Asides from buying and holding crypto to make a profit, crypto staking and crypto lending are other ways of investing in crypto to earn.
Cryptocurrency has made many millionaires overnight via the different possibilities to earn. Although it is the riskiest form of investment, it is also a route to make quick money.
Crypto staking and lending are one of the crypto’s productive products from a profit point of view. If you’re already involved in buying and holding crypto then staking and lending should be the next for you.
In this post, we’ll learn more about crypto staking and lending as well as the difference between both investment strategies.
What is Crypto Staking?
Crypto staking is the financial term used when an investor agree to lease the crypto invested in a specific network which helps to validate the network’s transaction. In so doing, the investor earn rewards typically in form of tokens.
The proof-of-stake mechanism is key to staking. In this mechanism, instead of using powerful machines to mine, the network assigns a miner, or node, the right to perform the validation work. This usually depends on the amount or stake of tokens that node currently has. Once the node is given the nod by the network, it can get to work validating transactions.
Once it solves the problem, the selected miner is rewarded with tokens, and the stake is returned back to the investors.
This is however different from Bitcoin and many other blockchains that rely on a proof-of-work mechanism. In this system, miners expend huge amounts of computing power to solve a puzzle. This helps the blockchain validate all the transactions inside a block.
At the end, the reward goes to the first miner to solve the puzzle. While this is seen as a robust and secure way of keeping a blockchain running, the proof-of-work has its discredits. All the computational power expended by all the miners that didn’t solve the puzzle is wasted.
Crypt staking doesn’t work with the proof-of-work cryptos but the proof-of-stake crypto assets.
Just as groups of crypto miners have mining pools, groups of crypto stakers also have staking pools. This pool make the chances of being selected higher.
What You Need To Know About Staking Pools
Here are 5 important things to know about staking pools. They are listed below
1. Staking pool is a get-together place for investors to collect their crypto into a pool.
2. A pool operator will do the allocation on the investors’ behalf.
3. Investors without a working knowledge of the blockchain networks get the chance to be involved in the network.
4. The staking pool increases the chances of an investor earning rewards for staking.
5. Staking may attract fees which could make the reward to be potentially lower as it’s divided among more investors.
What is Crypto Lending?
Crypto lending is the financial term used in the crypto world when an investor agree to lend the crypto invested to a certain network. In so doing, the investor earn more crypto tokens which helps to facilitate trading.
When you lend crypto, you let the blockchain lease it out to crypto borrowers. The network charges those borrowers interest and splits the earnings with the investor. Crypto loans are also secured using the borrowers’ loan crypto as collateral.
Several decentralized finance companies offer the ability to lend your cryptos to other traders and earn interest as a result. These companies create an interest value that vary depending on the crypto asset you’re lending and the rate set by the company itself. You begin earning interest almost immediately.
Difference Between Crypto Staking & Crypto Lending
Here are the major differences between crypto staking and crypto lending. They are listed below
1. While staking helps secure a network, lending allows investors to earn interest to help facilitate trading.
2. Staking locks up your crypto for a preset period of time while many lending platforms let you withdraw your earnings anytime you like.
3. Staking is ideal for long-term crypto holders who want stable gains while minimizing risk. Lending is somewhat less appealing as a long-term investing strategy.
What Crypto Assets Can You Stake or Lend?
What coins can you stake?
Networks with proof-of-work mechanism cannot be staked. Bitcoin, which is the most popular and biggest crypto cannot be staked. This is because Bitcoin transactions are verified using a proof-of-work which is basically a sheer wall of computing power and cannot be assigned a miner like proof-of-stake.
You can stake coins only if they are proof-of-stake. Some of the most popular coins to stake (with high rates) today include Ethereum, Binance Coin, Hydra, Cardano and BitDAO.
What coins can you lend?
Since lendable coins aren’t restricted by PoW or PoS, there’s no limit to the types of crypto that can be lent. The list is presently small but growing.
Crypto lending is much newer and the list of coins will grow based on borrower demand. If your preferred crypto isn’t available for lending, you’ve to watch out for the list.
How to Stake or Lend Crypto
The staking and lending process is pretty simple and straightforward. Here are the basic steps to take-
1. Choose your platform– The world’s leading crypto exchange such as Binance, Coinbase, Kraken, Gemini and others support staking although with a limited selection of tokens.
For lending, the two most popular platforms are BlockFi (centralized) and Compound (Decentralized). Veteran crypto traders make use of DeFi platforms because they embody crypto’s original mission to remove third parties. Beginners are advised to stick with the support and customer services of centralized finance.
2. Choose your crypto– Next, you pick which crypto to lend or stake. You should know that not all coins are stackable and the list of lendable coins are growing. You can pick a crypto that’s in your wallet. But if you buy one crypto from scratch for the purposes of lending or staking, don’t get too fixated on a high interest rate.
3. Lend or stake your crypto– Crypto staking or lending is quite easy. If you are using Binance for example, the steps to take for staking are listed below
- Pick a coin from your wallet
- Click deposit
- Choose between 30, 60, and 90 days.
- Stake your coins and watch your interest accumulate.
When lending on platforms such as BlockFi, simply follow the steps to opening an account. The CeFi platform will find borrowers for you.
Crypto staking and lending is another way to make profit with crypto. Like every crypto endeavor, it is not without risks attached to them.
Lending is riskier than staking which has its only risk as illiquidity (if the price starts to tank or you need to cash out incase of an emergency, you will not able to do so). Lending has more risks attached to it as it is said to be highly opaque and volatile.
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