10 Differences Between Crypto Holding and Staking

What are the differences between crypto holding and staking? If you are looking for one of the best saving strategies for your crypto coins, you have two – crypto holding and crypto staking.

However, to find out which suits you the best, you will first need to know the differences between these two approaches.

This article deals with just that along with the factors to consider while choosing the best option for you. Just go through it to be more confident in your approach when it comes to saving and growing your crypto wealth.

Ideally, there are different ways in which you can earn great profits in the world of cryptocurrencies. Check out Differences Between Crypto Holding and Trading.

If you like to take on risks and have adequate experience, then crypto trading over the trading platforms is a good option for you.

On the other hand, if you are looking for somewhat less risky ways then crypto holding and staking are the right choices for you to fulfill the same objective of earning profits and growing wealth.

As you can infer from the above, the purpose of these two investment approaches is precisely the same, which is to offer the crypto holders a considerable monetary return over time.

However, these two words mean much more than that as well as the literal meaning according to their definitions, and that is what means most to you.

10 Differences Between Crypto Holding and Staking

Differences Between Crypto Holding and Staking

The crypto industry offers several different opportunities to the investors to earn profits and get rewarded, thanks to the blockchain technology underlying it.

There are lots of different investment options available here but in order to find which is the best approach in 2021 you must delve deeper into it.

Remember, to achieve what you want in the end, you will need to be knowledgeable about the strategy that you pursue.

This is where this article comes in. Here are the differences between crypto holding and staking, two of the most common investment options followed by most of the crypto players.

1. Definition

HODL actually refers to HOLD. It was misspelled by a user and since then it is a term that is used ideally as slang in the crypto community. This means retaining the digital assets for a long time instead of buying and selling them frequently.

On the other hand, crypto staking refers to the rewards received by the users in taking part in the creation of new coins.

2. Process

In simple words, holding crypto is a strategy wherein the users purchase cryptocurrencies usually at a low price and retain them usually in an offline wallet for a long period of time. As and when the price of the coins rises, they trade them to earn a good profit on their investments.

On the other hand, ideally, staking your crypto coins means buying cryptocurrencies and storing them in the exchange wallet in order to get rewards or receive profits.

Though the process seems to be much similar to crypto holding, the difference in crypto staking is that in this process you block the balances. This means that you cannot use the coins freely if you want to receive a specific amount as annual interest that is usually offered in this process.

3. Profits

Usually, the return on crypto holding is not as high as crypto staking. It can be only up to 10% of the amount invested, that too depending on the time for which the coins are retained.

On the other hand, crypto staking offers much better results to the investors in comparison to crypto holding. Typically, crypto staking may offer a reward of up to 50% annual interest! This is due to the additional reward to the growth in the price of the crypto coins over the year.

4. Volatility

The volatility of both these approaches is also quite different and worth noting. Ideally, crypto staking is more volatile in nature due to the coins involved but more so because it is performed only on the Ethereum blockchain.

This means that it will be affected significantly by the movements in the price of Ether, the native coin of this crypto platform. Typically, Ether itself has a very high Volatility Index or VIX as compared to Bitcoin which is the preferred coin for holding.

This acts as a double-edged sword. You will get significant price spikes on one hand which will add to your rewards but on the other hand it may also be subject to very sharp drops in price which may result in a loss.

In comparison, there is no such risk in holding because Bitcoin does not have a high VIX. Moreover, the users hold the coins for a very long time and therefore there is little or no chance of their activity getting affected by the ups and downs in the crypto prices and market conditions during that period.

Usually, the investors hold their coins through these situations and trade only when they are sure to make significant profits through trading.

5. Choice of Assets

Since you are dealing with digital assets, it is important that you choose one cautiously before buying with an intention to hold them. Your choice of assets should be based on your long term objective and therefore you should focus more on the long term prospects of the project itself while choosing.

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This is extremely important in case you as an investor choose to hold an Altcoin that is not linked with Bitcoin directly, or even Ethereum for that matter. Remember that investing in any crypto assets that are not future-proof is not worth holding them, since you are going for the long run.

However, in staking crypto coins, you should be all the more cautious while choosing your assets because your success and the amount of reward you receive will largely depend on the price and the volatility of the coin.

In this case, there is an important aspect that you should remember while choosing your crypto assets which is that crypto staking is typically time bound by the project. And, this time period is typically determined by the holders and their activities.

6. Security

The security aspect is one of the most significant points of difference between crypto holding and staking. Ideally, users who hold their coins usually use hardware wallets for that matter.

They may also use other secure wallets such as full wallet purses. The most important factor of these wallets is that the users typically have full control over their crypto coins.

On the other hand, users who prefer staking their crypto coins will typically have to use hot wallets for that matter. This means that these are not secure and the users usually do not have absolute control over their crypto assets.

This security risk may lead to the loss of all of the coins due to theft if appropriate care is not taken.

7. Terms

If you consider the time factor, holding is a strategy that is especially productive if you go for it for the long term. In fact, most of the Bitcoin holders immobilize their coins for more than 10 years or more and by doing that they make immense profits.

However, in comparison, crypto staking is a short-term approach. This is because the users do not hold the coins for a long time due to the highly inflationary nature of them.

If they hold it for a long time, there is a high chance that the potential to increase the value of the tokens will be reduced significantly and may even result in losses.

8. Addition of Coins

In the process of holding your crypto tokens, ideally, there will be no increase in the number of coins. The main objective of this process is to increase the value of these coins in the long run and not grow the number of coins in your possession. This means that you will only win in holding if the price of the specific crypto coin rises.

On the other hand, in crypto staking you will add to the number of coins in your possession in the end as well as add to its value.

The number of the coin you earn will, however, depend entirely on the reward mechanism followed by the particular crypto platform you have chosen to perform this activity which involves keeping the coins locked for a specific period of time within a system.

Moreover, the price of the coin could be lower in staking. However, the resulting value of the coins will be higher because you will have more coins in your possession now.

9. Economic Dynamism

When you hold your crypto coins, you actually retain the mobilization of the coins which may sometimes result in the decrease of the economic dynamism of those particular tokens.

However, in crypto staking, though you do the same but it is for the short term and therefore the impact on the economic dynamism is different. In fact, when you retain the crypto coins while staking the impact of it is much more as compared to holding them.

This is due to the fact that the reward value obtained by the coins becomes higher as and when the staking itself becomes higher which subsequently affects the economic dynamism of the crypto tokens.

10. Some Other Differences

Here are a few small yet significant points of difference between crypto staking and holding that you ought to know.

Holding crypto coins is a much simpler process as compared to crypto staking. Though crypto staking may seem to provide more positive and productive returns, the security risk involved in this approach is practically quite higher than that of holding the crypto coins.

This is because, as said earlier, your account can be hacked and the funds can be stolen, which the recent security records of Decentralized Finance or DeFi confirm.

When it comes to holding, you will not have to rely on and in turn be worried about the immediate fluctuations in the price of the coins you hold whether it is in the short term or in the long term.

This means that you will not have to spend hours looking at the price charts and their movements every day. However, the same cannot be said for crypto staking with assertion.

The volatility of the crypto market does not affect a holder as it would affect in staking the coins. This results in some other benefits of this particular investment approach such as offering you a better opportunity to maximize your profits.

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It is also a less stressful approach in comparison to crypto staking. Ideally, you can participate in the crypto market without putting in much of an effort when you hold onto your crypto tokens for a long time which is not possible in crypto staking.

In crypto staking, you are only allowed to do so with those projects that are essentially built on the Proof-of-Stake blockchain. Ideally, these are the projects that are dependent on the Ethereum blockchain or are a part of the Decentralized Finance network. However, this is not the case with crypto holding.

Though you will need to lock your crypto coins up in staking just as you would in holding but for a short time, in the case of staking these coins act as collateral for the network resources, unlike crypto holding. They can use these to compete for as well as add a new block to the chain.

Since crypto staking is based on the PoS blockchain network, you will get a voting right for each stake you earn after buying a minimum number of coins.

This simply means that, the higher the number of coins you hold, the more voting rights you will be entitled to. However, this does not happen in crypto holding.

Unlike, holding crypto coins where the entire earning depends on your successful selling and the sale proceeds, in crypto staking you will be rewarded after a mining process is completed and a new block is added subsequently.

Though these rewards do not come from the earnings or profits of the company as it is in holding, these are a proportion of the tokens that are newly minted.

Some of the most favored crypto coins used for staking include, and are certainly not limited to Polkadot, Cosmos, Kusama, Dodo, and Tezos.

On the other hand, crypto holding is usually done with Bitcoin because it is the longest-lived cryptocurrency and to date, it is the one that has shown a much better performance and strong resilience during the times of great crisis.

Which is Better – Crypto Holding and Staking?

Choosing between crypto holding and staking is not easy.

You will not only need to know the differences between the two terms but also be knowledgeable about several other facts, figures, and factors.

It is also an entirely personal choice of the particular user.

Over the past couple of months, the crypto market on the whole has had quite a stellar run.

Among others, crypto staking has become a hot topic for discussion among the members of the crypto community.

This is ideally considered to be one of the most commonly followed trends by the crypto investors who intend to earn a notable amount through passive income from their crypto coins lying dormant.

There are lots of different systems that also use staking for crypto mining operations.

Some of these systems are Proof of Stake or PoS, Delegated Proof of Stake or DPoS, and Proof of Authority or PoA.

When these systems are used, a specific amount of crypto coins are usually blocked by the user in order to act as a validator for transactions which in turn allows them to earn a definite reward.

Irrespective of the cases, crypto staking will allow you to earn rewards.

These rewards are however adjusted depending on the number of coins that are blocked. This, in turn, adds more value to the coin over time.

On the other hand, holding crypto coins for the long term is also a very commonly followed strategy among the crypto investors and users, especially those who deal with Bitcoin.

This investment strategy specifically refers to acquiring the crypto asset and keeping it over time.

The users who follow this approach especially believe in the philosophy that, with some luck, they will be able to multiply their assets exponentially in the future.

Holding crypto coins has had a history of being one of the most profitable investment options for the Bitcoin users.

There is no doubt that holding crypto coins is a strategy that can bring in really big returns.

For example, one who has invested just $ 1000 to buy 1000 BTC in April 2011 when the price of each Bitcoin was just $1 now has coins worth $43,000,000 as of September 2021.

And, the best part is that they got all this in just holding onto their coins for nine years.

When you choose to buy crypto coins on an exchange and hold it in your wallet make sure that you are more practical in storing them in a hardware wallet.

These specific wallets, being offline, are more secure. Also, choose the time according to your needs.

The time to hold the coins can be determined by just a random number such as 5, 10, or 15 years or according to the capital gains realized on the blocked coins, and even depending on your purpose such as a retirement fund.

Ideally, the good thing about holding onto your crypto coins is that this approach will help you to counteract two of the most significant and destructive tendencies.

These are Fear Of Missing Out or FOMO which may result in buying high and Fear, Uncertainty and Doubt or FUD which can lead to selling at a low price, a process often termed as SODling.

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Now, take a look at crypto staking. If you go for staking your crypto coins, you should first calculate the rewards.

This is not a very difficult process. All of it depends on the type of cryptocurrency you wish to use.

This is because the blockchain of different types of cryptocurrencies will come with its own technical fetish as well as a unique coin distribution policy.

A few other important parameters to consider for determining the amount of reward you may earn are:

  • The number of coins you have
  • The number of coins in staking in the entire network
  • The time you have been staking these coins and
  • The rate of inflation of the coin.

However, considering the trends followed by most of the crypto users, buying cryptocurrencies and holding them happens to be the first step of crypto management. It is followed by staking them.

The primary reason is that it asks for only a little bit of additional effort from the users. However, staking is also almost the same which will allow you to swell the size of your wallet but in a much more systematic way.

In this case, you will not have to put in much of an additional effort as well apart from the fact that you will need to choose a particular platform to perform these activities on after thorough research.

The outlook of people, as well as the platforms and projects, have changed for the better in 2021 on both of these fronts. This ideally promises a better return whether you hold or stake your crypto coins.

All of the underlying projects are built on the look good factor. It is for this reason that with each passing day and week, Bitcoin, unlike before, is finding new use cases.

This has, in turn, resulted in an increase in the number of institutional investors.

However, on the other hand, if you look at staking, there has also been a notable development in the Ethereum blockchain with the launch of the long-awaited Ethereum 2.0 version in late 2020.

This has set Ethereum, as well as every other Altcoin built on this particular blockchain, potential enough to explode in 2021.

Ideally, crypto staking does not only allow you to validate transactions but it also adds new blocks to the chain in the process.

Therefore, crypto staking, if you look at it deeply, is just an alternative to mining. The purpose of the two processes is the same but the mechanisms are different.

As for Bitcoin, the mining process is based on PoW or Proof of Work wherein the miners compete against each other in order to solve a complex mathematical problem and the first one to do so is rewarded with the right to attach the next block to the chain.

When this new block is added the miner is rewarded with Bitcoin.

On the other hand, for staking with other types of crypto coins such as Dash or EOS, the process works on the PoS or Proof of Stake mechanism only.

Here the users usually lock their coins up, or ‘stake’ them. The protocol then assigns one of the participants, selected at random, with the right to validate the following block in order to get the transaction fees.

In this case, the probability of being selected will depend on the number of coins you have. If it is more, you are likely to get the right to validate the next block.

Crypto staking can ideally be done in three specific ways such as:

  • When you use specific networks such as ETH, DOT, ADA, EOS, and ALGO where you will become the validator node for them, though this is a rather complicated and a long activity
  • When you simply buy crypto coins that support staking and lock them on the exchange wallet, though for this process you will need to check out the reward percentage, lock-up period requirement as well as the risk rate while choosing a crypto platform and
  • When you buy and hold the proprietary token of the exchange on your wallet which will also allow you to earn some interest apart from the reward you may receive due to staking your coins.

Therefore, you can choose either of the two options, crypto staking or holding, and even both, for growing your crypto wealth in 2021.

However, do not jump into any one of it without being confident and without consulting an expert crypto consultant.

This will allow you to make your decision wisely and to strengthen and maintain your position so that you can make the most out of your crypto assets.

Conclusion

In crypto investment, holding and staking are two distinctly different ways. While holding is a more stable investment approach, staking will offer higher rewards. Knowing the differences between them will help in choosing the right approach.