If you hold any crypto or are interested in it at all, you have probably come across the word “staking”. Then, if you have done a little research, you may have decided that it is an example of industry jargon, a different word for a simple, common thing, used to show that the user is “in the know” or maybe just to erect a barrier to entry into an often-lucrative business. If so, you would be partly right, but there is a bit more to staking crypto than say, depositing dollars in a bank to earn interest.
What is Staking?
Staking refers to holders of crypto who put their holdings up in order to earn a return. That return, however, isn’t necessarily interest paid by a bank or institution. Staking is basically using your crypto to earn a return, whether that is passively, by allowing someone else access so that they can put it to work and reward you with some of the proceeds, or actively, by putting it to work yourself.
How is staking different to savings accounts?
There is also another side to staking though, one that came to prominence at the end of 2022 when the Ethereum network moved from “proof of work” to “proof of stake”. It is one doesn’t involve relinquishing control or ownership of your crypto. Proof of work, the system most famously used with bitcoin (BTC), awards the right to create blocks in the blockchain and process transactions based on a miner solving a complex math problem, and with that right comes a reward in the cryptocurrency concerned. With proof of stake, however, just owning the currency, ether (ETH) in the case of Ethereum, gives you a chance of winning that right. Thus, by holding onto ether, you are staking it without giving up control of it, a very different thing to earning interest from a bank deposit.
There is one other difference, too. A crypto platform can reward you for holding your crypto with them, rather than with their competitors or storing it in a “cold wallet”, and that reward can be an interest-like payment in the currency that you hold. It could, however, also be a reward paid in something else, a native token, maybe, or a stablecoin. That doesn’t happen with fiat currencies. You cannot earn euros on a dollar deposit, for example.
Can you stake Bitcoin and Ethereum?
Yes. In theory you can stake any cryptocurrency, but bitcoin and ether are the most common ones for which a platform will offer you a reward. They are the most widely used and therefore offer the most opportunities for the holding platform or company to produce a return. They are also the most liquid cryptocurrencies, reducing the risk to the borrower should they need to liquidate the holdings. At SmartFi, you can stake both bitcoin and ether.
How do You Stake Crypto?
The process for staking crypto could not be easier. You simply find a platform like SmartFi where you can make deposits, then register your holdings as eligible for rewards. There are a few things to consider before you do so, however.
First, is making a deposit or transfer to that platform convenient and easy. Do they offer things like ACH transfers and credit card deposits for the easy onboarding of fiat money? How complex and time-consuming is their KYC process? Then there is the question of safety. Do they offer returns that appear to be, and therefore probably are, “too good to be true”. Are they based in the US or another country that values transparency? Are they a FinCEN registered money service business? I cannot say for sure how everybody stacks up in those regards, you will have to do your own research, but I do know that SmartFi ticks all the boxes.
Conclusions
Staking is a term that exists for a reason, or rather a multitude of reasons. Staking crypto is not like depositing dollar, euros, or yen in a savings account and collecting interest. There are differences, so using a different word is, in this case, more than a matter of jargon, it is necessary to convey the many different ways of earning on crypto.
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