Crypto staking is the practice of locking your digital tokens to a blockchain network in order to earn rewardsâusually a percentage of the tokens staked. Staking cryptocurrency is also how token holders earn the right to participate in proof-of-stake blockchains.
Hereâs a simple example: Suppose a blockchain network offers a 5% reward for a staking period of, say, a month. You decide to lock up and stake 100 tokens in the network. After a month, youâre able to access your staked tokens and you receive 5 additional tokens as your reward.
How many ways can crypto investors stake their tokens?
Cryptocurrency staking can take many forms, but it generally falls into two categories: active and passive.
Active crypto staking means locking your tokens to a network for the purpose of actively participating in the network. Active participants may validate transactions and create new blocks to earn token rewards.
Passive crypto staking involves simply locking your tokens to a blockchain network to help keep it secure and operating efficiently. Passively staking crypto is not time-consuming, but it generally yields lower token rewards than active participation.
Cryptocurrency staking is a relatively new innovation, but many specialized types of crypto staking already exist, including:
Pool staking. A group of coin holders may combine their resources to compete more effectively for staking rewards. Any rewards earned are shared proportionally among the members of the pool.
Exchange staking. Some cryptocurrency exchanges offer staking services, enabling users to stake their holdings directly on an exchange. The exchange handles the staking process on a blockchain network and distributes staking rewards to participants
Liquid staking. Users receive representative tokens in exchange for staking their crypto. The representative tokens can be traded or used, providing liquidity to the crypto staker.
