Top 5 Risks of Staking Cryptocurrencies

Top 5 Risks of Staking Cryptocurrencies

Our lowdown on the top risks, ranging from experiencing impermanent losses to delayed rewards.

It is evident that cryptocurrencies are lucrative opportunities. After all, people have earned up to US$100 billion from them. What’s greater is that there’s no single way to earn cryptocurrencies. You can mine, trade, earn or even stake them.

What is staking in crypto?

Staking cryptocurrencies refers to, literally, locking your holdings of a certain cryptocurrency to support the blockchain. In return, you earn rewards for every block that is validated. The practice is analogous to holding shares in a company and receiving dividends at the end of the year.

Staking utilizes the Proof-of-Stake consensus mechanism, which is said to be better than the Proof-of-Work model based on the costs on the environment. Instead of mining to validate a transaction, you stake. In doing so, you contribute to the security and efficiency of the blockchain as you are actively (and financially) invested in it.

As of January 2022, people have staked over US$50 billion on the blockchain platform Solana alone. Indeed, staking is profitable. But it is not so without its risks.

So, what are the risks of staking crypto?

Here’s our round-up of the top five:

1. Incurring great losses

The first and most obvious risk is that you may experience losses. This can happen if the prices of the cryptocurrencies you’re staking decline suddenly. For example, if you stake Solana (SOL) and its price falls by 50%, you will have lost half your investment. This is especially a cause for concern with new projects that you know little about. While they may start off with a lot of promises, they can quickly crumble and lose all their value.

2. Being subjected to scams and theft

Theft and other crypto crimes are becoming more and more common by the day. Just last year, criminals made US$14 billion in cryptocurrency—an all-time high. When staking cryptocurrency, you’re trusting that the holder of the funds you’ve staked is not a scammer. If they are, they can easily disappear with your coins and there’s nothing you can do about it.

3. The “lock-up” period

Most staking platforms require that you lock up your coins for a certain period of time. This means that you cannot access or trade your coins during this time. This can be risky because if the price of the cryptocurrency you’re holding falls sharply, you will not be able to sell it and cut your losses.

4. Significant expenses

Though staking does not require heavy machinery like mining does, it is not cheap. You need to have a good internet connection and a powerful computer. In addition, you need to pay for the electricity used to power your computer. All this can add up, making staking not as profitable as it seems at first glance.

5. Delayed rewards

Many cryptocurrencies take a long time to provide staking rewards; it’s not something that’s done daily. Because of that, you might have to wait a long time to re-invest your earnings, thus affecting your overall portfolio. And, if the price of the cryptocurrency you’re holding falls during that time, you will have to wait even longer to get back to where you were.

So, is staking crypto worth it?

Well, it depends. The risks are many, but so are the potential rewards. Staking cryptocurrencies is a great way to earn passive income. By holding coins in a staking wallet, you can earn a high interest rate of more than 10 to 20 percent a year. That said, staking crypto can also lead to benefits being accessible to only a small group of people. To stake cryptocurrencies, many platforms have a minimum investment requirement. For instance, to stake Ethereum 2.0, you need to deposit a minimum amount of 32 ETH, which, at the time of writing this article, amounts to over US$85,000. That’s a large investment that, often, only a select few can afford.

Plus, many people join staking pools, where multiple users combine their computational resources to improve their chances of earning rewards. While it provides stability to validators, it can also create a biased environment. The Head of Growth at decentralized staking product Bancor, Nate Hindman, expounds, “If staking in liquidity pools is only profitable for the most advanced users, liquidity is likely to become concentrated in the hands of far fewer actors, reducing DeFi’s resistance to censorship and manipulation.” 

Today, many renowned and high-valued cryptocurrencies, including Solana, Cardano, Polkadot and more, employ the Proof-of-Stake consensus. Staking is being considered widely as a more environmentally-friendly alternative to mining, which is much more energy-intensive. Instead of relying on heavy machinery, it relies on stakes. 

All things considered, staking cryptocurrencies is a double-edged sword. It can be profitable, but risky at the same time. Before you stake, make sure to do your research and understand all the risks involved.

Header Image by Freepik


Share on facebook
Share on twitter
Share on linkedin
Share on email


What Happens When Metaverse Meets Sports Leagues?

What Happens When Metaverse Meets Sports Leagues?

While many see the metaverse as a place for entertainment and escapism, recent years have seen the rise of sports leagues that exist entirely within it. These leagues have taken advantage of the metaverse’s ability to create realistic and immersive environments to provide their players with a new and unique sports experience.

Are Immersive Art Exhibitions the New Trend

Are Immersive Art Exhibitions the New Trend?

For many, museums and exhibitions are an escape from reality. However, these places have been experiencing an all-time low visitation rate due to Covid-19. Owing to social distancing norms and closures, going to a museum was just not always possible. To address that, museums took to virtual reality (VR).

Top 5 Upcoming IPOs to Watch Out For

Top 5 Upcoming IPOs to Watch Out For

2021 was a good year for IPOs. IPOs in the United States raised US$156 billion, recording an 81 percent increase over the prior year. With such an outburst, tech stocks raised US$69 billion alone significantly. Shares of Bumble, a dating app created for women’s interests, closed up 63.5 percent in their IPO in January 2021.

Tokenization Is a Game-Changer in the Financial World - Here’s How!

Tokenization Is a Game-Changer in the Financial World – Here’s How!

By 2027, businesses and people alike are expected to lose US$40.62 billion in payment fraud. The solution to this problem? Tokenization. It refers to the replacement of sensitive data with unique identifiers that retain the length and format of the original data without having any relationship with it.

4 Successful Indian Mompreneurs You Should Know About

4 Successful Indian Mompreneurs You Should Know About

There is no doubt that motherhood is a challenging job. But some moms out there are taking on an even greater challenge—starting their own businesses. From selling natural and toxin-free products for babies to being the best lipstick brand, these mompreneurs are proving that you can have it all. Read on and get inspired by these moms who have not only overcome challenges but also built successful businesses while raising their kids and family.

Beyond 9 to 5 The Rise of Triple Peak Workdays

Beyond 9 to 5: The Rise of Triple Peak Workdays

None of us would have even dreamt of the life we lived over the past couple of years. We experienced several transitions in doing things; we gained new opportunities and lost many of them. When we talk about work, 6-feet cubicles have been reduced to 15-inch displays as the concept of remote work has become mainstream.