Is Staking Cryptocurrency Profitable?

The cryptocurrency market has one main feature differentiating it from other traditional markets – high volatility. Crypto rates change daily, allowing traders to make money from the slightest market trends and fluctuations during the day and in the long-term perspective. To learn how to trade cryptocurrency and make profit, traders investigate the market and do fundamental research to find out all the factors that affect crypto rates. There are three layers of research needed for efficient trading:

• Fundamental. Investors take all the factors in the world that may affect the crypto market in the next few weeks, which are governmental decisions, updates in regulations, news background, the situation with economy and inflation, etc.
• Technical. This type of research concerns the crypto project and its technology, as well as the price chart investigation. It helps the investor to understand how the asset behaves when different market factors affect it,  where it moves and how sharply the price changes. The investor finds indicators and patterns that because a foundation to predict further price movement.
• Quantitative analysis gathers the data from technical and fundamental research and calculates indicators characterizing the project.

The results of these types of research help a trader understand the right time to buy and sell cryptocurrency.

To learn how to trade cryptocurrency for profit, you are welcome to the WhiteBIT blog. This website includes the most valuable trading guides and manuals on using different trading tools with benefits.

Maybe some novice users will find trading somewhat challenging. Indeed, successful trading requires a lot of research, learning, as well as experience. Quick and efficient decision-making is one of the crucial things to succeed in trading, especially in scalping and daily trade strategies, where traders need to act here and now; otherwise, they risk losing finds. It might be really too complicated for a beginner user, so they tend just to buy crypto assets and hold them long term. That is called the position trading strategy. People feel safer when they do not need to make decisions immediately, especially when it refers to inexperienced investors who have lost their funds after the first try to trade crypto.

However, there is an alternative to just idle holding digital funds in your wallet – the chance to increase your capital that does not require immediate and risky decisions or constant market tracking. Well, a much less stressful and still very efficient option to earn crypto is cryptocurrency staking. What is it, and is staking crypto worth it? Let’s try to answer these questions in this material.

What Does Staking Mean in Crypto?

Basically, crypto staking is the earning option implying locking your crypto coins for some duration without the opportunity to sell or exchange them and getting more funds when the staking term ends. There are some ways to stake crypto:

• Participation in Proof-of-Stake
• Yiend farming
• Participating in the pools of liquidity.

Let’s see what these staking options mean in crypto.

The Proof-of-Stake mechanism. Some tokens are developed based on the PoS mechanism, so their owners can take part in generating new coins by putting funds in the network and locking them for some period, receiving back their funds and rewards on the top when the locking period ends. That sounds similar to a bank’s deposit when you leave your savings in the bank’s account and receive interest for holding money in the bank. But there are differences: when the bank accepts money from you, one uses them to credit other clients and other needs. When you lock your digital funds on the network, no one uses them.

When giving your funds for crypto staking, you are a part of the network, help for transaction validation, and maintain its proper and smooth work. Thus, network decentralization is also achieved. The network “thanks” you for such a contribution, allocating additional funds.

How does the Proof-of-Stake method differ from the Proof-of-Work? The matter is that PoW protocols are the base for the first crypto assets that were mined (Bitcoin, the first version of Ethereum). Mining consumes a lot of energy and demands expensive machines and equipment as well as maintenance. In mining, people rival to be the first to decode a complex math problem and create a new block, for which they get bonuses. As a matter of fact, it is a competition of advanced and powerful computers consuming enormous amounts of energy.

With staking, everything is much easier. Having some funds, you agree to lock them in the network and hold them there without selling. Being a network participant, you contribute to its smooth work and get rewarded in return. Staking cryptocurrency has nothing to do with expensive supercomputers and energy consumption. All you need is a laptop and an internet connection.

Pools. When stakers gather in pools, they provide much more liquidity to the network and, thus, earn much more rewards. Stakers in pools are called liquidity providers. Many platforms provide pools of staking, giving stakers rewards while just putting funds in the pool and relaxing.

If you enjoy blockchain games and want to support its liquidity, you may join its liquidity pool to support the platform’s development.

Farming. This option to earn funds does not necessarily mean you should lock them. Farming runs on decentralized platforms and pays an annual percentage to participants.

Can you Make Money Staking Crypto?

Crypto staking has several ways to do that, which we have just discussed. Depending on the asset you stake, returns will vary as well as conditions to enter the staking program and the duration of it.

You can stake coins using crypto exchanges. For example, Coinbase, WhiteBIT, and Binance support this option and help make this process simple for users. The platform does all the operational processes for you, that is, it connects with blockchains, and all you need to do is to pick a token for staking and the program that suits you best.

For example, the WhiteBIT exchange offers 40 staking plans, each varying by the underlying token and duration of locking, which may be up to one year. The staking calculator allows you to enter a different number of tokens and the length of locking to see how they correlate and how it affects the rewards. There is a direct correlation between the duration of locking and the size of the reward.

The WhiteBIT Earn sector also offers crypto lending, which implies that the platform may lend the funds you put in it, giving them to other users for other purposes, while you receive stable interest from it.

It is possible to earn from playing games. Blockchain games usually use NFT tokens to reward the players. Blockchain game participants are offered to stake in-game tokens and NFTs and receive bonuses in return. In such a way, players contribute to the game’s economy and increase its token’s liquidity. Sometimes staking rewards include increased voting rights that allow players to vote on decisions and changes connected with the game platform. rewards can also come in additional NFTs, some in-game items, lands, exclusive tokens, etc.

Staking: Pros and Cons

Now we understand how staking works and what are popular ways to earn passive income. As with any cryptocurrency tool, staking has its benefits and risks. Let’s see the advantages of staking.

Benefits of staking:

• The main advantage is passive earnings that come in the form of rewards for locking funds on the network. It does not matter if you participate in the pool of staking or lock your coins in the blockchain, you receive rewards for participation in them. The essence is that you always receive more tokens than you put in initially while doing nothing special for that. The amount you get depends on what tokens you lock (Ethereum and Solana coins provide the highest rewards for staking) and the platform you use for it. It is important to understand that if you want to get bigger rewards, you will have to keep your funds locked for a longer duration, and the initial number of tokens should be bigger as well.
• Like we have mentioned, staking in blockchain game platforms allows the participants to receive voting rights on the decisions taken to improve the platform. That is, staking provides the rights for the platform’s governance. An example is a Decentraland platform with the MANA tokens that can be staked, and its stakers get the right to vote for different decisions on the further platform’s development.
• Additional bonuses come in the form of NFTs, governance opportunities, lads, special items and orders in metaverses and so on.
• Stakers add liquidity to the network, so if you want to support the development of a blockchain game, you may stake tokens in it and increase its liquidity. Thus, you make a huge contribution to the platform’s growth. Staking plays a crucial role in the development of play-to-earn platforms.
• Staking helps increase the price of tokens. For example, if many people lock their funds on the platform, it will largely increase its liquidity; thus, supply and demand will grow, which means the price of tokens will grow too. Popular staked tokens are less volatile, and it inspires people to invest.

Now let’s talk about the risks:

• As we know, the market of digital assets is volatile, which is the main thing that differentiates the crypto market from other markets. You should remember that when locking your funds. If the price of the token changes while it is locked, your losses may exceed the bonuses you get. So before locking tokens, make sure you comprehend that you cannot withdraw or sell them out of the staking program even if their price drops. Be prepared to hold tokens locked in the long term. Also, crypto platforms like WhiteBIT offer different locking duration, so if you are not ready to hold tokens locked for many months, you better pick the shortest period for a start.
• If you decide to stake coins via Proof-of-Stake networks, you must be prepared that you will be charged fees. Better use reliable crypto platforms that will provide connection to the network, and they will charge fees.
• If you produce liquidity, be ready that the asset you lock may change its price, so it will be very different from what it was when you put it on lock. Make sure that your earned fees can compensate for the losses you bear from the price drop.

Wrapping Up

So, what do we have? Here are the main things we should remember about staking to make it successful. First of all, stake tokens that have sufficient liquidity, that is, a market cap. It is advisable to choose large and mid-cap coins, for they are less sensitive to market trends. Next, pick a reliable crypto platform that has transparent conditions for staking. For example, WhiteBIT allows smart staking, where you can withdraw tokens out of the program with no penalties, and a lending program where you put funds and receive interest so that the platform can use your funds for other purposes.