What is cryptocurrency staking? How to make extra money during the cryptocurrency winter

Key points

  • The cryptocurrency markets have seen a significant decline in recent months.
  • Even during a crypto winter, investors have the opportunity to earn extra cash.
  • Crypto staking is an option for investors to earn passive income, but only for cryptocurrencies that use a no-stake consensus mechanism.

The cryptocurrency winter is upon us. In other words, a major bear market has hit cryptocurrency investors hard. As long-term investors know, bear markets are a natural part of the business cycle. While cryptocurrency winter might be especially hard to watch for crypto enthusiasts, there are still ways to earn extra cash through your cryptocurrency wallet.

Let’s explore what cryptocurrency staking is. Plus, find out how you can use this strategy (and invest in cryptocurrencies) to earn some extra cash during the crypto winter.

What is cryptocurrency staking?

At the most basic level, cryptocurrency staking is a way to earn passive income from your cryptocurrency holdings. As an investor, you can think of staking cryptocurrencies as earning interest or dividends on a more traditional investment.

So how does staking work? Essentially, cryptocurrency owners can allow their cryptocurrency to be used to ensure the accuracy of other transactions on an underlying blockchain network.

Blockchains contain a record of past transactions made with a cryptocurrency and this record must be agreed upon. Otherwise, investors would have no confidence in the legitimacy of the currency. Staking is an approach that some cryptocurrencies take to validate their blockchains, which causes users to participate in the approval and validation of transactions on the blockchain.

Of course, the backend is relatively complicated. But as an investor, you don’t need to get involved in all the technical details. You will have a couple of ways to do this:

  • Stake cryptocurrency through a cryptocurrency exchange: The exchange covers the technical aspects for you. In exchange for managing the backend, the cryptocurrency exchange will take a portion of your profits.
  • Join a staking pool: This requires you to transfer your funds to a specific cryptocurrency wallet before staking. Like the cryptocurrency exchange, a pool administrator will manage the backend and take a portion of your profits.

As you earn from staking cryptocurrencies, you will receive your rewards in a predetermined cryptocurrency. With that, staking is a way to grow your cryptocurrency portfolio. But the downside of staking through a platform or pool is that a portion of the profits goes to the facilitator. Before going ahead with a particular option, look for a reasonable price.

Benefits of staking cryptocurrencies

As with all investment choices, there are pros and cons to staking cryptocurrencies. Let’s start by exploring the pros:

  • Passive Income: If you believe in the staying power of cryptocurrencies, you can grow your cryptocurrency portfolio through passive investing. You will not have to monitor the validations of your encryption. Instead, the staking proceeds will appear as cryptocurrencies in your wallet.
  • High yields possible: Investors looking for relatively high returns can likely find them through staking cryptocurrencies. While the exact amount you can earn varies based on a number of factors, you will likely earn more with staking than with a crypto savings account.
  • The cryptocurrency exchange manages the process: Cryptocurrency staking relies on a complicated backend system. But when you work through a cryptocurrency exchange, you essentially outsource any complications. You can just sit back and enjoy the returns.

Risks of staking cryptocurrencies

Cryptocurrencies are a particularly volatile investment. If you pursue staking your cryptocurrency, there are risks to be aware of. Here’s what to know before entering:

  • Volatility: Cryptocurrencies are a volatile asset. By staking cryptocurrencies, you will earn rewards in the form of cryptocurrencies. While you may have more cryptocurrency, the value of these assets can significantly increase and decrease over time. With that, your real rewards may be less than expected.
  • Lack of liquidity: When staking cryptocurrencies, you will need to lock up the funds for an extended period of time. The time commitment can vary from a few days to a few months and, in some cases, can represent an unknown factor for the investor. During the staking period, most exchanges have a blocking period. Before committing your funds, make sure you are comfortable with the lock times. . If the price of your asset is going down, you will not be able to withdraw your funds for the sale. Additionally, staking a relatively unknown coin could make it difficult to sell on major exchanges.
  • Possible loss of cryptocurrencies: Cryptocurrencies are an asset that seems particularly prone to theft, without many recourse options. With this risk in mind, it is best to work with the most reputable platforms for staking cryptocurrencies.

Which cryptocurrencies have staking opportunities?

When you dive into the world of cryptocurrencies, you will find that there are hundreds of coins out there. If you are interested in staking opportunities, you will need to find cryptocurrencies that offer staking options.

Some of the cryptocurrencies that offer staking include Algorand, Ethereum, Tezos, Cosmos, Solana and Cardano. The amount you can earn by staking varies by platform and by cryptocurrency. For example, Coinbase offers staking opportunities for Ethereum with an APY bid of 4.00%. Coinbase’s best staking offer is 5.75% APY when betting on Algorand.

Some of the cryptocurrencies that offer staking include Algorand, Ethereum, Tezos, Cosmos, Solana and Cardano. The amount you can earn by staking varies by platform and by cryptocurrency. For example, Coinbase offers staking opportunities for Ethereum with an APY bid of 4.00%. Coinbase’s best staking offer is 5.75% APY when betting on Algorand.

Is staking cryptocurrencies right for you?

Crypto staking is a worthwhile option for long-term crypto investors who are ready to hunker down for a potentially long crypto winter. You can put your cryptocurrency to work for you. If you’re not worried about exiting the market on short notice, time commitments for staking cryptocurrencies probably won’t be a deterrent.

As you consider your cryptocurrency staking opportunities, shop around for the best APYs. But consider the stability of the cryptocurrency. While a smaller cryptocurrency might offer a higher APY, there is also a higher risk of crypto tanking. Also, make sure you feel comfortable locking your funds for an extended period of time before entering.

Investing in cryptocurrencies made simple

If you want to make your cryptocurrency work, cryptocurrency staking is a worthwhile opportunity. But cryptocurrency staking comes with risks that not all investors are comfortable with. For investors who prefer a different strategy, Q.ai’s Crypto Kit might be the right move.

Q.ai uses artificial intelligence to monitor market changes. As the market changes, Q.ai will automatically make the necessary adjustments to your portfolio to keep your holdings in line with your goals and risk tolerance.

Because cryptocurrency markets are so volatile, harnessing the power of artificial intelligence is particularly attractive. Even if you like to keep up with the changes in the cryptocurrency world, Q.ai can take some of the pressure off your portfolio management efforts.

Download Q.ai today for access to investment strategies based on artificial intelligence.

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