Staking crypto is one of the best ways to grow your portfolio pretty much on autopilot.
Actually, it might very well be THE best way to generate predictable profits in crypto, when you factor in risk vs. reward. Some people are even starting to like it more than a traditional savings account.
If that’s the case, then why is everyone is talking about Ethereum being the “safest” asset to stake?
What about Bitcoin Staking? Isn’t Bitcoin #1 and thus should be the first choice for staking?
Bitcoin is the king of crypto, it’s the most stable crypto asset, the market mover, the alpha and the omega. So what gives?
That’s because Bitcoin Staking doesn’t exist. At least not natively.
Well, why not then?
The answer to that is a bit techie, and lies in the difference between the Blockchain technology used by Bitcoin versus other assets that you can in-fact stake.
Understanding The Difference Between PoW & PoS Blockchains
The purpose of blockchains is to achieve consensus in a trustless way.
When Satoshi Nakamoto invented Bitcoin, he implemented a mechanism called “Proof-Of-Work” (PoW) in order to do that, and essentially created the “Crypto Mining” space.
With mining, computers are tasked with solving complex mathematical equations, and those who eventually succeeded, are rewarded with freshly minted BTC coins for performing the task.
They did the required work, consumed electricity, there’s Proof Of Work. That’s how Bitcoin operates in a nutshell and without getting down to the super-techie level.
As Bitcoin kept growing however, concerns over lack of efficiency and the high electricity needs of mining farms became prevalent in the crypto space.
So a few years after the invention of Bitcoin, circa 2012, a new method of achieving consensus was suggested, and later on successfully implemented.
This method is what’s known today as “Proof-Of-Stake” (PoS). This new way of reaching consensus on the blockchain eliminates the need for expensive and not-too-eco-friendly mining, and replaces it with a new and improved “Crypto Staking”.
There’s still significant debate going on regarding which one of them is actually better, but that’s a different discussion which you can read about in the related post below.
To summarize, this fundamental difference in technology, the reason why there isn’t really such a thing as Bitcoin Staking.
It’s because Bitcoin sits on a Proof-Of-Work blockchain, which uses computing power & electricity in order to facilitate transactions and run the blockchain, and doesn’t require you to stake coins.
On the other hand, other crypto assets, which run on Proof-Of-Stake blockchains, do require staking coins in order to operate. Hence, they have staking.
You Can Stake Bitcoin! I’ve Seen Companies That Offer Bitcoin Staking
Yep, that’s true.
You can earn interest on BTC on BlockFi, Binance Earn, Crypto.com, Nexo, Celsius and many more platforms.
However, let’s not get confused here. Calling it staking is not accurate.
When you deposit your coins with these companies, your BTC is not actually used in a Proof-Of-Stake blockchain in order to facilitate transactions and secure the network. Instead, you’re lending it to the company.
Think of it more like a bank paying you interest for locking up your cash in a savings account. You still earn interest, but that’s interest you get for lending out your Bitcoin, not for staking it.
That is also why companies and protocols would usually call their programs “Earn” rather than “Stake”, to not create any confusion or misinterpretation of what’s really taking place.
Should You Stake (Lend) Bitcoin?
If you are willing to take the risk of moving your Bitcoin from your wallet or cold storage device into a centralized custodial, then sure, you can stake BTC and earn the interest offered by the company you choose to work with.
The main reason why staking BTC is not as popular though, is that many Bitcoin holders are hesitant to give away control of their keys by moving their Bitcoin into a centralized custodial like the ones we mentioned above.
Some Bitcoin holders choose to allocate a portion of their portfolio to participate in some of the “Earn” programs for assets that don’t have native staking, which is a known strategy for generating yield while trying to minimize risk.
The decision here, as it always is in crypto, comes down to your risk tolerance.
How To Earn Bitcoin Through Lending
This process is fairly simple, since you would be using a centralized service.
If you decided you want to earn interest on your Bitcoin, then you’ve done more than half of the job already.
That’s because In almost all but all cases, when using centralized companies, you’re going to have a pretty high quality user interface that would guide on step-by-step on how to move funds from your wallet into the service.
And if you’re using the same company on which you purchased your Bitcoin in the first place, that’s even easier. You don’t even need to move any BTC between wallets.
For example, if you bought your BTC on Binance, then depositing it into your Binance Earn account is going to be a simple push of a button process with a few confirmation windows.
Advanced: Using Wrapped Bitcoin ($wBTC)
Feeling adventurous and want to make your BTC work for you, but without any centralized exchanges? There’s a solution for that too, and it involves a process called “wrapping”.
You wrap your BTC in Ethereum, and exchange your BTC for a $wBTC token in a 1:1 correlation. Deposit 1 BTC and get 1 $wBTC in return.
$wBTC can then be used in various DeFi activities such as yield farming, lending on DeFi platforms such as Uniswap, Compound, Balancer, and others.
Doing this is actually quite popular in the crypto space, with $wBTC sitting quite steadily within the top 30 crypto assets by market cap for years now.
A beginner guide for $wBTC can be found here.
Will There Ever Be Native Bitcoin Staking?
That’s an interesting question. It comes down to whether there’s a chance that some time in the future, Bitcoin moves to a Proof-Of-Stake network.
Could that ever happen? What if Ethereum paves the way for Bitcoin and the BTC maximalists open up to the idea? Right now, it seems unlikely.
That’s because one of Bitcoin’s biggest selling points is that its change-resistant.
While Ethereum and other blockchains keep adding, improving, and implementing new monetary policies and technological advancements, Bitcoin pretty much stays the same. Many claim that this is one of the biggest things that give it value as “Digital Gold” and “Sound Money”.
Switching over to Proof-Of-Stake and thus enabling native Bitcoin Staking would go directly against such a narrative and everything that Bitcoin currently stands for.
So all in all – not happening in the foreseeable future.
Super long term though? As the Great Canadian Hero Justin Bieber once said – “Never Say Never“.
This article is for educational purposes only. Not financial advice.
Please make sure to read our Disclaimer before making any financial decisions.