Staking Methods: Soft and Hard Staking Explained

In the earlier days of cryptocurrency, you could make income by simply holding your coins, or trading them. As the market has grown, so have its opportunities, and today, many cryptocurrency investors benefit from “staking” to make crypto income.

What is staking?

Staking is lending your coins, or tokens to its cryptocurrency network, which validates transactions on the network on your behalf. In return, you receive interest rewards in the same unit of cryptocurrency. The more coins you stake, the more transactions those coins will validate, and the more new coins will be credited to your wallet as interest. 

To stake your tokens on a blockchain network, you need an intermediary like a cryptocurrency exchange.

CEX.IO allows you to earn crypto rewards by holding coins, and tokens in your CEX.IO account. Rewards are calculated every hour and sent to your account wallet once a month on a specified date. 

You can also stake cryptocurrencies by depositing them directly to their blockchain networks. However, this process will require the establishment of a transaction-validator node, which may cost a significant upfront investment. For example, you need 32 ETH to establish a validator node on the Ethereum blockchain (the equivalent of around $96,000 today). 

Using an exchange allows you to stake without paying hefty sums since exchanges pool the funds of their users to establish nodes (like crowdfunding), so any amount you deposit gets included in the staking process. 

There are two different staking types for cryptocurrencies: Soft and hard staking

What is soft staking?

Soft staking means there are no locks on the coins or tokens you deposit,  it can be in an exchange account, or a node on the blockchain network. This feature allows investors to stake and trade their coins/tokens simultaneously. 

With no locks, you have the flexibility to give limit sell orders for your staked coins to realize the profits made from significant price hikes and stop-loss orders to prevent the losses from sudden, unexpected market crashes. In that sense, soft staking allows you to adapt to changing market conditions. 

On CEX.IO, there is soft staking. All you need to do is deposit to, or buy a stake-able cryptocurrency on CEX.IO. Since there are no locks on CEX.IO, the system stakes all your stake-able balances automatically, as long as they stay in your CEX.IO account. 

A detailed explanation of how staking works on CEX.IO can be found in this blog post.

Please note that if you sell, or withdraw any amounts from your staked coins/tokens during the staking period, your expected rewards will drop accordingly on the payout date. ​​One staking period on CEX.IO is usually one month.

You can withdraw, or trade your staked holdings at any time you like during the month; you do not need to wait until the end of the month since there are no locks on the coins. 

What is hard staking?

Hard staking enforces lockups for a given period. When there is a lockup period, you cannot withdraw or sell your staked coins until the unlock (maturity) date.

There are different available lockup periods starting from 30 days up to 120 days. When you opt for a longer lockup period, you may usually get a higher return rate. 

Hard staking is less convenient than soft staking since you cannot use the locked funds throughout the staking period. However, in return, you may usually get higher staking rewards. The longer the hard staking period, the more staking rewards you can potentially earn. 

Hard staking might be better suited for you if you would not need the regular cash flows you can make from soft staking. In return for not using those payouts until the end of the lock period, you can potentially get a higher staking reward.

Closing thoughts

Soft and hard staking are tailored for different investment styles and personal needs.

If you do not prefer holding cryptocurrency positions for the long term and want the flexibility to sell at a profit or stop loss under weak market conditions while enjoying regular payouts from staking rewards, then you might try soft staking.

If you can on the other hand tolerate large market fluctuations while sacrificing regular cash flows in return for potentially higher staking rewards, then you might try hard staking.  

Choose the one that suits your needs or mix soft, and hard staking for different assets to expand your crypto income. 

For information purposes only. Not investment or financial advice. Seek professional advice. Digital assets involve risk. Do your own research.

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