Banks offer products for savings and deposits. When customers do not keep cash on hand and instead deposit it in bank products, they can earn interest over the period and accumulate a lump sum. The bank can generate revenue by investing the deposits received from customers in other ventures.
The virtual asset market also has a method for earning interest through "virtual asset deposits." This is referred to as "staking." If investors who have purchased virtual assets plan not to sell them for a while, they can stake the virtual assets on a blockchain network instead of keeping them in exchanges or personal wallets to earn interest revenue.
However, not all virtual assets can be staked. For instance, Ethereum allows staking, but Bitcoin does not. This is due to differences in consensus algorithms that operate on the blockchain network, where the most famous virtual asset, Bitcoin, utilizes the "Proof of Work" method. This algorithm, familiar to us as "mining," grants the right to generate a block to the individual who solves a problem through computational work.
To participate in staking, the blockchain's consensus algorithm must use the "Proof of Stake" method. This is an algorithm that allows users who deposit a certain amount of coins in the blockchain network to participate in block verification and generation. From an investor's perspective, it is convenient to think of it as receiving interest in exchange for helping to operate the network by depositing coins. Currently, Ethereum, Cardano, Solana, Polkadot, and Cosmos have PoS consensus algorithms. Therefore, all these virtual assets can be staked.
These platforms provide interest based on the deposit period and annual percentage yield (APY) to the investors. The rates range from as low as 5% to as high as the low 10% range, allowing for higher revenue compared to bank deposits if used effectively. Furthermore, while income taxes must be paid when withdrawing from bank products, the taxation on income from virtual assets has currently been postponed for two years. Consequently, investors can reinvest the full amount of staking interest and expect a compound effect.
There are several methods for staking, including directly operating validator nodes that verify contracts on the blockchain or pooling coins with several users to form a staking pool. However, these methods may have the disadvantage of requiring a substantial amount of virtual currency (for example, at least 32 ETH for Ethereum) or a high level of understanding of blockchain operation.
For those new to blockchain and virtual currency investment, referred to as "Korin-i," the most suitable staking method is to use major virtual asset exchanges like Upbit or Bithumb. Each exchange operates a "staking pool," and investors can stake small amounts of coins and withdraw them later.
As of Jan. 8, according to Upbit, Cosmos is recording the highest reward rate (interest rate) at 20.04%, followed by Solana at 6.62%, and Polygon Ecosystem Token at 4.18%. However, Cosmos, which has a high reward rate, may take some waiting time for unstaking the coins, and since the characteristics of staking differ by virtual asset and by exchange, it is necessary to verify these details carefully before investing.
Additionally, the staking services provided by virtual asset exchanges are not financial products that can be protected under the Capital Market Act or the Financial Consumer Protection Act. Also, there is a possibility of asset loss due to hacking or technical defects, and investors should be aware that they might incur losses if the value of virtual assets drops sharply during the staking period.
Kim Byeong-jun, a researcher at Dispired, noted, "Staking is an appropriate method for users who expect the price of a specific virtual asset to continue rising to increase their holdings of that asset. However, it should be confirmed that it may take a minimum of a few days to a maximum of several weeks to withdraw the amount delegated to the platform, so investors should be cautious that they cannot sell immediately during a sharp price drop of the virtual asset."