What is Crypto Staking?
In one sentence, crypto staking means to put your crypto to work and earn rewards on it. Sounds interesting, right? Many crypto investors today are staking to generate passive income, especially because some cryptocurrencies offer higher interest rates for staking. Staking itself is the way many cryptocurrencies verify their transactions. It involves committing your crypto assets to support a blockchain network and confirm transactions. The procedures are related to the mining and your coins are kept safe when you stake them for brining new coins to circulation. Before you get started it is important to take a look at pro’s and cons and to do excessive research on this topic.
Is it Profitable?
Staking is in one word: profitable and almost nearly as profitable as the mining or trading of cryptocurrencies. On top of that, staking itself has less risk that the trading of crypto. The actual profits you can make from staking will depend on how much you invest (and for how long). It also depend on the value or price of the coin that you decide to stake, if the inflation rate is very high, the value will rapidly leave you with no (or small) profits. As your reward increases with time the coin that you have spent as a staking amount will also enhance with time. Therefore, as the prices go high your digital wallet will also see increased growth. Know that it is important to invest in a coin with low volatility.
As with everything, investing is never 100% risk free. Staking is also more complicated and time-consuming way of investing. If you decide to start staking your cryptocurrencies it is important to keep a few things in mind, that we will explain in this article.
PoW Versus PoS
It is first of all important to know the difference between Proof-of-Work versus Proof-of-Stake. PoW requires huge amounts of energy consumption to fuel computational power. PoS however, gives mining power based on the percentage of coins that are held by are miner. Staking is an example of PoS: stakers lend cryptocurrency and earn interest or yield-farming rewards in return. It is more eco-friendly than mining but it also involves many arbitrary computation that consist of numerous mining resources. PoS makes it possible for many people to avoid the difficult computations altogether. There is no need to solve complex challenges, instead, if you decide to stake you lock your coin to win block-validation rights. The bigger the stake (so the more cryptocoins you lock) the more chances are increased of being chosen.
As a coin-holding staker, you also keep the network secure because they have a coin holding stake in the process. It is therefore a win-win situation. The rewards vary from network to network, including calculating by blocks or assessing rewards as a set percentage.
For new stakers, it might be attractive to participate in a stake pool. This is the process of combining resources with others. If the pool turns out to be successful, you increase the chances by enabling higher stakes. Pools typically have unfixed periods without withdrawal locks and have lower minimum participation amounts than doing it individually. The process however to set up a pool is more complicated and time-consuming. So if you decide to participate, it is often required to pay a fee percentage out of your rewards to the entity that is running the pool.
Another option of staking is cold staking. This means that the wallet is not inter-connected but uses hardware or air-gapped software wallets. The cold staking contract collects 40% of all mining reward and distributes it to the cold stakers in direct proportion to their holdings. The process itself is quite simple: you choose a cryptocurrency to stake, then select the address and delegated proof-of-stake validator. The reward will be available and if you’re satisfied, the only thing you have to is verify the transaction.
In conclusion, it is important to be well informed about all the risks that are involved in crypto staking. If you’re aware of that, continue to do more research and find the best way to invest in crypto staking. It depends of course on your goal and how much you invest. So always seek for the right path with the right information and you’re good to go!