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Learn how to stake your cryptocurrency for earning passive income from your crypto holdings

Investors in traditional finance can generate yield in a variety of ways. The most common method is to invest in cryptocurrency stake. Most buyers receive fixed coupon payments over time, while others receive variable payments. Websites such as TreasuryDirect.gov facilitate communication between the US government and investors.

Crypto yield-bearing strategies are functionally similar to bond buying in that an investor locks up an asset in exchange for a stream of payments. However, the mechanics of these payments differ greatly. There are several methods for earning interest on digital assets, Blockchains are managed by a network of computers known as nodes, the owners of which are compensated for adding and verifying transactions. Rather than having a central authority maintain records, all nodes must reach an agreement before adding new transactions to the blockchain.

Each time new data is added, node operators are paid in the native currency of the blockchain, for example, ether on the Ethereum ETH -0.4% network. Nodes are compensated differently in different blockchains. The process is known as proof-of-work for Bitcoin BTC -1.2%. (PoW). Despite being regarded as the more robust and egalitarian consensus mechanism, Bitcoin's network consumes more energy per day than in medium-sized countries such as Israel or Argentina. As a result, newer blockchains, among others, tend to use proof-of-stake (PoS).

To validate transactions using PoS, I node owners must deposit or stake a certain amount of cryptocurrency. Ethereum requires 32 Ether (ETH).

If a node owner acts against the network's interests or fails to stay connected to the platform, that entity may lose its stake. Consensus mechanisms heavily rely on game theory to keep the blockchain secure and decentralized. Playing by the rules earns you rewards while breaking them costs you money. Though 32 ETH appears to be a high entry point (approximately $50,000 in early 2023) for becoming a validator, small investors can lend or delegate their crypto to established operators in exchange for a prorated share of the return. Liquid staking

is a newer approach in which stakes deposit their token into a platform that pays the staking yield and provides them with a 1:1 copy of their original tokens that can be freely traded or lent.

This nearly eliminates the barrier to entry for major PoS chains such as Solana SOL -6.5%, Polygon MATIC -3.9%, Cardano ADA -1.3%, Avalanche AVAX -2.2%, and Polkadot DOT -3.5%.

To avoid the complexities of running the hardware and meet governance requirements, beginners are frequently encouraged to begin by delegating their crypto to an existing validator.

The first question a potential validator will ask is, "What are the returns?" Websites such as stakingrewards.com provide a quick and easy way to view annual percentage rates on staked crypto. This information is gathered in real-time from blockchain data. Rates differ depending on the chain. They can range from 1% to 20%, depending on a variety of factors.

Investors should not always seek the highest interest rate. Staking should be viewed as a long-term strategy rather than a quick way to obtain a high yield. Excessive yields are likely unsustainable, and as we saw with the TerraUSD/LUNA collapse, they can be nothing more than fragile artificial mechanisms to create demand. After you've decided on a PoS chain and are satisfied with the yield, you can start staking. There are three approaches: centralized exchanges, blockchain, and liquid staking derivative platforms.

The most convenient way to stake your cryptocurrency is through an exchange that provides this service. Users can stake certain digital assets on exchanges such as Binance and Huobi Global. This is not to be confused with lending programs offered by non-exchange crypto finance companies. It is worth noting that regulators are taking a closer look at staking, at

least in the United States. The SEC recently reached an agreement with the cryptocurrency exchange Kraken to permanently shut down its crypto staking service, believing it was an investment contract governed by securities laws.