Complete Guide to Staking: Definition, Investment Pros and Cons

As the number of cryptocurrency investors increases, interest in ‘Staking’ - a way to earn stable returns - is rapidly growing.

However, staking is still an unfamiliar investment method in Korea, and there are many inconveniences when trying to use staking on major exchanges. To solve this, services have emerged that allow individual investors to stake easily and conveniently.

This article provides a comprehensive overview of staking investment concepts, reward structures, and pros and cons.

I. Concept and Principles of Staking

1. What is Staking?

Cryptocurrency staking is depositing your owned cryptocurrency into a blockchain network for a certain period and receiving rewards in return.

To put it simply, it’s similar to the structure where banks pay interest when we deposit money. Depositors earn interest income by safely keeping their money in the bank instead of using it, while banks create greater profits from people’s deposits and reward them back.

Staking is in some ways safer than bank deposits. This is because the blockchain network cannot arbitrarily use the cryptocurrency we deposit elsewhere. The deposited cryptocurrency remains exactly as we own it.

2. Why are Rewards Given?

Why do blockchain networks reward cryptocurrency owners who stake their assets?

It’s because a certain amount of cryptocurrency is needed to strengthen the security and safety of the blockchain network.

When cryptocurrency owners deposit their cryptocurrency into the blockchain network, it contributes to network operation and transaction verification. The more participants join staking, the more difficult it becomes to hack or attack the network, which increases the overall system’s reliability.

Therefore, blockchains provide additional cryptocurrency rewards to staking participants as incentives for this contribution, encouraging continued participation while maintaining network health.

In some cases, additional rewards can reach up to 15% annually. This is why staking is considered like high-yield savings deposits in the cryptocurrency ecosystem.

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II. Value and Importance of Staking

1. Stable Profitability

From an individual investor’s perspective, staking has the value of being a relatively stable investment method, like bank savings deposits.

When investing in individual cryptocurrencies, volatility can be severe due to external factors, leading to losses, and frequent trading increases fee expenses.

Cryptocurrency investors also develop a need to allocate a certain portion of their asset portfolio to relatively stable investments. Just as stock investors allocate some assets to products with low volatility that generate interest income or dividends.

The reward structure of staking varies by blockchain, but it shows annual reward returns ranging from about 15% at most to at least 3% or more.

If you want to safely deposit a certain amount in cryptocurrency and expect a higher reward return rate than bank deposit interest rates, staking is the best choice.

2. Enhanced Network Security and Sustainability

Just because we evaluate a listed stock’s fundamentals as excellent doesn’t mean we can contribute to that company’s performance or stability. However, this is possible in the blockchain ecosystem. Through staking.

If you judge that a specific cryptocurrency will trend upward in the long term, staking is the easiest way to directly contribute to that cryptocurrency’s stability.

The more staked assets there are, the higher the network attack costs become, reducing hacking and loss risks, and reducing stake concentration also reduces centralization risks. This creates a virtuous cycle effect that contributes to the entire DeFi ecosystem.

Additionally, since PoS networks consume significantly less energy like electricity compared to PoW methods, the more you participate and invest in PoS networks, the more the sustainability of the blockchain ecosystem increases.

III. How to Participate in Staking

1. Individual Direct Staking

Individuals can stake directly. However, in this case, you must install a node on your personal computer and operate the node 24/7 while verifying block creation.

While you can participate directly in the blockchain network without going through third parties like exchanges or companies, there are high barriers to entry such as technical difficulties and computing costs. Additionally, there are cases where minimum staking amounts exist, like Ethereum requiring a minimum of 32 ETH, making it practically difficult for small individual investors.

2. Using Verified Cryptocurrency Exchanges

You can participate in staking through platforms that professionally provide staking services like Bake.

Professional companies delegate proof of stake to validators and provide the generated rewards as profits. Since exchanges handle management tasks and find nodes for you, general investors can easily earn profits through staking.

Bake has created a convenient service that intermediates the complex staking process so that general users can easily participate in staking.

While major domestic exchanges may require waiting for several days just to start staking, Bake allows you to start staking immediately in just a few seconds.

▶️View Staking Service

3. Major Cryptocurrencies Available for Staking

Sui (SUI)

Sui is a blockchain launched by Mysten Labs in May 2023. It has gained attention as a company founded by developers who left Meta (formerly Facebook) after working on virtual asset-related projects. It’s famous for its unique consensus mechanism design with short latency, and is particularly popular in Korea.

Bake currently provides the fastest Sui staking in Korea. ▶️Go Now

Avalanche (AVAX)

Avalanche is a blockchain network and decentralized application (dApp) launched by Ava Labs in 2020. It focuses on fast transactions, low fees, and energy efficiency. Avalanche is evaluated as one of Ethereum’s major competitors as a smart contract blockchain. It has high recognition in Korea through collaborations like with Nexon’s MapleStory.

Bake currently provides the fastest Avalanche staking in Korea. ▶️Go Now

Polkadot (DOT), Aptos (APT), Injective (INJ), etc.

Polkadot: Polkadot is a project that advocates for a next-generation blockchain protocol that can connect multiple chains into one universal network. Dr. Gavin Wood, co-founder of Ethereum, presented the initial concept, and it’s a Web3 project aimed at preventing internet monopolies and empowering individual users.

Aptos: Aptos is a blockchain project created by former Meta developers, pursuing a comprehensive blockchain solution that inherits the concept of blockchain projects that Meta abandoned midway to promote Web3 commercialization. It was evaluated as a competitor to Solana, and while it suffered value decline due to the FTX incident after receiving significant investment from FTX Ventures, it has recently shown an upward trend again.

Injective: Injective is a blockchain created for finance, an open platform optimized for Web3 financial applications. It provides developers with various DeFi basic modules like completely decentralized spot and derivatives exchanges. It’s famous for fast performance compared to competitors, and as a finance-specialized blockchain, it excels in stability and security.

Bake will soon provide Polkadot, Aptos, and Injective staking! Follow Bake’s Instagram to receive news about major updates and cryptocurrency distribution events. ▶️View Instagram

IV. Staking Advantages and Important Points to Know

1. Advantages of Staking

Staking serves as a stable passive income means for investors.

By staking a certain amount of cryptocurrency, you can receive consistent rewards without much attention.

2. Risks of Staking

There are also several risks in staking.

First, if the value of the cryptocurrency you own decreases, the value of your staked cryptocurrency also declines. If you stake highly volatile cryptocurrencies, the reward gains may be offset by the asset’s own volatility.

Additionally, staking requires a certain period when unstaking. Since you cannot unstake immediately, there may be difficulties in responding quickly to value declines. Furthermore, there’s also the risk that the blockchain you’ve invested in itself could be attacked by hacking, etc.

V. Future Outlook of Staking

Just as the increase in stock investors led to more ETF investors, as the cryptocurrency market grows, staking investors are expected to surge rapidly.

Upbit, Korea’s leading exchange, announced that its cumulative staking deposits exceeded 3 trillion won in 2023. This is a scale that has grown more than 10 times compared to 2021.

As staking reward rates reach up to 15%, more investors are attracted to stable yet high returns.

Since staking contributes to blockchain stability, security, speed, etc., it’s also expected that more cryptocurrencies and blockchain networks will support staking in the future.

Start and manage staking easily with Bake!

Bake analyzes the market and provides staking services that offer the most stable and high returns.

It also provides the fastest and easiest usability in Korea, and supports the fastest possible unstaking.

With expected reward rates of over 10% annually, start staking now!