Staking has become an increasingly popular way of earning passive income with cryptocurrency. It involves storing and locking a certain amount of cryptocurrency to support the network and confirm transactions in exchange for a reward in the form of more cryptocurrency.
Staking can be a lucrative investment option, but it is important to know the potential risks. In this article, we’ll look at the risks associated with cryptocurrency and how to avoid them to get the most out of this investment opportunity.
How to Stake Crypto Securely?
There are several ways of staking cryptocurrency safely. Here are some strategies to consider:
- Diversify your portfolio: By spreading your investment across multiple cryptocurrencies, you can reduce the impact of a single currency’s volatility or potential issues.
- Choose a reliable staking platform: Look for a reputable and secure platform with a strong track record of success. Conduct research and read user reviews to find a trustworthy platform.
- Stay up-to-date with the market: Regularly check for updates on the market and the particular cryptocurrency you have invested in. This will help you keep up with any developments and potential risks that may arise.
- Stay informed about network issues: Follow the project team and news outlets that cover the cryptocurrency and blockchain network you have invested in. This can help you stay informed about any issues or vulnerabilities on the network.
- Be aware of slashing risks: Understand the rules and guidelines of the staking network to avoid behavior that could lead to slashing, such as running a validator node without the proper technical skills.
- Monitor your investments: Regularly check on the performance of your staked cryptocurrency and evaluate whether it is still meeting your investment goals.
Why Staking Cryptocurrency May Be Risky?
Staking on cryptocurrency can be risky for several reasons:
- The value of the cryptocurrency being staked on can be volatile and unpredictable, which means that the value of the tokens being staked on can go down, leaving the player with fewer tokens than they initially had.
- There is the risk of slashing, a punishment for malicious or dishonest online behavior. This can result in a significant loss of tokens staked.
- There is the risk of blocking tokens for an extended period of time, which could deprive a staker of access to their funds in the event of an emergency or change in market conditions.
- Placing stakes on a centralized platform can also pose a risk because the platform may be vulnerable to hacks or other security breaches. Therefore, it is important to be aware of these risks and take steps to mitigate them when staking on cryptocurrency.
What Should You Know Before Staking Your Assets?
Staking your assets in a blockchain network comes with potential risks. Before staking, you should know the risks and ensure you are comfortable with them. In addition, keep in mind that the current market conditions and trends affect staking.
Different networks offer different rewards for staking. Research the rewards available on the network you are considering staking and make sure it is worth your time and effort.
Not all exchanges, protocols, and wallets offer staking features. Research the network you are considering staking on and make sure it has a staking feature with good conditions and reputation. You should also know that it is not all cryptocurrencies you can stake.
Staking is tricky, so you must understand the process. This includes the fees associated with staking, some terms (like a delegate, lock-up period, validator, APY, etc.), and how it works before committing to it.
There are different types of wallets out there. The software wallets are more accessible; some have an in-app staking platform. You can also use a hardware wallet for more safety, and they connect to your software wallet.
There could be potential tax implications. Depending on your country, you might be subject to ordinary income tax while staking. So, find out about the tax policy of your government towards crypto staking.
6 Risks of Staking Crypto
Staking cryptocurrency can be a profitable investment strategy, but it comes with risks. Here are six risks you should be aware of before staking your assets:
Crypto Market Risk
The crypto market is notoriously volatile, and the value of the cryptocurrency you have staked can rise or fall significantly over short periods of time. This market risk can affect the value of your staked assets and potentially result in losses.
Some staking platforms may have lower liquidity, making it more difficult to sell your staked assets promptly. This can lead to the risk of being unable to sell your staked assets when you need to.
Lockup Period Risk
When you stake your cryptocurrency, you may need to lock up your assets for a certain period of time. This lockup period can vary depending on the specific blockchain network and can limit your access to your staked assets.
Validator Node Risk
If you choose to run a validator node as part of the staking process, you may be subject to risks such as hacking, technical issues, or penalties for bad behavior on the network.
Losing or Stealing Wallet risk
Staking typically involves storing your cryptocurrency in a wallet, which can be vulnerable to theft or loss. For example, if your wallet is hacked or you lose your private keys, you may lose access to your staked assets.
Other Network Risk
The blockchain network you choose to stake on may have its own unique set of risks, such as a vulnerability in the network or issues with governance.
By being aware of these risks, you can make informed decisions when staking your assets and take steps to minimize the potential impact of these risks.
Where to Safely Stake Crypto?
You can stake crypto on a non-custodial wallet like Guarda or through third-party. Guarda Wallet is a popular multi-currency wallet that supports over 400k assets, 15 of which you can stake. In addition, being a self-custody waller means you are in full control of your private keys and have complete ownership of your assets.
One of the benefits of staking with Guarda Wallet is that it is a user-friendly in-app staking platform with a simple and intuitive interface, making it easy for beginners to start staking their assets. In addition, the platform supports staking for various popular cryptocurrencies, such as ETH, TRX, ADA, and some other altcoins.
Guarda Wallet also provides a comprehensive set of security features to help protect your assets like multisig, backup files, secure login, etc. In addition, it uses encrypted private keys to ensure your funds remain secure.
Staking can be a great way to generate passive income from crypto investments, but it also comes with certain risks. Therefore, it is important to understand these risks and take the necessary precautions to protect your assets. By being aware of these risks and choosing a reliable staking platform with strong security features, you can minimize potential losses and feel more confident in your strategy. Platforms like Guarda Wallet offer a safe and secure way to stake on crypto asset, with a user-friendly interface, comprehensive security features, and strong customer support. By researching and choosing a reliable betting platform, you can reap the benefits of staking and minimize the associated risks.
Disclaimer: This text is written for information purposes only and never constitutes a call to action. All financial transactions carried out by you are made at your own risk. The Guarda editorial staff reminds you of the risk of speculation in all financial markets.
1. What are the downsides of staking?
The downsides of staking include the risk of losing some or all of your staked assets due to market fluctuations, liquidity issues, or network failures. Additionally, staking typically involves locking up your assets for a certain period, which can limit your ability to sell or use them during that time.
2. Can you lose crypto by staking?
Yes, it is possible to lose your staked crypto if the network fails or there are security issues with the validator nodes. In addition, market fluctuations can also cause the value of your staked assets to decrease, potentially resulting in a loss.
3. Is staking crypto profitable?
Staking crypto can be profitable, allowing investors to earn a passive income on their holdings. However, the profitability of staking depends on various factors, such as the cryptocurrency being staked, the staking rewards, and the market conditions.