Despite the crypto market’s wild volatility, holding cryptocurrency long term has proven to be an effective trading strategy when it comes to making a
Despite the crypto market’s wild volatility, holding cryptocurrency long term has proven to be an effective trading strategy when it comes to making a return on investment. According to Lookintobitcoin data, holding bitcoin has been profitable for 3,875 of its 4,182-day lifespan (92%) – hard to believe, but true.
While some capitalize on market volatility by actively trading crypto, many are simply looking for a more hands-off way to grow their portfolio. Among the options available, staking assets is considered one of the top ways to earn passive income for crypto holders.
What you need to know
Before you get started, it’s important to note that staking can be done only with certain cryptocurrencies whose blockchains use the proof-of-stake (PoS) consensus mechanism. This system selects transaction validators – people who voluntarily help add new data to the blockchain – based on the number of coins they lock up as opposed to how many mining machines they possess (known as proof-of-work, which is used by the likes of Bitcoin, Litecoin and Dogecoin).
The proof-of-stake method offers faster transaction speeds and is easier to use, and it also has a much lower impact on the environment compared with proof-of-work-based assets – something that’s becoming increasingly more desirable as nations around the world tackle climate change.
So, if you’re interested in learning how to stake your assets to earn a passive income, here is everything you need to know about leading PoS cryptocurrencies you can start staking today.
Solana (SOL)
Solana (SOL) is a blockchain-based smart contracts platform specifically designed for deploying decentralized applications (dapps). Solana’s native SOL cryptocurrency is a stakable token that is used to facilitate on-chain transactions and pay for network fees.
Solana’s staking requirements
Solana staking rewards can be earned by users participating in the network as validators or delegated stakers. Validators are responsible for processing transactions and maintaining the Solana network. Delegated stakers are SOL holders who delegate their tokens to stake pool operators for staking rewards using Solana wallets like Phantom.
Wondering where you can see stats on stake pools on #Solana ? Check out https://t.co/Lrudiah0Ke 🔥 https://t.co/q9lJdCJryv
— Solana (@solana) December 15, 2021
Validators are required to run and maintain a validation node (called a “Cluster”), which requires consistent uptime and hardware with sufficient specs. Solana implements slashing, which occurs when validators act maliciously or suffer poor performance. To offset the costs associated with maintaining a cluster, validators can collect commission fees from delegators.
A full guide on how to stake SOL tokens can be found here.
Solana blockchain breakdown
Solana is unique from other notable PoS blockchains because it uses a timestamping system known as a proof-of-history (PoH) consensus. By combining PoS and PoH, Solana is able to clock an incredibly fast block time of 400 milliseconds. By comparison, Cardano’s block time is 20 seconds, and Ethereum produces a new block every 13 seconds.
SOL’s yearly inflation rate started at 8%, but is decreasing by 15% every year until it hits a rate of 1.5%. SOL added into the ecosystem through Solana’s inflation schedule is distributed to delegated stakers and validators every epoch (two days).
How profitable is Solana staking?
The rewards structure for validators and delegators on Solana is mutually aligned. Validators with more SOL delegated receive more opportunities to record transactions on the blockchain, which provides more rewards for both the validator and delegator. In turn, validators may reduce their commissions earned from delegators in order to stay more competitive against other validators. Further, both validators and delegators are affected by slashing, which gives delegators an incentive to stake with the best-performing validators.
Both validators and delegator staking rewards depend on Solana’s adjusted staking yield. Under the staking dilution structure, staking rewards are dynamic and change relative to the amount of tokens staked out of the total current supply of SOL.
According to Staking Rewards, the current annual percentage yield (APY) for delegated staking is around 6.41%, with the majority of validators now charging a 10% commission. Assuming you are staking 1,000 SOL, you would earn around 64.1 SOL next year. Based on SOL’s 52-week high of $260.06, you would be staking $26,006 for an annual profit of $1,666.99.
Cardano (ADA)
Cardano (ADA) is regarded as a “third-generation” blockchain platform and is designed for building and running smart contracts. ADA, the native cryptocurrency of Cardano, is a staking token that is used to incentivize network security and facilitate transactions on the network.
Cardano staking requirements
Staking rewards on Cardano can be earned through stake delegation and running a stake pool. Stake…
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