How Crypto Staking Helps You Earn Passive Income While You Travel
As a digital nomad holding or living off crypto, it’s a good idea to always be on the lookout for new ways to earn more money from your crypto. That’s because crypto investing is all about managing your portfolio smartly. Especially, when you’re on the go and want to have more freedom to do the things you love.
One of the most exciting things about the crypto space is that it’s continuously changing and evolving. Not only do new projects appear or new users join the network, but the methods to get more out of your crypto portfolio also diversify.
And one convenient option for you to achieve that is to earn passive income with cryptocurrency. If you own proof of stake coin, or perhaps several, then it makes sense for you to consider crypto staking. Not sure what that is or how it can benefit you? Then read on to find out!
What’s the Difference Between PoW and PoS
Before you get into crypto staking, it’s important to understand the difference between the concepts of proof of work (PoW) and proof of stake (PoS). They are both consensus mechanisms that help the blockchain to validate transactions securely. But while proof of work requires mining, proof of stake relies on staking.
Mining has long taken the spotlight as the process by which older and more established cryptos like Bitcoin or Litecoin are generated, authenticated, and added to the ledger. However, newer coins like Cardano or Polkadot rely on proof of stake as an alternative mechanism to secure the network.
How Crypto Staking Works
Through the proof of stake algorithm, new coins reward and incentivize investors for holding them long-term. Investors commit their funds to validate transactions on the blockchain by locking them into a wallet, and in return, they receive rewards.
These rewards consist of a yearly value of the amount you’ve staked, paid out on a daily, weekly, or monthly basis. To earn them, there is a minimum amount required that differs from coin to coin. For example, in the case of Polkadot, if you want to delegate it, you are required to stake 40 DOT, but if you run a validator node, you need at least 350 DOT.
There are two ways you can earn passive income with cryptocurrency with a proof of stake coin. You can either be:
- Validator — To be a validator, you need to own a certain amount of the coin you are staking. Plus, you have to download a specialized wallet for that coin that is open and runs 24/7 on a computer connected to the internet. Being a validator rewards you with more coins than if you were a delegator.
- Delegator — To be a delegator doesn’t require you to have this software running. You are assigning the value or number corresponding to the amount you are staking to the validator. As a general rule, the more profitable the validator is, the higher the chances you have of earning a high-interest rate.
One thing to note is that the coins are in your possession at all times even though they are locked for the duration you are staking them. This means that you can’t trade them in the meantime. To stake your desired tokens, you need to transfer them into a wallet that supports staking, create a staking account using the funds, then delegate your stake.
What Is the Benefit of Crypto Staking
For a crypto investor living internationally, staking crypto is a great way to grow your earnings passively. Here are some of the benefits of crypto staking:
- Staking protects your proof of stake coins against inflation
- The entry barrier for staking many cryptos is quite low. However, the minimum amount you need to own in a particular coin differs from one coin to another, so you have to check beforehand
- By staking your funds, you contribute to securing the projects you support
- Crypto staking doesn’t require you to make expensive investments beforehand or own specialized hardware, as is the case with mining
- You don’t need special skills or to invest a lot of time into crypto staking. You can simply delegate your stake
How to Choose a Profitable Coin to Stake
If you want to buy proof of stake coins with the intention of staking them, you’ll notice that some cryptocurrencies have a low price. Understand that the rewards will be in that coin. So, to avoid an expensive mistake, research the coin you are planning to invest in and get a balanced perspective on whether it’s worth it or not.
Also, you have to know that the payout is based on the number of coins held in your wallet, and from that amount, you earn a yearly percentage. To get an idea of the yield that each coin offers, check a website like Stakingrewards. As you can see, a token like Akash has a 13.96% reward, Ethereum promises a 4.83% reward.
However, only looking at the estimated reward percentage is not a sure indicator that you are making a good investment. You have to factor in a few more things when you choose a profitable coin to stake:
- Minimum required to stake — No matter if you choose to be a validator or delegator, for some coins, the minimum amount needed to stake may be over your budget. Also, if the coin happens to be new, you are taking a high risk by investing in it.
- Emission of coins — It’s great that new coins are being created, but some of these cryptocurrencies have an unlimited supply of coins and high emission rate. If you are to win long term, you might want to filter them out and look at those coins that come in a limited supply. Because they are deflationary by nature, there’s a higher chance of their price increasing in the future.
- Security of the PoS network of the coin you stake — Stakingrewards lists the coins by the amount of value staked on the network. So, the more coins that are locked on the network, the more secure the network is. A rule of thumb is that the coins with the highest APY are the most secure and have the highest chance of returning a high profit.
- Fluctuating percentages — By looking at the APY, you get an idea of how valuable a coin is. However, even though a coin may have a high APY now, that may change over the period of time that you are staking.
This is because, for some coins, the more people are staking, the lower the rewards will be. Also, when validators become saturated, the rewards drop. So, it’s worth checking these fluctuating percentages to be aware of these trends before deciding to stake them.
Final Words on Crypto Staking
As you’ve seen now, crypto staking is a convenient way to earn a passive income, especially when traveling. However, as with everything else, you have to research this option before going for it. If you want to explore more ways to have more success with your crypto portfolio, sign up for our Mastering DeFi program for self-paced coursework, weekly live training events, and more.