Is Staking Crypto Worth It? — A Beginner’s Guide to Earning Passive Rewards With Staking
Written by Robin Prock
“Crypto is the only market on earth where looking at a 5–11% APY range and wondering, “hmm is this worth it”? is even a thought! I love it!”
This is an amusing comment from Reddit. And the commentator is right: 5 to 11 percent APY is outrageous in traditional markets.
But the question is still legit: If coins fluctuate 20 percent per day, what good is staking?
Is staking crypto worth it? What is staking anyway? And how can you earn instant passive rewards with it?
You’ll find out now:
1. How does staking crypto work?
To answer this question, we must first answer another one:
What are blockchains? — In short: databases. They record transactions as your bank does.
Only with one important difference: Blockchains are decentralized databases.
Neither J.P. Morgan, nor Visa, nor the Bank of England — no central party — controls the database. Instead, all participants in the blockchain do so by storing transactions in blocks.
That is why blockchains are decentralized. The participants constantly agree on the right blocks (=the transactions).
Once stored, these blocks form an unbroken chain that (at best) no one can change.
But how do you find these blocks? And most importantly, prevent nasty scammers from attaching fake blocks to the blockchain?
Bitcoin does this through energy. You have to spend a lot of energy — like the volcano miners in El Salvador — to find blocks. That’s how you prevent scams. After all, what hacker has a volcano in his backyard?
This is called Proof of Work. So what is Proof of Stake or staking?
The same: You find blocks and store transactions. Only capital replaces energy.
And whoever uses his capital to secure the blockchain is called a validator. How does it work?
By putting a lot of capital at stake — a hefty 32 ETH for Ethereum — you prove that you are not a scammer. If you cheat, you will lose your money. And who wants that?
So what is staking in summary?
You use your cryptocurrencies to find blocks. For this, you will be rewarded with staking rewards.
Still, you don’t need 32 ETH to get started and earn passive rewards. You stake with as little as one dollar:
2. How can you stake your crypto?
- Staking as a Service: Through exchanges like Coinbase, Kraken, or Binance, you can stake with a few clicks. You buy your desired coin, click on the staking dashboard and start staking. The downside? You pay for your “staking from the sofa” — the interest rates are significantly lower than if you would have staked yourself.
- Wallet Staking: With wallets like Phantom for Solana, Keplr for Cosmos, or Terra Station for Terra, you can delegate your coins. Meaning? You select a validator in your wallet, “hand over” your stake to him and earn juicy rewards almost every second. In return, he takes a part of the rewards for himself.
- Liquid staking: Here you stake your coins but you can still use them. How does it work? You exchange your coins for a derivative that increases in value with your rewards. You can use this derivative in a dApp, for example, and earn even more. If you want your coins (+rewards) back, you exchange your derivative again. Providers are Lido or Rocket Pool.
- Masternodes: If you have the necessary change, you can become a validator yourself. To do this, you need certain hardware, a stable internet connection, and a hefty minimum number of coins.
- Protocol staking: To secure protocols like MGH (MetaGameHub DAO), you can also stake their tokens. Here the rewards are significantly higher, but so is the risk. How does it work?
Let me show you with our $MGH token (no financial advice, do your own research!):
- Download a MetaMask wallet (here for Chrome) and load it with $MATIC tokens on the Polygon Network (e.g.: you can transfer $MATIC onto the Polygon Network through Binance).
- Head over to the MetaGameHub App and get some MGH tokens through Quickswap:
- Next, click on “Stake” and after that on “Polygon”:
- Select the amount you want to stake and click on “Stake $MGH.”
- Confirm the transaction in MetaMask…
…it’s that simple, and you’re already earning — at the time of writing — a whopping 37.77 percent per year with a project that becomes the “app store” for the Open Metaverse.
But what are the advantages of staking? Is it even worth it for you?
3. Is Staking Crypto worth it? — these are the 7 advantages of Proof of Stake.
- Compound Interest: How did Warren Buffett become a billionaire? He earned interest on his money year after year until thousands of dollars became millions and eventually billions. In the same way, you can earn interest on your coins almost second by second… perhaps with similar results as the good Warren.
- Higher APY than in your bank account: You know what’s a good joke? Not that you might get 0.1 percent interest on your account, but that you still pay taxes on it. With staking, on the other hand, you get 4 to 15 percent depending on the blockchain — even much more with dApps….
- …and these are all rewards you don’t have to do anything for. It’s passive. You can lay on the beach, sip a cocktail and enjoy the sun — you’ll still get your staking rewards. Which can lead to the following in the long run:
- Financial independence: IF you invest in good projects and IF you reinvest your rewards, you can possibly make a living. This is not a promise, but a possibility.
- Buffer for dips: Cryptocurrencies have a sneaky habit of falling occasionally — and falling hard. Staking rewards cushion your losses somewhat. While your coins drop in value, at least, you’ll get passive rewards. And staking has another advantage when prices fall…
- Harder to panic sell: If you want to stake with Ethereum, your coins are locked right now. Locked coins prevent you from panic selling (so in May 2021 as Ethereum dipped about 50 percent).
- Better for the environment: Proof of Work is getting greener — it uses volcanoes and renewable energy. But it’s not yet completely green… and yet it uses an enormous amount of energy. Crypto staking uses almost no energy at all. Just because it’s better for the environment, you can answer yes to the question “Is Staking Crypto worth it?”…
…of course, staking is not perfect. Of course, you can make mistakes. And of course, you can lose money with staking.
That’s how it can get you:
4. Is staking crypto safe? — don’t forget these downsides:
- The price is falling: look at the chart below. Shocking, isn’t it? From $42, Pancakeswap has crashed to $6. And one reason PancakeSwap went up in the first place was staking — over 140 percent there for a while. That attracted a lot of buyers. But even 140 percent doesn’t do you much good if your coin drops over 80 percent. What do you learn from this? A.) Don’t stake a coin just because the rewards are high. Believe in it instead! B.) Staking rewards are paid for with inflation — more coins come into circulation; more coins that cause the price to collapse when demand drops. Therefore, pay attention to how your coin finances the staking rewards and whether it is economical in the long run (no financial advice).
- Slashing is when coins are taken away from the validator. Why? He has misbehaved and, for example, smuggled a fraudulent transaction into a block. You can also have coins taken away if you delegate your coins to a malicious validator (unlikely with established validators).
- Taxes: Depending on the country, you may have to pay taxes on your staking rewards… and even more. For example, in Germany, the holding period increases to ten years once you stake your coins. Meaning? Only after ten years, you can sell your coins tax-free — before that, it’s one year (no tax advice).
- Bugs: Unlikely with blockchains, but possible with dApps. What can happen to you? A bug is found in the staking smart contract that hackers exploit. They drain your coins and you lose your money.
- Declining rewards: Although they sound tempting — 1000 percent APY won’t stay that way for long. The staking rewards of most blockchains and protocols will settle between 5 and 20 percent. Why? A.) The more staking, the more wallets get rewards — fewer rewards for all. B.) Especially in the beginning, staking rewards are paid with new coins. This inflation MUST decrease if the project doesn’t want to go to zero….
…Please keep these disadvantages in mind. Because — as the saying in investing goes — ”There’s no free lunch.” Everything has disadvantages. Everything can go wrong.
Only if you know the risks, you can avoid them.
But let’s answer the question of the article in the conclusion:
5. Conclusion: Is staking crypto worth it?
With juicy staking rewards, they attract users on the one hand, and on the other hand, they can secure their blockchain in an environmentally friendly way.
And for you?
It’s up to you to decide. We do not give financial advice.
Anyway, with crypto staking, you get significantly more than you would on any bank account.
Only there is a catch:
Your coin must prevail. If your coin falls like PancakeSwap, even 100 percent APY is of no use to you.
So choose wisely which coin you stake!
How Can You Stay up to Date and Keep in Touch with MGH?
- If you want more information about MGH, visit our Website
- For a sharpshooter-like view over the whole project, read our Whitepaper.
- Work together with us in a Working Group.
- Follow us on Twitter.
- Follow us on Instagram
- Check out MGH on LinkedIn.
- Discuss, write, and celebrate with us on Telegram.
- Talk, laugh, and enjoy the time on Discord.
At MGH we bring together DeFi, Data, and the Metaverse by following one core principle: “Navigating through the Open Metaverse together”. We accomplish this in four clearly defined steps:
- DAO Governed LANDs: MGH DAO collaboratively acquires, populates, and monetizes LANDs and respective in-game assets.
- Valuation Algorithm: Our Valuation Algorithm allows fair pricing for LANDs and will be gradually adopted to more Metaverse Assets.
- Dataverse Tools: MGH DAO is developing intuitive data tools which can be leveraged by users and ecosystems alike.
- Intuitive Metaverse dApps: Use MGH DAO’s tools to navigate through the Metaverse and leverage MetaFi.