Is Staking Crypto Safe? Risks and Benefits

Is staking crypto safe? Many new investors are asking this question as they see the prices of cryptocurrency rise and fall. This volatility has caused uncertainty among traders, making many wonder if it’s better to sit and hold. If you have a significant amount of tokens in your wallet, you can utilize them to generate additional money by staking them. In this article, we will go over whether staking crypto is safe and the risks and benefits. Before going into detail about the question “is staking crypto safe?” let’s understand what crypto staking is.

What Is Crypto Staking?

Cryptocurrency staking is the act of “locking up” a digital asset to serve as a validator for the blockchain network’s integrity, security, and continuity. Stakers (validators) are paid with freshly generated crypto as a thank you for their assistance in keeping the network secure. Staking is now an alternative to cryptocurrency’s energy-intensive Proof of Work (PoW) consensus technique, thanks to the Proof of Stake consensus mechanism (PoS).

Users can stake some of their tokens in the network to help protect and maintain the system, unlike PoW networks, which rely on miners volunteering their computer power. Using a PoW mechanism was widespread in the early days of cryptocurrency. PoS-inspired or equivalent consensus algorithms are increasingly being employed in building new blockchains. Now, we will answer the question, “is staking crypto safe?”

Is Staking Crypto Safe?

Is staking crypto safe, and does it have risks? Staking isn’t always easy; knowing the hazards is essential before placing your cryptocurrency into a blockchain network. You should keep the following risks  in mind before deciding to stake:

Market Risk

The cryptocurrency markets may be quite volatile, with values moving often. Even if the price of your staked token does not fall, the platform you choose may lead you to lose money. They might have been affected by the current cryptocurrency volatility. Despite a 15% APY, token values may have dropped by 40 to 50%.

Liquidity Risk

This is typically more of an issue with lesser-known coins. The liquidity of your crypto asset is vital to the staking process. When you stake a cryptocurrency, you help increase the network’s liquidity. Cryptocurrency exchanges rely on market liquidity to make money and facilitate transactions.

However, a significant quantity of money is necessary. Staking payouts can be convertible into fiat cash or another cryptocurrency as well. It may be challenging to swap low liquidity coins for more liquid ones. Because trading is impacted by market volatility, this becomes considerably more difficult. It is preferable to stake assets with more liquidity.

Validator Risk

Running a node as a validator for a currency requires substantial technical knowledge to keep the staking process running. To maximize their staking benefits, nodes must stay functioning at all times.

Punishment is also possible for misbehaving validator nodes, which may reduce your stake returns. Tokens staked by validators may lose all or part of their value even in the worst-case scenario. To minimize the danger of staking on your node, you may utilize a service to delegate your stake to another node.

Lock-in Periods

Before you may stake a cryptocurrency, you must understand the lock-in period. During this time, you will be unable to access your initial cryptocurrency investment. Because un-staking a currency might take days, weeks, or even months, you may have tokens worth less than when you staked them.

Theft

There has been an increase in cryptocurrency theft in recent years. While your staked money is linked to the network, it is still vulnerable to attacks. Platforms that are often hacked and assaulted by cyber criminals require a robust security protocol. In the example of Axie Infinity, a gaming platform, a recent assault cost $600 million. Before you put your money in danger, investigate the blockchain’s security measures.

Penalties

You have a role as a network validator, whether you stake your cryptos on your own or in a pool. The blockchain depends on the consistency of its validators to function effectively. The shutdown of a computer system may have an impact on the network. If this happens, your rewards may be reduced or canceled. The severity of these sanctions may vary significantly depending on the blockchain.

Costs

If you don’t want to be penalized, keep your system up and operating at all times. Because your computer uses a lot of electricity, it will cost you a lot of money in the long run. As an investor, it is critical to analyze the costs and benefits of staking to ensure that the process is lucrative and long-term sustainable.

Benefits Of Crypto Staking

We have gotten a clear idea about whether staking crypto is safe. Now we’ll go over the benefits of staking crypto.

Traditional Savings Methods vs. Crypto Staking

Traditional savings accounts at banks and other financial institutions are ineffective. Chase and Wells Fargo provide a zero percent annual yield (APY). CitiBank’s annual percentage yield (APY) of 0.60 percent and that’s 12 times greater than the national inflation average, 7.9 percent annually! That is how much the US economy has shrunk in the last decade.

Staking payouts may vary over time owing to changes in the blockchain and market circumstances. ADA token holders may earn an APY of more than 4.5 percent today on the Cardano blockchain, which is more than 100 times the national average.

No Equipment Required

Staking cryptocurrency, unlike mining, requires no equipment! All you need to start staking cryptocurrency is a smartphone app, a computer, or a USB device. When you have access to your digital wallet, you will be able to deposit and withdraw money, as well as join a staking pool.

Efficient

Staking saves energy since it does not need a lot of computer power. This may be used to assess the success of staking. It is more ecologically beneficial since it uses less energy than mining, which takes a considerable quantity of both. Staking may be done with any smartphone or laptop.

No Internet Need

Staking may also be done without an internet connection, which is a good bonus. In the cryptocurrency community, cold staking refers to staking money without an internet connection.

Multiply Blocks

A miner may also engage in staking to increase the number of blocks in the network.

Simple and Safe to Use

Staking cryptocurrency is a simple and safe method. You don’t need any extra skills to stake your claim. You’ll need to purchase some coins and deposit them into your account to get started. As a result of staking, you will have more coins in your digital wallets due to interest.

Earn Passive Income

Staked coins have increased in value as the currency’s market value has increased. As a result, crypto-staking offers investors a stable and consistent interest rate. This method almost guarantees a return, making it superior to just putting money in a savings account.

Simple Cold Staking

Cryptocurrency’s capacity to be staked in a cold wallet is one of its most appealing features. As a result, you won’t lose your cryptocurrency because it is exposed to an exchange. Your cryptocurrency is safe from hackers and other risks when you use a hardware wallet connected only to your computer. Only a staking-friendly cold wallet is required.

Users who don’t trust exchanges or staking pools and want to keep their money in cold storage can now take the services of a buddy to serve as a super-staker and verify their transactions. The consequence is a more decentralized cryptocurrency ecosystem because of cold staking. One issue is that your tokens may be permanently lost if you misplace or forget your hardware wallet login credentials. Even if you misplace your private keys, the money in your hot wallet is still accessible.

Staking via Exchanges

Staking cryptocurrencies is possible via an exchange. Coinbase, Crypto.com, and BlockFi are the three most trustworthy cryptocurrency exchanges. The detail of these is discussed here.

1.   Coinbase

Many digital asset specialists believe that Coinbase is one of the safest ways to acquire cryptocurrencies. When it originally started in 2017, Coinbase had an outstanding reputation for security. Compared to other websites, this one contains a massive library of knowledge. Furthermore, they have a decent number of coins for staking incentives.

Pros

• This product is available in over 180 countries around the world.
• Coinbase offers a beginner-friendly interface.
• Numerous digital assets can be staked.

Cons

• High fees.

2.   Crypto.com

There are several advantages to using Crypto.com as an all-in-one cryptocurrency platform that is also cost-effective. The more Cronos (CRO) you can stake, the better your chances are. Staking is possible with a variety of different cryptocurrencies that they provide.

Pros

• There are many different cryptocurrencies to choose from.
• Trading at a low price
• Staking is now possible.

Cons

• Scarcity of educational resources.

3.   BlockFi

BlockFi is a trustworthy staking platform that guarantees a return on investment. This platform meets the requirements of a reputable financial institution by providing its clients with a wide range of services. BlockFi has recently released several new features that no other provider offers. Block-Fi features a limited trading service, but its most prominent feature is that it lends money secured by cryptocurrency.

Pros

• Good interest rates.
• It’s easy to operate.

The Bottom Line

Crypto staking has emerged as a new revenue stream for investors searching for better returns with fewer resources. It’s all about preserving and maximizing one’s financial resources. There are several benefits to holding a cryptocurrency as a stake. Your digital wallet’s stock will increase even if you forget or are disconnected from the internet. The more you stake, the more chances you have to earn incentives.

Frequently Asked Questions