With the crypto and traditional markets reeling due to recent world events, many people are hesitating about investing. This is more prevalent with crypto, thanks to the inherent volatility in the ecosystem. However, the ongoing situation should not stop you from making the most of your assets, especially if you are invested for the long term. Staking, which allows you to earn rewards for holding certain cryptocurrencies, is one way of doing that. Today, several cryptocurrencies enable holders to stake, with the most prominent ones being Ethereum, Solana, and Cardano. This blog will show you how to stake Solana.
What Is Staking?
Let’s get a better idea about the concept of staking. Staking lets crypto holders put their digital assets to work, enabling them to earn a passive income. Think of staking as the crypto equivalent of a high-yield savings account. When you deposit funds in this type of account, the bank typically takes this money and lends it to others. In return, you receive a portion of the interest earned by the bank through lending. However, these returns are relatively low.
When staking your digital assets, you lock them up to participate in running the blockchain and maintain its security. In return, you receive a reward calculated in percentage yields, typically higher than interest rates offered by traditional banks. Staking has gained considerable popularity, allowing holders to profit without selling or trading their coins.
What Is Solana Staking?
Before we move on, it is important to understand the difference between a validator and a delegator. Validators are users that run full validator nodes, helping maintain the network’s speed, security, and decentralization. Running validator nodes requires high-performance hardware. You can check the hardware requirements here. On the other hand, a delegator simply assigns their voting power to the aforementioned validators.
When you stake your SOL tokens, you are helping to secure the Solana network and earning rewards for doing so. You can stake on Solana by delegating your tokens to validators that process transactions, ensuring the decentralization and security of the network. Delegating your stake is a shared-risk shared-reward financial model that could provide returns to holders that delegate their SOL tokens. This can be achieved by aligning the financial incentives of token holders and validators.
Solana Validators and Delegators
Validators are selected to write transactions based on the stake delegated to them. This works in a very simple way. The more stakes delegated to a validator, the greater the chances of that validator being chosen to validate and write transactions. The more transactions the validator validates, the more rewards they earn for themselves and their delegators. Validators that configure their systems to process transactions efficiently can earn more rewards, keeping the network running efficiently and securely.
Currently, validators incur several costs arising from running and maintaining their systems. This cost is passed on to delegators as a fee, known as a commission. Validators may compete with one another to offer the lowest commission fee for their services. Staking on Solana means you agree to lock up your tokens for a chosen duration. When your SOL tokens are staked, you will not be able to spend them. You can unstake your SOL at any time of your choosing. However, you will be subject to a cooldown before transferring your SOL back to your wallet.
As a delegator, you risk losing your SOL when staking through a process called slashing. Slashing removes a portion of a validator’s stake due to malicious behavior, such as creating invalid transactions. You can read more details about the slashing roadmap here.
How To Stake SOL?
Solana’s unique Proof-of-Stake consensus leverages a mechanism called Proof-of-History, adding time as a variable. The utilization of Proof-of-History enables the cryptographic verification of time between events on the blockchain, linking messages from nodes and creating a chronology of events that are independent of local timestamps. Like other Proof-of-Stake protocols, Solana also requires staking native assets to operate.
Choose A Compatible Wallet
To begin staking, you must download a compatible wallet that supports staking. There are several options that you can choose from. Let’s look at some of them.
- Phantom – The Phantom wallet is among the most popular wallets on Solana, offering a simple interface combined with broad functionality. The wallet’s simple interface allows staking after a few simple steps. You can download the wallet as a browser extension or on iOS.
- Sollet – Sollet is a browser-based wallet and extension created by the Serum team. It allows users to securely manage their SOL and SPL assets on the Solana blockchain.
- Solflare – Solflare has a robust reputation when it comes to Solana wallets. Users can simply download the Solflare browser extension or mobile wallet.
- Solong – Solong is an excellent option for beginners, offering a simple, user-friendly interface. You can download the Solong extension here.
Depositing SOL
Next, you have to deposit SOL into your wallet. While there is no minimum requirement, depositing some extra SOL in your wallet is always recommended so you can pay any fee that might pop up.
Create A Stake Account
Now that you have chosen a wallet and deposited SOL, you must create a staking account. A staking account differs from the type used to send or receive tokens.
Select A Validator
The next step is to select a validator. It is recommended that you take your time to find a reliable validator that suits your needs to maximize your earnings and minimize your losses. You can also look for validators on the Solana forums.
While choosing one of the “top” validators may be tempting, delegating to large validators may not necessarily translate to higher earnings. It might result in lower rewards due to saturation. Additionally, delegating to smaller or medium-sized validators would help avoid concentrating stakes on the largest operators on the network and help maintain the network’s decentralization. You should also check the validator’s historical performance before delegating your stake. If the validator does not have a stable connection to the network, staking rewards could take a hit. You can check validator statistics here.
Another factor to consider when selecting a validator is the validator fee. Typically, the fee varies between 0% to 10%. Additionally, the fee is taken only from your rewards and not your stake. Once you have chosen your validator, you can head back to your wallet and stake your SOL.
Can We Simplify Solana Staking?
So far, the process we have detailed above requires a lot of work on your end. However, is there a way to earn passive income without going through so many steps?
Yes, there is!
With CoinSmart Staking, you can easily stake your SOL in CoinSmart and earn yield. Stake your SOL any time you want to kickstart your rewards! Click here to learn more about the process.
Wrapping Up
Staking on Solana is relatively easy and quite lucrative. The protocol is backed by some of the biggest names in the crypto industry and has a thriving DeFi, dApp, NFT, and Web 3.0 ecosystem. If you are someone who holds SOL, then staking is a no-brainer. However, you must be thorough with your research and consider the potential risks.
If you wish to know more about Solana or other major cryptocurrencies, head over to CoinSmart. Canada’s most trusted cryptocurrency exchange.
Disclaimer: The content of this email is strictly for information purposes only. All of the opinions expressed in this email are not connected to CoinSmart and are not intended to provide you with investment advice. It is important that you do your personal research and/or consult an investment advisor to determine what is right for you.
