While savings accounts have always been the go-to for building wealth, an increasing number of savers are recognizing issues that persist within the traditional finance system. A new age of decentralized finance has bought alternative options to the table that could solve these problems. In particular, the process of staking crypto has captured the attention of crypto enthusiasts who want to earn from their portfolios. Here, we will delve into the difference between crypto staking and savings accounts and discuss why staking might be the better option for you.
What is cryptocurrency staking?
Cryptocurrency staking is the process of holding crypto in a wallet to support the security and operations of a blockchain network. When you stake your crypto, it is lent to the blockchain network to provide liquidity. In return for staking crypto, users are typically rewarded with funds, newly minted tokens or a share of transaction fees.
Staking crypto is often compared to earning interest on a savings account. However, there are some key differences between the two that make staking a more attractive proposition for crypto holders.
Why stake crypto?
There are several reasons why you might want to stake crypto. Firstly, it offers a way to earn passive income from your digital assets without having to sell them. This is different from earning interest on a savings account, which typically requires you to deposit fiat currency.
Secondly, staking crypto is a more eco-friendly way of earning interest. The process of staking crypto doesn't require any energy-intensive mining, unlike some other crypto activities such as proof-of-work (PoW) mining.
Finally, staking crypto can help to support the growth and development of a blockchain network. By staking crypto, you are effectively voting for projects that you believe in and want to see succeed. This not only allows you to earn rewards from your investment, but also gives you a say in the future direction of the crypto industry.
The case against traditional savings accounts
There are a number of reasons why staking crypto might be a better option than keeping your money in a traditional savings account.
Firstly, the interest rates on savings accounts are currently at an all-time low. In fact, some savings accounts are offering negative interest rates, which means that you actually lose money by keeping your money in them.
Secondly, savings accounts are often subject to inflation. This means that the value of your money decreases over time, as the cost of goods and services goes up. For example, the value of $1 million was higher 10 years ago than it is today as the money could stretch further.
Finally, savings accounts are centralized. This means that they are subject to the whims of central banks and governments. For example, if a country experiences economic turmoil, the value of its currency could drop sharply, decreasing the value of your savings. Furthermore, centralized finance systems give you very little control over your finances. Instead, all major decisions are made by the third party company who has custody of your money. This can result in slow transaction speeds, denied transactions and the inability to have autonomy over your wealth.
Crypto staking vs savings accounts: Key differences
Now that we've looked at crypto staking in more detail and explained the issues regarding savings accounts, let's compare the two side-by-side.
- Allows you to earn funds from your crypto without having to sell it.
- Is more eco-friendly than other methods of earning rewards, such as PoW mining.
- Gives you a say in the future direction of a blockchain project
- Is decentralized which gives you more control over your finances
- Are vulnerable to low interest rates
- Is subject to inflationary pressures
- Are controlled by a third party company leaving your funds vulnerable to hackers, economic turmoil and questionable policies.
How to start staking crypto
If you're interested in staking crypto, there are a few things you need to do in order to get started. Firstly, you'll need to choose a crypto wallet and exchange that supports staking. Many popular crypto wallets, such as MetaMask and Trust Wallet, offer this functionality. You can also stake crypto through some DeFi exchanges including Binance and SokuSwap.
Once you've chosen an exchange and a wallet, you'll need to deposit some crypto into it. The amount of crypto you need to stake will vary depending on the network you're staking on. For example, the Ethereum network requires a minimum of 32 ETH to start staking.
Finally, you'll need to choose a staking pool. This is where your crypto will be stored and used to help secure the network. There are many different staking pools to choose from, so it's important to do your research before selecting one.
Staking crypto is a great way to earn passive income from your digital assets. It also solves many of the problems that are evident in regards to traditional savings accounts. So, if you're looking for a way to support the growth of the crypto industry and earn rewards at the same time, staking crypto could be the perfect option for you.
Frequently asked questions:
What does staking mean in crypto?
In the crypto world, staking refers to the process of holding digital assets in order to earn rewards. This is usually done by locking up crypto in a wallet or on a blockchain network. In return for doing this, stakers earn interest on their holdings, as well as get a say in the future direction of the project.
Is staking crypto worth it?
Crypto staking could be a great way to earn passive income from your digital assets. It also offers a more eco-friendly alternative to traditional methods of earning interest, such as savings accounts. So, if you're looking for a way to support the growth of the crypto industry and earn rewards at the same time, staking crypto could be the perfect option for you.
Is staking safe?
Crypto staking is generally considered to be a safe way to earn interest on your digital assets. However, as with any investment, there is always a risk that you could lose money. So, it's important to do your research and only invest what you can afford to lose.
How does crypto staking work?
When you stake crypto, you're essentially locking up your digital assets in a wallet or on a blockchain network. In return for doing this, you earn rewards in the form of new tokens or funds. The amount of funds that you earn will depend on the crypto you're staking and the network you're using.