly suitable for crypto staking beginners. The simple user interface and the easy-to-find functions are quickly understood. In addition, at eToro, for example, the crypto staking of the coins begins automatically as soon as the respective cryptocurrency is in the portfolio. You only have to wait a few days as a "buffer" (usually 7 to 10 days) until eToro Crypto Staking starts automatically.
Another advantage: if you choose an online broker for Crypto Staking, you do not have to focus exclusively on cryptocurrencies, but can also invest in other asset classes. For example, stock trading or the purchase of ETFs is also possible with the same account.
Pros
Cons
Crypto exchanges Crypto Staking
If you are already familiar with cryptocurrencies and therefore have a Bitcoin wallet (or wallets for other coins) on some of the crypto exchanges, you can also dedicate yourself to staking there. Binance in particular has a very large staking coin list, although you have to weigh up carefully whether the respective cryptocurrency is also worth a long-term investment. Especially the unknown coins can quickly lose value, so crypto staking does not pay off here. Many other Bitcoin and crypto brokers also offer crypto staking to varying degrees, for example Kraken or Coinbase.
If we look at the advantages and disadvantages of Binance Crypto Staking, the favourable trading fees and the attractive interest rates are particularly striking. However, the fact that the staking always has to be restarted manually is clearly negative, as it can only be fixed for a period of 30, 60 or 90 days. With bad luck, the staking conditions are no longer available afterwards.
Also, the sometimes unclear regulatory conditions of Binance should be taken into account in crypto staking, even though it is currently the largest crypto exchange in the world.
Pros
Cons
Crypto Staking directly with the cryptocurrency
Almost every cryptocurrency also offers the option of storing and staking the coins in the wallet of one's own blockchain system. This has the great advantage that no third parties are involved and one can thus benefit from the highest interest rates.
However, the path to crypto staking is very cumbersome. A new registration is required for each cryptocurrency, and you also have to deal with the technical intricacies and read the terms and conditions for Coin Staking. It also always requires a new wallet. In addition, some crypto staking fees apply.
Staking cryptocurrencies directly in the coin ecosystem is therefore only recommended for professionals. For an easy start, eToro Crypto Staking is more suitable.
Pros
Cons
Hardware Wallet Crypto Staking
In addition to the exchanges and brokers mentioned above, it is also possible to put your coins into Crypto Staking on the hardware wallet. Hardware wallets such as the Ledger Nano X or S as well as the Trezor One are generally considered the most secure way to store one's cryptocurrencies.
Ledger in particular has already taken the first steps to enable crypto staking with hardware wallets. In conjunction with the in-house Ledger Live app, Cosmos, Tezos, Tron, Algorand and Polkadot can be used as coins in Crypto Staking.
It should be noted with hardware wallet Crypto Staking that higher costs may be incurred here due to the exchange or transaction of the coins, just as with the purchase of a Ledger Nano or a Trezor One. On the other hand, this form is particularly suitable for those who want to do crypto staking for many years and without further transactions of the coins.
Pros
Cons
Crypto Staking at EToro: How it works
There are many different ways to increase crypto assets through staking, whereby there is no general answer to the question of what the best crypto staking is. Rather, the different forms are suitable depending on the level of technical knowledge as well as the intended investment horizon.
For beginners in crypto staking, eToro is probably the easiest and fastest option. As explained above, the processes are particularly user-friendly and the cryptocurrencies automatically move into the Staking.
The following instructions therefore show how to open an account in just a few steps and thus get to eToro Crypto Staking.
Step 1: Register with eToro
Registering with eToro can be done in just a few minutes, especially since the securities account, account and wallet are managed and opened together. A cumbersome multiple registration is therefore not necessary.
For the first step, you only need an email address and a password, which you can choose freely. Afterwards, you already have access to the full range of eToro functions, including a securities account, wallet and a Bitcoin demo account, so that you can test the purchase of your first cryptocurrencies without any risk.
Step 2: Complete the registration
If you would like to deposit money afterwards, you must first complete the registration process with some additional personal data (financial experience, address, investment goals, etc.) as well as the verification of your telephone number and identification document.
Step 3: Deposit money
Once you have successfully completed the verification process at eToro, you can then deposit money into your account. There are various methods available for this. Those who want to buy the cryptocurrencies required for crypto staking immediately should deposit via credit card, PayPal, Neteller or Sofortüberweisung, as the money is usually available after only a few minutes.
Step 4: Buy cryptocurrencies
Buying Bitcoin on eToro is very easy. For crypto staking, however, it is important to buy either Tron or Cardano, as currently only these two coins can be staked. To do this, simply enter "Tron" or "Cardano" or the two abbreviations "TRX" or "ADA" in the eToro search field and you can buy the corresponding cryptocurrencies via the following window. It is important that you buy them without leverage, otherwise the staking does not take effect. Elements from CopyTrading cannot be entered into Crypto Staking either.
Step 5: Hold Coins and Get Crypto Staking Rewards
That the direct coins of Cardano and Tron are bought at eToro and you trade without leverage is best seen by the note "You are buying the underlying asset". This means that everything is ready for crypto staking.
If you now buy Cardano or Tron and leave them in your portfolio, you can look forward to the first distributions in the form of Crypto Staking Rewards after about a month. The crypto dividend is paid out once a month after a non-interest-bearing buffer period of around 7-10 days and is added directly to the eToro account. As long as you keep the coins in your own account, you can look forward to regular passive income.
Ethereum Staking
There is a special case to consider with Ethereum Staking.
Originally, Ethereum is a proof-of-work cryptocurrency, i.e. it is created through mining. However, Ethereum is currently in the process of implementing a large-scale update, which is eagerly awaited in the crypto scene, that sets the technical requirements for the proof-of-stake mechanism. This update is also called Ethereum 2.0 or Ethereum London Hard Fork EIP-1559.
For this reason, it is currently already possible to start crypto staking for Ethereum with a few providers, including the online broker eToro. However, there are two special features that must be taken into account.
Firstly, with Ethereum Staking - regardless of which provider you choose - the Ethereum coins are frozen (or, in technical jargon, "locked") until the update has been successfully executed, so you have no access to the coins. The duration of this is unknown and depends solely on the successful Ethereum London hard fork EIP-1559. The time span can be between a few months and a few years.
Secondly - this is a specific feature for eToro - Ethereum Staking is only possible via the mobile app. While the other coins (Cardano and Tron) automatically generate returns during crypto staking, Ethereum must be transferred from the investment platform to the crypto staking area of the eToro mobile app for this purpose. This is very easy to do with just a few mouse clicks, but the process is also irreversible.
The interest rates for crypto staking with Ethereum at eToro are between 5 and 7%. The concrete interest rate depends on several factors (including the total liquidity) and can only be fixed after the end of the Ethereum 2.0 update.
How is the Crypto Staking return calculated? How much can you earn from Staking?
Crypto Staking returns can vary greatly depending on the cryptocurrency and the platform. For example, while Cardano tends to yield lower Crypto Staking Rewards of 3-6%, you can earn up to 20% on Polkadot. For the latter, however, you have to take the inconvenient route via Polkadot's own platform and also pay attention to the staking fees.
The staking return is paid out daily, weekly or monthly, but in some cases it can also be irregular. This also differs to some extent within a platform, so you should always read the conditions carefully.
Those who opt for eToro Crypto Staking can expect returns of 4-6% with Cardano, and 4-7% per year with Tron. The Crypto Staking Rewards are spread over 12 months and paid out monthly. It is important to note that depending on the investment volume, between 75% and 90% of the staking returns are distributed to the investors, as eToro retains a small portion for the technical linkage as well as the administrative expenses.
The following Staking Reward Comparison also shows an overview of the returns of the individual platforms.
Staking return | Staking return | Staking return | |
|---|---|---|---|
eToro | Binance | Ledger | |
Cardano | 4-6% | 5% | n / A |
Polkadot | n / A | 12% | 10% |
TRON | 4-7% | 4% | 7% |
EOS | n / A | 4% | n / A |
Solana | n / A | 9% | n / A |
Algorand | n / A | 8% | 5-6% |
Cosmos | n / A | 10% | 8-10% |
Tezos | n / A | 7% | 6% |
NEO | n / A | 6% | n / A |
Avalanche | n / A | 8% | n / A |
How can you profit from Crypto Staking?
If you are now wondering why you should only buy cryptocurrencies for a 4-6% return per year, you may not yet have realised the full potential of crypto staking, because you can profit from 2 essential characteristics at once, which makes cryptocurrency staking particularly interesting:
- the long-term rising crypto market, in which an investor has never made minus if he has held for at least 4 years
- the additional payouts in the form of crypto staking rewards, which can increase either the cryptocurrency holdings or the personal cash flow
In short: the attractiveness of crypto staking arises from price development + crypto dividend.
The Bitcoin forecast in particular, as well as that of other cryptocurrencies, is enormously positive for the coming years. Even if the bull market seems to be over for the moment, further increases of several hundred percent for the coming years would not be a surprise.
Combine this outlook with an additional staking return of 5-10% and there are very attractive opportunities for crypto and bitcoin trading.
Likewise, it should not be forgotten that a considerable passive income can be generated with Crypto Staking Rewards - especially if one can already show a decent liquidity. For example, if you invest USD 5000 in Cardano and receive an annual payout of 6%, you can look forward to an annual income of USD 300.
In addition, the strong price development of cryptocurrencies means that both the price yield and the dividend payout of cryptocurrencies are superior to those of buying shares.
What are the risks of crypto staking?
No return without risk - this also applies to the staking of cryptocurrencies. For a brief overview, the main crypto staking risks should therefore not go unmentioned.
Price loss:
If the cryptocurrency on which the staking is based falls, not only does the invested amount lose value, but the distributions also become less. Although the nominal Staking return remains the same, converted into US dollars or euros, the return from Crypto Staking decreases. However, as things stand today, this can be seen as a rather temporary risk, since at least in the long term, cryptocurrencies are still in a fully intact upward trend.
Coin risk:
Bitcoin and Ethereum have long been the leading cryptocurrencies on the market. But Cardano, Polkadot, Tron & Co. have yet to prove themselves. Anyone who invests in these coins solely for the sake of crypto staking rewards should diversify very well in order to prevent a possible crash of the said cryptocurrencies into insignificance.
Platform risk:
Anyone who invests their money on the internet must always trust the provider at the same time. While online brokers like eToro with an EU broker licence can provide additional security, this is particularly difficult with smaller cryptocurrencies or unknown crypto exchanges. Anyone who wants to buy coins here for crypto staking should take this risk into account accordingly.
Blocked coins:
Depending on the platform, anyone who places their coins in a fixed staking will not have access to these very coins afterwards. So if you want to sell your coins in the meantime, you have to do without or you can only dissolve the stake for a fee. However, this varies depending on the provider. The function of eToro is very user-friendly in this respect, as one has access to the coins from the Crypto Staking at any time. Logically, no more Staking Rewards can be accumulated if you sell the coins.
5 Advice for Crypto Staking
advice #1
Pay attention to your own investment profile:
Crypto Staking of coins is something for long-term investors and so-called HODLers. Those who want to hold their cryptocurrencies for the long term anyway are happy to take the extra percentages through crypto staking. For traders, on the other hand, coin staking is rather insignificant, as the returns are relatively low.
advice #2
Go for high quality coins:
The best staking yield is useless if the price of the coin performs poorly. Although offers with an annual crypto return of 30% can be very interesting, if the cryptocurrency loses 50% of its value at the same time, crypto staking is uninteresting.
advice #3
Go for a secure platform:
Since crypto staking is a long-term investment, it is advisable to rely on a reliable and trustworthy provider such as eToro, ideally with regulation in the home country or the European Union. Although unknown platforms sometimes offer higher interest rates, the risk is also much higher, up to and including total loss.
advice #4
Diversification among the coins:
If you want to build up as much passive income as possible, you should diversify among the different proof of stake cryptocurrencies so that you are not dependent on the development of a single coin.
advice #5
Start with small stakes:
As with other forms of investment, it is also advisable to start with smaller amounts in Crypto Staking. This way you can slowly get to know the market. The simplest way to do this is to use eToro's Crypto Staking. Once you have gained experience with staking, you can start later on another platform with additional staking coins.
Staking forecast: The development of the staking market
Crypto Staking of coins is still a relatively new form of investing. It has only been possible to generate staking rewards for everyone for 2-3 years. In the last year, the field of decentralised finance (DeFi) was added as a further application that enables additional forms of staking.
A staking forecast is therefore difficult to formulate in this still very new field, but two things seem clear and inevitable from today's perspective:
Today, crypto staking is mainly unregulated, many platforms offer corresponding services, and there are virtually no laws for crypto staking tax. In the future, there will be more uniform rules on how, when and in what form crypto staking rewards are paid out. This will make crypto staking accessible to a larger group of investors.
Even though the staking pools are usually very well filled, the staking interest rates offered will slightly decrease in the long run. This is mainly due to the increasing number of users and the decreasing size of the pools in percentage terms. Increased trading fees can weaken or even reverse this effect.
Especially in the current low interest rate environment in the fiat money area with a lack of alternatives, the staking forecast remains very positive, especially in connection with the further significant price increases to be expected.
Crypto Staking Alternatives
Earning money with cryptocurrencies and generating passive income - this is exactly what is possible with Crypto Staking.
If you are also looking for other Crypto Staking alternatives, you should also take a look at the following options:
Alternative Staking:
Some cryptocurrencies such as the Binance Coin also offer crypto staking, although they are not based on the Proof of Stake principle. The staking return in this case consists of transaction fees or company profits and is usually in the same range as traditional crypto staking.
Savings:
In addition to staking, some platforms such as Binance also offer so-called savings. Here, too, you invest a certain amount for a certain period of time, similar to a time deposit at the bank. Unlike staking, savings are not used to validate transactions.
Lending:
Lending is another way to generate passive income with cryptocurrencies. Here, you lend your cryptocurrencies to other users, often via so-called lending platforms such as Coinloan or Nexo. They mainly serve as loans. Yields of 5-10% can also be expected with crypto lending. Lending can also be done with stablecoins such as Tether or the USD Coin.
It should be noted, however, that all these crypto staking alternatives are carried out on predominantly unregulated platforms and thus represent a high risk. You should only invest the money that you are prepared to lose. The regulated broker eToro with the crypto staking described above is therefore suitable for a start.
Conclusion
Conclusion
Crypto Staking is an extremely interesting way to optimise your returns when investing in cryptocurrencies and also to generate a passive income. Various cryptocurrencies offer staking, so that those who already own some coins can start immediately. Staking can be carried out via various providers. Thanks to the high return prospects of cryptocurrencies in combination with the additional Crypto Staking Rewards, there is a very exciting potential.
Those who do not yet own any cryptocurrencies and would like to start staking can select their preferred currency from the above staking coin list. For starters, Cardano is particularly suitable here, as on the one hand it is the largest Proof of Stake cryptocurrency, and on the other hand Cardano, as an important technology, is said to have a very positive prognosis for the further course of the crypto market.
Cardano can best be bought from the very beginner-friendly provider eToro, which is also one of the few crypto brokers regulated in the European Union. Here, at the same time, staking is also possible without having to commit for 90 or even 180 days. This is especially recommendable for beginners in crypto staking who would like to try out this area first.
FAQ
Crypto Staking is just as secure as the respective platform and the blockchain technology behind the coin. So there is never 100% security, but in general a high level of security can be assumed with established providers and well-known cryptocurrencies.
Crypto Staking is the deposit of cryptocurrency, which is necessary for the operation of the blockchain and the validation of the blocks. The liquidity provided by the user is remunerated with Crypto Staking Rewards.
The taxation of Crypto Staking Rewards in Germany has not yet been conclusively clarified, as there are no concrete laws in this regard. The application of regular crypto taxation is one possibility. However, a tax lawyer should definitely be consulted for Crypto Staking.
The taxation of Crypto Staking Rewards in Germany has not yet been conclusively clarified, as there are no concrete laws in this regard. The application of regular crypto taxation is one possibility. However, a tax lawyer should definitely be consulted for Crypto Staking.
