Staking has emerged as the latest way to increase your crypto asset holdings since mining became prohibitively expensive and complicated. By staking your tokens, you will earn a yield, help secure networks, and support emerging projects. We will take a look at the end-to-end process of staking on Kraken, and answer any questions you may have.
How Does Staking Work?
The simple answer is that you commit your cryptocurrency to a project to earn a yield. You win in two ways. You earn an ‘interest rate,’ and your coins become more valuable as the project’s network increases in size. Bear in mind that typical bank deposit interest rates are a fraction of a percent, yearly. Yields from staking your crypto tokens tend to be much more profitable.
Proof of Work vs Proof of Stake
The Bitcoin and Ethereum networks are currently secured by Proof of Work to cryptographically verify the transactions on their blockchains. The ‘miners’ doing this work use powerful computer clusters to solve simple but laborious equations, and earn block rewards, paid out in cryptocurrency.
This is an expensive and time-consuming process, so it’s in the interest of miners to ensure no harm comes to the network by verifying only legitimate transactions. Anyone wanting to subvert the network would have to make such a huge investment in equipment and energy, that it would simply not be viable. Or so the theory goes.
Proof of Stake uses cryptocurrency staked by validators to secure the blockchain. The more coins a validator stakes, the more block rewards they receive. The incentive not to validate fraudulent transactions is that your coins will be forfeited and you will lose your validator status. This, again, theoretically ensures that the network is never compromised.
The average retail investor can stake their tokens on the Kraken platform in a number of different projects. The advantage is that there is no lower limit to how much you can invest. To stake independently on the Ethereum network would cost 32 ETH to set up a private node, equivalent to around $100,000 at today’s rates.
Which Coins Can I Stake on Kraken?
There are several tokens that you can stake on Kraken. These are Polkadot (DOT), Tezos (XTZ), Cosmos (ATOM), Flow (FLOW), Kusama (KSM), and Kava (KAVA). You can buy these with your imported fiat money or swap your cryptocurrency for these coins, directly on the Kraken website.
Staking is also available for the ETH2.0 network upgrade, but strict conditions apply. For example, your staked coins will be locked up until the Ethereum 2.0 upgrade is completed. This could take several years and is not guaranteed to happen at all. Other staking opportunities on Kraken are much more flexible.
You can also stake Bitcoin, Euros, and Dollars off-chain, however, there are further rules and regional restrictions. The details can be found here.
Step 1: Create a Kraken Account
Head over to the Kraken website and click on ‘create account’ in the top right corner. You will be asked to enter an email address, a username, and a password. Kraken will email you an activation code and a link, either is fine to use.
Once you click on the link or enter the activation code, your account is created automatically. Next, you need to confirm your identity as a Starter, Intermediate, or Pro customer. The different levels of KYC information (Know Your Customer) permit access to particular functions on the Kraken website.
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Starter verification allows you to –
- Buy, sell, and convert cryptocurrency
- Trade with margin
- Earn rewards with staking
- Deposit unlimited cryptocurrency to the platform
- Withdraw up to $5K equivalent per day in cryptocurrency
Intermediate verification allows all of the above, plus –
- Trade crypto futures (non-US customers only)
- Transfer fiat money to and from your bank account (up to $100k per day or $500k per month)
- Withdraw up to $500k per day in crypto
Pro Verification unlocks –
- Unlimited fiat deposits
- Unlimited crypto withdrawals
- OTC (Over The Counter) trading.
For the starter verification, I was asked for my name, address, and phone number. This was confirmed as successful within 1 minute. The intermediate verification then asked for my occupation, a photo identity document (Passport, Driver’s License, or ID card), and a document that was less than 3 months old, to prove my residency. This can be a utility bill, credit card statement, bank statement, etc.
I completed the intermediate verification process and the response was virtually instant. Within 3 minutes I was good to go as an intermediate user, enabling me to do everything I required for staking purposes.
The process was very smooth, especially considering that I was in East Asia, my home address was in the UK and my phone number was Vietnamese!
Step 2: Fund Your Account With Staking Coins
Once you have opened and verified your account, you can transfer USD, GBP, or EUR, and buy cryptocurrency on the Kraken site. You also have the option to import cryptocurrency directly to your Kraken account.
As an intermediate member, I can load up my account with fiat money. This is not possible with the starter verification, but Kraken still allows you to transfer crypto directly to your account.
Step 3: Stake Your tokens
- Navigate to Kraken’s staking page where you can choose which token you wish to stake.
- Click the staking icon on the right-hand side of the screen to reveal the staking window.
- Enter the number of tokens (or the percentage of your available tokens) you want to stake.
- Once you click the ‘Stake’ button your tokens will be ‘bonded,’ at which point you start to earn the rewards.
- Unstake at any time by clicking the (you guessed it) ‘Unstake’ button.
Staking Rewards on Kraken
Rewards are distributed twice per week and credited to your Kraken account. Kraken charges a 15% fee on all yields, but there is no charge for the staking/unstaking process. At the time of going to press, the quoted rewards are as follows –
- Polkadot (DOT) 12% APY
- Kusama (KSM) 12% APY
- Kava (KAVA) 20% APY
- Flow (FLOW) 4.6% APY
- Cosmos (ATOM) 7% APY
- Tezos (XTZ) 5.5% APY
- ETH 2.0 5%-17% APY (Locked up until network upgrade completion)
By comparison, my fiat bank is offering me a paltry 0.03% yearly interest on my savings account balance. To put that into perspective, if I had a million bucks in my account, I would be earning a whopping $300 per year. The same million dollars could earn me $200,000 on staking Kava on Kraken. With real-world inflation of around 15% per annum, you can see why staking on Kraken is so attractive.
The Pros and Cons of Staking on Kraken
The biggest advantage of staking your coins on Kraken is the yield you can earn. This is several hundred times the average fiat bank interest rate.
- Much higher yields than fiat banks
- Exposure to an increase in the value of your crypto assets even while they are locked up
- The KYC obligations mean that your personal information and details of your investments are available to the authorities.
- New technology carries the inherent risk of failure.
- You cannot trade your tokens while they are locked up.
- Your assets are not insured as they would be in a fiat bank account.
Stake coins or Simply Invest?
Investing in a cryptocurrency will expose you to the changes in the market price of your chosen asset. Hopefully, the price will rise and you can make a healthy profit. By staking your coins, you get the same exposure to these price fluctuations, but you also earn a yield on top.
Some staking arrangements require you to keep your tokens locked up for a minimum period. Bear this in mind when deciding which token to stake. The tokens mentioned above have no minimum staking period, although the bonding process can take up to 20 days before you start earning.
Can I trade staked coins in Kraken?
No. Once your tokens are locked up, you can neither trade, withdraw, nor use them as collateral for margin trading. Once unstaked, you are free to do with them as you like. Kraken’s small print tells us that they can delay the return of your tokens for up to 7 days once you unstake.
How do I choose a staking platform?
It depends on which tokens you intend to stake and the yield you are trying to earn. It’s important to choose a reputable, well-established exchange. If the returns look too good to be true, then they probably are. Binance offers staking for stable coins such as DAI, USDT, and BUSD. Coinbase offers ETH 2.0 staking along with some more exotic tokens, like XTZ and ALGO.
Which blockchain is best for you?
The highest returns come from staking on Kraken come from Kava, Kusama, and Polkadot. These would be my first choices on Kraken. Personally, I like Polkadot and Tezos as they are the most forward-looking projects.
Can I stake Bitcoin on Kraken?
Yes, but there are restrictions. You can stake BTC off-chain, along with USD, GBP, and EUR. Further details are here.
Is staking on Kraken safe?
So far, yes. There have been no security breaches on Kraken up to now. The old adage applies, “If you don’t hold your keys, it ain’t your cheese.” Storing your crypto on any exchange where you don’t hold your private keys is riskier than keeping it in a cold storage wallet. There are DeFi wallets that enable staking, but allow you to maintain control of your private keys. Of the centralized exchanges, Kraken is one of the most reputable.
Also, check out our other staking guides:
- How To Stake Polkadot on Polkadot.js, Ledger, Binance, Crypto.com
- Is Staking on Atomic Wallet Safe?
- What is Ethereum Staking And How Do You Stake Your ETH?
- Cardano Staking Guide – When Can You Stake Cardano (ADA) And How To Do It?
CaptainAltcoin's writers and guest post authors may or may not have a vested interest in any of the mentioned projects and businesses. None of the content on CaptainAltcoin is investment advice nor is it a replacement for advice from a certified financial planner. The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of CaptainAltcoin.com