PARTIE 3 - ADVANTAGES AND DISADVANTAGES OF STAKING
For several reasons, staking can be a more advantageous alternative to mining. Especially since the projects are multiplying.
However, some drawbacks and risks are reported by the community.
1/ THE MAIN ADVANTAGES OF STAKING
Staking is an attractive concept for several reasons:
- Less expensive to set up with the PoS technique, you don't need to invest in mining machines.
- Less expensive, too, because you don't need to have a large starting capital.
- Easy to use, you can decide to delegate the block validation process without any additional costs.
- This can increase the price of assets in the long run, because when a number of funds get blocked, they become less accessible. Slowing down their circulation can have this effect of increasing the capital.
- Earn more by using the concept of compound interest*. The principle is to restock some tokens after the lock-in period is over.
? Compound interest principle: when the trend is up, the freshly withdrawn tokens may have increased in value. It can be a good plan to introduce them again in a second round of staking.
This last point can be very interesting, especially during a bear market, which can last a few months or even a few years.
Rather than "waiting" for the general situation to settle down, you can bet on this or that asset according to a period T.
Not only do you get the ball rolling, but you continue to earn your rewards.
Protect the network from bad validators with slashing. If a staker is cheating in any way, he can be reported. From then on, he can lose the invested tokens; the whistleblower can inherit them; and the block added to the network will be deleted.
2/ RISKS AND DISADVANTAGES
Thanks to the experiences of other investors, it is possible to establish a non-exhaustive list of risks and disadvantages related to staking:
- The profits made would be low and/or fixed.
- Comparison with farming (see Part 4): many platforms promise a lot of money with sometimes rates of return far above what staking projects offer (e.g. Siftchain's Rowan with a rate up to 111%!).
On paper, this looks good, however, yield farming requires a real strategy to be put in place, taking more risks.
- Hacking and loss of funds. So be careful to choose your platform carefully and not to take the first project that comes along.
- Disparities between validators, because the amount of earnings is calculated according to the PoS algorithm. Thus, you earn your earnings proportionally to the volume of funds staked and according to the number of participants.
As you can see, it is still the law of the strongest. It is therefore preferable for you to be part of the big fish or, failing that, to be part of a staking pool (in the long term, we can ask ourselves the question of the recentralization of the network).
- Blocking and unstaking* period. Stakers do not have control over their assets since they are blocked for X amount of time, especially during the unstaking period. Sometimes you have to miss out on great opportunities.
The *unstaking period is the period during which you can unstake your tokens. Sometimes you may have to wait a little longer.
So, for the platforms which foresee a minimum delay of 7 days, no worries, for those which foresee delays in weeks, it is another matter!
FAQs
How does crypto staking work?
- Choose a cryptocurrency. Not all cryptocurrencies support staking, so your first step is to choose a relevant token. ...
- Acquire the cryptocurrency. Your next step is to acquire your chosen cryptocurrency. ...
- Select a staking platform. ...
- Stake your cryptocurrency. ...
- Earn rewards.
Crypto Passive Income: 8 Ways to Earn (2024)
- Cryptocurrency interest rewards.
- Dividend earning tokens.
- Staking.
- Crypto lending.
- Play-to-earn games.
- Crypto affiliate programs.
- Yield farming.
- Cryptocurrency mining.
Yes, taxes apply to crypto staking. In 2023, the IRS clarified that staking rewards are considered income upon receipt, which subjects US taxpayers to income tax on crypto received from staking.
Can you make $100 a day with crypto? ›
You can make $100 a day trading crypto by trading —
Each of these has its own advantages and disadvantages. Spot markets offer the least amount of risk as you only stand to lose the percentage the market moves at.
What is the most profitable crypto to stake? ›
What's the best crypto to stake for the highest reported rewards in 2024?
- eTukTuk. APY: Over 30,000% ...
- Bitcoin Minetrix (BTCMTX) APY: Above 500% ...
- Cardano (ADA) Staking Rewards: Flexible staking rewards. ...
- Doge Uprising (DUP) Features: Staking rewards, airdrops, and NFTs. ...
- Ethereum (ETH) ...
- Meme Kombat (MK) ...
- Tether (USDT) ...
- TG.
Surya Prakash
- The Top 11 Ways to Earn $10,000 in Passive Income Each Month : Make Money Online. ...
- Dropshipping: The Gateway to E-Commerce. ...
- Using Endorsem*nts to Earn Through Affiliate Marketing. ...
- Etsy Print on Demand: Innovation Meets Business. ...
- Real estate crowdfunding. ...
- Creating and selling digital products.
Wrapping up ways to make $2,000/month in passive income
- Try out affiliate marketing.
- Sell an online course.
- Monetize a blog with Google Adsense.
- Become an influencer.
- Write and sell e-books.
- Freelance on websites like Upwork.
- Start an e-commerce store.
- Get paid to complete surveys.
25 passive income ideas for building wealth
- Flip retail products. ...
- Sell photography online. ...
- Buy crowdfunded real estate. ...
- Peer-to-peer lending. ...
- Dividend stocks. ...
- Create an app. ...
- Rent out a parking space. ...
- REITs. A REIT is a real estate investment trust, which is a fancy name for a company that owns and manages real estate.
Acceptable documents
Wallet transaction statement, screenshot of transaction records or a file (e.g. . csv file) showing a clear outline of the external wallet inflows and outflows. This should contain the date, transaction type (deposit/withdrawal), currency, amount, and wallet address for each crypto transaction.
How much do crypto traders make a month? ›
As of Sep 1, 2024, the average annual pay for a Cryptocurrency Trader in the United States is $96,774 a year. Just in case you need a simple salary calculator, that works out to be approximately $46.53 an hour. This is the equivalent of $1,861/week or $8,064/month.
Cryptocurrencies are traceable, with transactions recorded on a public ledger accessible to the IRS. The IRS uses advanced methods to track crypto transactions and enforce tax compliance. Centralized exchanges provide user data to the IRS.
Do I need to report crypto staking on taxes? ›
Key takeaways. Crypto staking rewards are considered taxable income subject to income tax. Income is recognized when you have 'dominion and control' over your staking rewards.
Is crypto staking worth it? ›
Whether crypto staking is worthwhile depends on what kind of crypto owner you are. Generally speaking, cryptocurrency staking offers returns that exceed those you can earn in a savings account. However, staking is not without risk. You'll earn rewards in crypto, a volatile asset that can decline in value.
How do I stake crypto? ›
How to stake your crypto
- Step 1: Buy staking assets.
- Step 2: Stake directly from the exchange or transfer your crypto.
- Step 3: Start earning rewards.
This means that, on average, stakers of Ethereum are earning about 2.14% if they hold an asset for 365 days. 24 hours ago the reward rate for Ethereum was 2.13%. 30 days ago, the reward rate for Ethereum was 2.24%. Today, the staking ratio, or the percentage of eligible tokens currently being staked, is 28.38%.
Where is the best place to stake crypto? ›
While Forbes Advisors ranked Gemini, KuCoin, Kraken, Coinbase and Binance.US as the Best Crypto Exchanges for Staking and Rewards, other crypto exchanges offer staking and rewards for crypto holdings.
