Launched in April of 2019, Algorand is a sustainable blockchain with a bright future ahead of it. The blockchain is secured by staking, and those who participate can earn rewards in the form of free Algo tokens.
In the article below, we will cover the basics of crypto staking, with a focus on Algorand. We will also provide a guide on how you can stake your Algo, which platforms you can use, and what you can expect from the entire process.
Top Algorand Staking Platforms
|Partner Name Label||Label||CTA||Disclaimer|
|1. Ledger||2.4||Visit Website|
|2. Binance||4.5||Visit Websitewww.binance.com/en|
What is Algorand Staking?
When you hold some crypto, you can choose to stake them, which means you lock them up through a special account or your wallet. You then get a staking reward, most often in the form of the token you staked.
Note that you do not lose ownership of your crypto when you do this.
But in order to understand how this helps the blockchain, and why you get your rewards, you need to familiarize yourself with a couple of terms.
Crypto Staking Glossary
Consensus Mechanism - A Consensus Mechanism represents an algorithm (i.e. set of rules) that is used to achieve an agreement between network participants. It essentially serves to guarantee the validity of the transactions, as well as creating new blocks for the blockchain.
Block - A unit of data that contains transactions. Multiple blocks linked together make up the blockchain.
Validator - A validator participates in the blockchain network and validates and creates new blocks through a consensus mechanism. The more blocks they generate and validate, the greater their rewards.
Rewards - In crypto staking terms, these can take on the form of pure financial rewards, new cryptocurrency, or additional tokens.
Stake - The amount of crypto held and locked by a validator within a network.
Stakeholder - A person who has staked a certain amount of coin, but is not necessarily a validator.
Unstaking - The process of withdrawing/unlocking staked coins. Depending on the coin and the platform, there are different stipulations that need to be met before they can be withdrawn (most often a set time period).
Slashing - A penalty directed towards a validator who engaged in malicious behavior or broke their chosen network’s rules. This most often results in the confiscation of (some of) the validator’s staked coin.
Consensus Mechanisms - Proof of Stake (PoS) vs Proof of Work (PoW)
Algorand’s Unique Pure Proof of Stake (PPoS)
Note that throughout the article we will be using the terms commit and stake interchangeably.
How to Stake Algorand
Note that there are several ways you can stake a coin. This depends mostly on the amount of effort, time, and coin you are willing to invest in the entire process.
For the purposes of this article, we will mention four ways:
Staking Algo on a centralized exchange - Easy
Using the Algorand Governance Foundation Wallet - Intermediate
Using Ledger - Intermediate
Becoming an Algorand validator - Hard
Staking Algorand on a Centralized Exchange - Easy
By staking Algorand on a crypto exchange, you essentially provide a third party (the centralized exchange platform) with your Algo. Then, the platform does all the work. It manages the entire complexity of the staking operation; it handles voting and reward distribution, and basically everything else.
The Benefits of a CEX
Below we will go into detail on how you can use a CEX, along with a review of the three approaches to staking Algo.
Algorand Governance Foundation Wallet and Ledger - Intermediate
While we will dive into the details of both in our “Where to Stake Algorand” section, there are some things that need to be mentioned right away.
Both are relatively similar, and indeed, you essentially link your Ledger Wallet with MyAlgo (Algorand Governance Foundation Wallet). However, you get an extra level of security if you use Ledger, but using MyAlgo only is more streamlined.
What they both have in common, as wallets, unlike a platform, you have sole control and access to your coins. With an exchange, you would delegate part of this control to the platform itself, which would hold your private keys and use your coin on your own behalf. Of course, for some, third party control is an advantage.
Using a wallet is also a step closer to full decentralization, since holding your coins within an exchange gives more power to said exchange.
Becoming an Algorand validator - Hard
Also known as solo staking, you do this by running your own validator node. This requires the most technical knowledge on your part, and necessitates active participation in block production and transaction validation.
Now, the benefit here is that you won't have to go through a CEX, which means no fees and a potentially greater ROI. The downside is that it requires a lot of work and technical know-how.
However, we need to mention that while you can stake through a node, you will not be eligible for rewards. For that reason, we will not elaborate further on how to set up this system.
Algorand staking options compared
|CEX||An account and a wallet with a CEX||Depends on the CEX; comes with a fee||Very little; boils down to you trusting the CEX|
|Algorand Foundation Wallet (MyAlgo)||A MyAlgo wallet||Staking (governance) rewards||Losing your private key, counterparty risk.|
|Ledger||A MyAlgo wallet and a Ledger set-up||Staking (governance) rewards minus a fee||Losing your private key, counterparty risk.|
|Validator node||Solid technical expertise; Dedicated hardware and software||None, due to Algorand’s specific governance system.||Offline penalties; Infrastructure collapse if you don't know what you're doing|
Where to Stake Algorand
1. Ledger - Most Secure Way to Stake Algorand
Let's start with what we consider the best option - using Ledger.
A well-known hardware wallet provider, Ledger is one of the few remaining wallets that offers a staking service for Algorand. Or rather, it has a direct and simple integration with MyAlgo, the specialized Algorand wallet.
The wallet itself has a very intuitive user interface that looks good, and it's easy to use.
However, besides its minimal fees, one of the unique selling points (USPs) of Ledger's staking service is its seamless integration with their hardware wallets, providing an added layer of security for stakers. Compared to other wallets and platforms, Ledger has a pretty strong track record when it comes to safety.
That safety does come at a cost, a literal one, since you have to buy their hardware (which costs somewhere between $75 and $300).
How to stake Algorand on Ledger
Before you begin, you have to purchase the proper hardware from the Ledger website and install the Ledger app on your phone or computer. You will also need to navigate to the MyAlgo website and set up an account there.
Step 1 Add account
Step 2 Link Up Your Account
Step 3 Staking (Committing) Algos
You will notice further on that this process is almost identical to simply using a non-Ledger account. The difference here is that you get much more flexibility with a Ledger, where you can stake other cryptocurrencies as well. Furthermore, you get an extra layer of protection through the hardware you need to use Ledger.Visit Ledger
2. Binance - Best CEX and customer support
Binance is one of the largest and most popular crypto exchanges. Part of its popularity comes from the level of security and regulation that follows this platform. If you want to buy cryptocurrency, you can rest assured that it's going to be a safe and simple experience thanks to the many licenses Binance holds.
Binance’s staking service is incredibly easy to use, regardless of your previous experience. You simply go to the staking page and click the coin you want to stake. You’ll be able to choose when you unstake, and rewards will be regularly and automatically deposited in your account or added to your staked coins, depending on whether you want to compound your rewards.
The platform itself offers an advanced trading interface that provivides people with a host of charting tools, indicators, and whatever else you would need to keep an eye on your crypto.
The entire trading experience is seamless, easy, and intuitive. Furthermore, its fees are competitive, with the added bonus of not requiring or taking any staking fees at all.
How to stake Algorand on Binance
As with any other staking approach, the first thing you need to do is join Binance and have some Algo in your Binance wallet.
Step 1 Visit the staking page
Step 2 Choose the crypto you want to stake (Algo)
Step 3 Stake the amount you want and confirm
3. Algorand Foundation's MyAlgo - The Most Straightforward Way To Stake Algorand
You can also stake Algorand through Algorand Foundation’s MyAlgo. This is a specialized wallet dedicated solely to the usage, trading, and staking (or committing, rather) of Algo. Specifically designed for the Algorand blockchain, this wallet gives you direct access to the Algorand Governance system, letting you vote on whatever is relevant to the Algorand community.
While very safe, with an intuitive and user experience-guided design, it's difficult to review MyAlgo as a crypto wallet. Namely, its very own specialization is what makes it great for Algo, but pretty much useless for any other crypto.
How to stake Algorand using MyAlgo
Before you begin, navigate to the MyAlgo wallet website, and create an account.
Step 1 Add account
Step 2 Link Up Your Account
Step 3 Staking (Committing) Algos
Algorand Staking Platforms Compared
|Ledger||Binance||Algorand Foundation - MyAlgo|
|🏆 Reward rate||5%||2.4%||4.6%|
|⌛ Payout frequency||Every time a transaction occurs to or from your account||Daily||Quarterly|
|⚠️ Staking limits||0.1 to 240,000||0.01 to 240,00||0.1 to 240,000|
|💰 Staking commision||None relevant to staking||None||None|
|#️⃣ Total no. of cryptos eligible for staking||40+||26+||1|
How much can you make staking Algorand?
As with any crypto staking option, there is no clear answer. That being said, there are several factors that can increase the amount of money, currency, and tokens you can expect to gain. These are:
Staking Reward Rate - The staking reward rate for Algorand is determined by network parameters and the consensus mechanism. Algorand's protocol adjusts the reward rate dynamically based on the number of staked tokens in the network. The aim here is to maintain decentralization and network security. The reward rate can vary depending on the total staked supply and the number of active validators.
APR for Different Staking Methods/Platforms - The Annual Percentage Rate (APR) for staking Algo may vary across different staking methods or platforms. Each platform can offer its own staking incentives and reward structures, which can influence the overall APR.
Fiat Value and Coin Price Fluctuations - In other words - how much is Algorand worth once you exchange it for money? The crypto landscape is known for its volatility, and prices can change suddenly and without warning.
As for its APR, a very rough estimate places it between 1% and 8%, depending on your approach.
Is there a downside to staking Algorand?
As with everything else, Algorand has its own flaws, as well as specific requirements if you want to take part in the voting system.
Lockup period - In order to be part of the Governance reward voting system, you will need to lock up your Algo for at least three months. Note that this may not be necessary for regular APY rewards on a CEX.
Fixed Governance periods - There are only four quarters during the whole year where you can stake, or rather commit, your Algo if you want to get access to the Governance voting system. If you miss a window, you will not be eligible to vote. This isn’t something that affects staking on a CEX, however.
Lack of wallets and exchange platform options - There are only a few platforms and wallets that are connected to the Algorand Foundation and that have access to staking.
The voting system - While for some it might be a benefit, for others having the option to vote on how Algorand will develop might remove the feeling of complete neutrality other cryptocurrencies have.
One Algo one vote - In a democracy, one person gets one vote, no matter who they are or what they own. If you, however, have the funds to obtain a large amount of Algorand, you get much more voting power.
Should I stake Algorand?
So, the final question - should you stake Algorand or not?
This is a very personal decision that no one should make for you. Every good crypto trader/investor needs to do their research, and consider their own individual circumstances. With that being said, here are some things you should consider:
Risk vs Reward - Staking offers potential rewards, no matter what form they take. However, you need to take into account all the risks typical when dealing with crypto, such as market volatility, potential loss of funds, or changes in the staking rewards over time.
Tax Implications - Staking may have tax implications depending on your local and federal government. Staking rewards may be taxed differently from other crypto gains, so it’s worth checking the guidance of your tax authority and making sure you report your staking rewards and are able to meet your tax obligations.
Skill Level - Be honest with yourself and your level of expertise when dealing with crypto. The more you know, the safer you will be. Your level of experience may dictate which method of staking you are most comfortable with.
HODL vs. Trade - If you want to trade your Algo regularly, you may find staking inconvenient, especially if you need to wait for your coins to unlock. If you intend to simply hold Algo for the long term, staking could complement this strategy well and increase your Algo holdings.
Long-Term Value - Do your homework. Algorand, specifically, is evolving and changing at a rapid pace. Take part in the Governance voting process and see if you can glean insight into its future
Risk Tolerance - Like any other investment, staking has risk. There is always a possibility of you losing money, and you have to be ready for that. This is why you should never commit more money than you can afford to lose.
Remember, this is not financial advice, and it's crucial to conduct your own research, consider your specific circumstances, and seek advice from professionals before making any investment decisions.
A More Democratized Crypto For the Future
Algorand is an interesting entity in the crypto world. With its specific consensus mechanism, the option allowing people to vote on its future development, and its all-around accessibility, it really deserves its own place in the spotlight.
However, it is also a viable way of investing through the blockchain. While we recommend going through Ledger, committing, or rather staking, Algo through other means is just as viable.
The potential for financial gain, combined with the ability to influence the platform, makes staking Algorand an appealing proposition in the evolving cryptocurrency landscape.