If there’s one thing crypto investors love, it’s staking their tokens and earning rewards on their investment.
With Bitcoin dominating the total crypto market cap, you might be wondering if you can stake your Bitcoin to earn more satoshis.
Unfortunately, since Bitcoin is a Proof of Work protocol, there is no way to directly stake your Bitcoin assets. This is one of the biggest flaws and benefits of Bitcoin. To be able to stake your crypto tokens, you’ll need to use networks that use the Proof of Stake mechanism.
That’s not to say you cannot earn rewards on your Bitcoin, it’s just that you cannot do so while staking it. Staking is popular because you are being paid rewards in the native network token, simply for holding that investment for a fixed period of time.
So let’s dive deeper into why staking is so popular, and why Proof of Work networks don’t allow you to stake.
Can You Stake Bitcoin?
For investors in Bitcoin, the answer is unfortunately a no. There is no way to stake Bitcoin on its blockchain because it is not a Proof of Stake network. Bitcoin uses a Proof of Work network which requires computers to solve complex mathematical equations to verify the integrity of new transactions.
If you think about how hard these computers need to work to solve these equations, it’s easy to understand why Proof of Work uses so much energy.
This is one of the main criticisms on Bitcoin and other Proof of Work networks. The amount of power it uses is extremely high. Even if it is renewable energy being used, the cost of mining Bitcoin typically makes it a not very profitable endeavor for individuals.
Another reason that would make staking Bitcoin an issue is that there is a finite amount of Bitcoin in existence. The network is programmed to cap at a maximum of 21 million Bitcoin. If people could stake Bitcoin and compound their rewards, we would quickly run out. Indeed, the consensus rhetoric is that Bitcoin will one day replace traditional finance systems.
What is Staking in Crypto?
So what does staking even mean when it comes to cryptocurrencies? Plenty of crypto experts and influencers talk about it, but how does one even get involved? First, you need to be invested in a Proof of Stake network. These are cryptos like Cardano, Solana, and soon Ethereum.
Staking isn’t just re-investing your tokens to earn more tokens like a high-interest savings account. Well, on the surface it is, but staking also has a very important and crucial role in validating and securing the blockchain. Investors love the yield you receive for staking your cryptos, but you’re also helping to maintain the overall validity of the network.
Proof of Stake protocols use a lot less energy than Proof of Work protocols, which is a positive if you care about the environment. The best part about staking is you still own those tokens. You are just lending them to the blockchain and you can typically unstake them as you wish unless it is for a locked period.
Can You Lose Crypto by Staking?
Well, you certainly can’t lose any Bitcoin because you cannot stake it!
But all jokes aside, there is always a risk of losing or being hacked for your cryptos. This is why serious crypto investors keep their investments in cold storage.
Remember the saying: not your keys, not your crypto.
When staking with a legitimate platform, your crypto is generally safe. Most centralized exchanges like Binance or Coinbase will protect your cryptos and even offer to replace them if your account is hacked.
The danger with staking is that your cryptos might be locked in for a certain time period. If that crypto crashes during that time, your tokens will be there, but their value will be lost. This is essentially what happened to people who were staking Luna during the Terra network collapse. Make sure you know the locked staking and flexible staking options before you lock in your crypto for staking.
Can I Earn Anything From My Bitcoin?
This is an interesting question, because die-hard Bitcoin maximalists will tell you to just HODL your Bitcoin. The token itself is the store of value and as the supply dries up, it is anticipated that Bitcoin’s value will soar. So one way to earn on your Bitcoin is to just hold it for years.
There are other ways to earn on your Bitcoin including centralized exchanges that provide interest earning Bitcoin accounts. Of course, you have to know how these work. You deposit your Bitcoin, they lend it out, and pay you with the interest they make on the loans. But this, of course, has its inherent risks.
For the very advanced crypto investors, you can also wrap your Bitcoin to use in Decentralized Finance or DeFi projects. WBTC is essentially a 1 for 1 version of Bitcoin that exists on the Ethereum network. The Ethereum Proof of Stake network has plenty of options for earning, yield farming, and other DeFi options. It’s not the same as staking Bitcoin, but it’s an indirect way of leveraging your Bitcoin to earn other cryptos.
Conclusion: Can You Stake Bitcoin?
Unless Bitcoin ever moves to a Proof of Stake network (which it won’t), you will not be able to stake your Bitcoin. As mentioned, Bitcoin is built upon a Proof of Work protocol so there isn’t anywhere to even stake your Bitcoin. It’s just a completely different type of blockchain than a Proof of Stake network.
Earning extra crypto and interest on your staked investment is one of the benefits to investing in cryptos. Unfortunately, Bitcoin just does not have this programmed into its network. There are indirect ways to earn from your Bitcoin, but direct staking and validating the network is simply not one of those.
Thanks for reading folks!