Summary of this article
Staking offers passive income but comes with technical and financial risks.
Choosing compatible tokens and reliable platforms is key to success.
Understanding how staking works is crucial before locking in your crypto.
As the crypto ecosystem evolves globally, people are exploring alternative methods to engage with digital assets. In India, the use of cryptocurrency has increased steadily, particularly in tier-II and tier-III towns. In keeping with this trend, some users are starting to consider staking as a means to interact with their cryptocurrency holdings.
What is Crypto Staking
Crypto staking means locking up your cryptocurrency in a Blockchain network to help validate transactions and secure the network. It typically involves locking your tokens for a period, during which you can’t trade or sell them, but earn rewards in return, often in the form of additional crypto tokens. Staking is usually available on proof-of-stake or similar consensus-based Blockchains. It allows you to make passive income by supporting the Blockchain ecosystem.
Here are five things to know before you start crypto staking
1] Understand the Basics First
Before you begin staking, it is essential to know how the process functions. This includes understanding the function of validators and the basis of staking, how these support the Blockchain ecosystem and the way rewards are calculated. If you do not understand the fundamentals properly, you will likely end up making mistakes while managing your crypto assets.
2] Buy the Right Cryptocurrency
Staking works only with the native token of a supported Blockchain. For instance, Ethereum requires the Ethereum Blockchain. You can purchase the required token from crypto exchanges or verified peer-to-peer platforms. Always verify that you are purchasing the correct cryptocurrency linked to the network you plan to stake to.
3] Use a Staking-Compatible Wallet
You must have a wallet that supports staking your assets. This could be a hardware wallet, desktop program, or, a mobile wallet. Some wallets connect you to third-party staking providers while others permit direct staking. Choose a secure and reliable option that suits your usage and technical comfort.
4] Rewards Are Not Guaranteed
Rewards for staking are based on several factors, including network traffic, validator performance and general circumstances. Past reward rates do not ensure similar future results. There may be instances where earnings vary or no rewards are granted. This factor must be considered before making a staking decision.
5] Be Aware of Validator and Market Risks
If the validator who manages your stake underperforms or violates the rules, your assets may be penalised, including leading to a loss of funds. Another risk is market volatility, which could eventually result in a decline in the value of the tokens you have staked. It’s crucial to assess both validator reliability and market trends to minimize risks.
Crypto staking in India currently operates in a regulatory grey area, with no dedicated rules yet in place. However, any rewards earned are still considered income and may be taxed at a flat rate of 30 per cent, similar to other crypto earnings. As the regulatory environment continues to develop, users should stay informed and ensure tax compliance while approaching staking.
