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 3,825of its 4,377-day lifespan (87.4%) – 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'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.
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 5.28%. Assuming you are staking 1,000 SOL, you would earn around 52.8 SOL next year. Based on SOL’s 52-week high of $259.99, you would be staking $25,999 for an annual profit of $2,129.32.
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 delegation lets ADA holders delegate their ADA into staking pools and doesn’t require network participation like running a node or any specific hardware. ADA holders looking to stake their tokens can get started with staking pools using IOG’s Daedalus wallet or Emurgo’s Yoroi wallet.
Stake pools are run by stake pool operators. Those are individuals who can run a network node with consistent uptime in order to keep the network secure. The Cardano network uses game theory to determine which stake pool will create the next block on the chain where the probability of getting selected as a "slot leader" increases by the total amount of ADA staked. Every time a pool is selected as slot leader and validates a transaction block, it receives a reward that is distributed among stake delegators. Time is divided into five-day sections called “epochs,” where each epoch contains 420,000 one-second “slots."
Read more: How to Stake Cardano (ADA)
Staking rewards are distributed to stake delegators at the end of each epoch and are equally distributed based on the delegator’s total ADA staked 25 days before the end of the cycle.
Cardano blockchain breakdown
How profitable is Cardano staking?
Cardano offers a staking reward calculator on its website to provide users with an estimate of how much staking rewards they can expect for delegating or running a staking pool. According to its calculations, a delegate staking 1,000 ADA would earn 46.08 ADA (4.61% APY), while a delegate running a stake pool could earn up to 77,185.05 ADA (7,718.51% APY).
At ADA’s 52-week high of $3.20, this translates to around $147.46 for delegating and $254,710.67 for running a staking pool. Overall, Cardano staking can be very profitable for those who are able to run a staking pool and can keep pool-related fees well managed. It's recommended users should check stake pools regularly and move funds around to ensure they are getting the best possible rates.
Polkadot (DOT) is a blockchain interoperability protocol that connects several different chains together in a single network, allowing parallel transaction processing and exchanges of data between different chains. DOT, the native cryptocurrency of Polkadot, is primarily used for governance, staking and connecting to new “parachains.”
Polkadot staking requirements
Polkadot uses a nominated a proof-of-stake (NPoS) consensus algorithm, letting users earn staking rewards as a validator or a nominator. Validators are responsible for validating transactions on the Polkadot network, while nominators ensure that validators are behaving appropriately.
Slashing occurs if a validator acts maliciously and causes both validators and their nominators to lose a percentage of their staked DOT. This is carried out automatically by smart contracts coded into the protocol.
Nominators have less responsibility than validators do, and becoming a nominator has fewer requirements to get started. There isn’t a minimum requirement for staked DOT for nominators, and there’s no need to run a node or use specific hardware. But because the network is limited to a maximum of 22,500 nominators, there is an implied minimum of about 120 DOT in order to nominate.
Earning staking rewards as a validator is a bit more complex. The total DOT required to become a validator varies and requires about 350 DOT to get going. Validators must also run a node, which typically requires launching a cloud server on Linux. To do that, it's suggested that your computer should have an Intel Core i7 CPU @ 4.20 GHz or better, 80 to 160 gigabytes of solid-state storage and at least 64 gigabytes error correcting code (ECC) of memory.
Staking rewards for DOT start to accumulate at the start of a new era, or 24-hour period. At the end of each era, your payouts from the previous era are available to claim. Usually, a validator or nominator will claim the staking rewards, which will cause all payouts to be distributed to everyone else automatically. Both validators and nominators can claim their staking rewards via the Polkadot JS wallet or through Ledger.
A full guide on how to stake DOT can be found here.
Polkadot blockchain breakdown
There is no upper limit on Polkadot’s maximum supply. New dot tokens are released into circulation in perpetuity, at a stable annual inflation rate of 10%.
Inside each 24-hour Era there are six four-hour windows called “epochs.” Each epoch consists of 2,400 six-second time periods called “slots.” One block is produced roughly every slot, though some slots can pass without a block being produced.
How profitable is Polkadot staking?
Nominators profitability depends on the validator. Validators can charge commissions for staking rewards, which is subject to change at any time. Further, only a validator’s top 256 nominators get paid out at the end of each era. Regardless of the total amount of DOT staked with a validator, nominators all split staking rewards equally.
According to Hodlpolkadot, the average APY for a nominator in the top 256 is around 13.5%. Assuming you are staking the minimum 120 DOT, you would earn around 16.2 DOT over the next year. Based on DOT’s 52-week high of $55, that would hypothetically translate to staking $6,600 for a yearly profit of $891.
All validators split payouts equally, although they can vary slightly based on era points. Era points are rewards paid out every era for completing certain positive actions on the blockchain, such as issuing valid statements for parachain blocks. Validators can receive additional rewards via tips from users transacting DOT. One hundred percent of the tips go to validators and are used as an incentive for validators to prioritize certain transactions.
According to Polkadex, validators receive an APY of 112%. Additionally, validators receive a commission from the platform's nominators. Let's say you are running a validator that qualifies for Polkadot’s Thousand Validators Program, which requires 5,000 DOT staked and a maximum commission of 3%. Not including additional staking rewards from era points, you would receive 5,600 DOT from self-staking and 124.41 DOT from nominator commissions for a total of 5,724.41 DOT. With the price at the 52-week high, running a validator would require you to stake $275,000 and would yield a return of $314,842.55 in a year.
Ethereum 2.0 (ETH)
Ethereum 2.0 is the long-awaited upgrade to the Ethereum protocol that will see the transition of Ethereum’s consensus algorithm from PoW to PoS. Among other benefits of the network upgrade, such as faster transaction speeds, Ethereum 2.0 will make mining available to ETH holders.
Read More: What is The Merge?
Ethereum staking requirements
In order to get started with Ethereum staking, a validator needs to lock up a minimum of 32 ETH into the official deposit contract address (see below). While Ethereum staking pools exist to give you the opportunity to stake without 32 ETH, Ethereum 2.0 doesn't permit delegation. In addition to the minimum ETH requirement, Ethereum staking requires you to run specific software to access the network known as a node client to verify transactions on the blockchain.
With its move to a PoS protocol, Ethereum 2.0 will have a much lower barrier to entry for mining. Prior to the update, significant upfront investments in hardware were required to participate in mining. With the switch from PoW, prospective miners will no longer need to purchase graphics cards and run up a high energy bill.
A full guide on how to stake Ethereum can be found here.
Ethereum blockchain breakdown
The new upgrade of Ethereum – which is no longer called Ethereum 2.0 – will see improvements to the blockchain and its validation time in addition to its switch to PoS. Ethereum’s speed will improve from 24 tps to speeds potentially as high as 100,000 tps.
This massive increase in speed will be made possible as Ethereum introduces sharding, or the breaking up of the blockchain into several (64 in the case of Ethereum) different shards. Validators can run their own shards, spreading out the requests for validation and improving the workload for validator’s devices.
How profitable is Ethereum staking?
Ethereum 2.0 staking rewards vary and depend on the total amount of ETH staked. When there is more ETH staked, rewards are reduced and vice versa. Additionally, staking ETH also gives participants network rewards, which are a portion of daily transaction fees.
The current annual percentage rate (APR) for staking on Ethereum 2.0 is 5%. If you were holding the minimum 32 ETH to run a validator, you would see a return of 1.6 ETH at the end of the year. At ether's 52-week high, that would hypothetically result in a gain of $7,826.72.
XTZ is the native cryptocurrency of Tezos, which is an open-source smart contract platform used to issue new digital assets and create dapps. XTZ fuels the Tezos platform and enables holders to participate in voting on Tezos protocol proposals.
Tezos staking requirements
Holders of XTZ can commit their tokens in exchange for the ability to validate blocks, winning rewards for doing so in a process known as “baking.” Participants who stake at least 8,000 tokens on the network also get voting rights, which allows them to weigh in on the project’s governance. Unlike traditional PoS platforms, Tezos lets holders delegate their XTZ to “bakers,” which enables users to participate in on-chain governance without the required 8,000 tokens.
Tezos blockchain breakdown
It takes about five weeks in order to start receiving rewards for staking. That's because you must first wait 21 days (seven cycles) in order for your XTZ to become eligible for rewards. After your XTZ becomes eligible for rewards, you need to wait an additional 15 days (five cycles) for the rewards to be paid out. After you have waited for a total of 12 cycles, staking rewards will be paid out once every three days (one cycle).
How profitable is Tezos staking?
Baking profitability can be different depending on whether you are a solo baker or are delegating your rewards. Solo bakers can earn 16 XTZ for every block baked in the system, or an 8% APY. Endorsers (network participants who validate the blocks created by bakers) are randomly selected to verify the last baked block and can receive an endorsement reward of up to two XTZ per verification.
For delegation, the current APY is about 6%, less the total fee charged by the validator. For example, Tezos staking is made available on Coinbase, which requires only a minimum balance of 0.0001 XTZ and an APY of nearly 5%.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.