What is Staking Crypto?
If you've ever seen the term and asked yourself, 'what is staking crypto?', we're here to help. Staking crypto is an excellent method to make passive income from your crypto assets. The profits might especially appeal to people who have already invested a considerable amount of their net worth in cryptocurrency.
In crypto, there are two basic consensus mechanisms: proof of work (PoW) and proof of stake (PoS). The role of consensus mechanisms is to assure the legitimacy of transactions. An additional block is added to the blockchain if a transaction is authorised. These protocols safeguard the network. PoW systems safeguard networks by utilising computational power and do not enable crypto to be staked. PoS methods, on the other hand, maintain security through verifiers that tie up crypto — or stake it, as the term staking crypto implies. The validators are compensated for staking crypto to safeguard the network.
Few cryptocurrency owners can become validators. This is owing to the high value of necessary crypto holdings and the requirement for hardware infrastructure with appropriate processing power. However, there are crypto-staking solutions with lower entrance hurdles.
How to Stake - What is Staking Crypto?
There are other staking pool alternatives available, including P2P Validator and Staking. These platforms provide cryptocurrency staking solutions that "pool" crypto assets from many participants. This implies that the quantity of cryptocurrency needed to stake is less than if a person became a validator individually. Exchanges are the most accessible and straightforward way for many crypto holders to stake their coins. Some of the top cryptocurrency exchanges, including Coinbase and Binance, provide crypto staking services.
Coinbase compensates its members just for keeping a certain number of specific cryptos in a wallet, with dividends ranging from daily to quarterly. The staked cryptocurrency does not even need to be acquired through the Coinbase exchange.
Binance is one of the most comprehensive cryptocurrency staking platforms. In most cases, it has more than 112 tokens that may be staked from one to four months.
PoS cryptos are the only ones that can be staked. Ethereum (ETH), Polkadot (DOT), Solana (SOL), NEAR Protocol (NEAR), Cardano (ADA), and Tezos are among the most popular and regularly staked cryptos (XTZ).
What is Staking Crypto - The Benefits
Cryptocurrency may be safely stored in a wallet, and ownership can be preserved throughout the crypto staking process. Staking cryptocurrency also gives benefits for confirming transactions and safeguarding the network.
This reward is a percentage return, akin to a dividend or interest on a checking or savings account. The return varies depending on the cryptocurrency invested, but, in all cases, it is far larger than the yearly percentage returns that consumers obtain from traditional banks.
The greater the amount of cryptocurrency staked, the greater the possible benefits. Those with substantial crypto holdings can thus become exceedingly wealthy through staking. It is a good method of wealth creation for long-term holders of PoS crypto assets. It may be quite profitable if done correctly.
Is Staking Crypto Safe?
The regular fluctuation of cryptocurrency prices is one disadvantage. As previously said, the yields generated will be determined by the crypto token. Volatile cryptocurrencies can provide bigger profits, but this comes with the danger of the underlying token's price falling.
The recent Terra LUNA token crash, which resulted in billions of dollars in losses, illustrates this.
Some forms of crypto staking require assets to be locked up for a specific amount of time, which means no action can be performed even if the price of the cryptocurrency falls. Liquidity pool hacking might potentially result in the entire loss of the crypto tokens invested.
Staking cryptocurrency has both good and bad effects. For risk-takers, the potential of significant returns for little to no effort makes the venture viable. However, for the ordinary crypto investor, exchanges remain the greatest option for crypto staking.
Whether or not to what is staking crypto will depend on an individual's attitude towards risk. Crypto earners averse to risk may prefer to preserve the ownership of their assets. On the other hand, risk-takers would be more than happy to stake their crypto for higher potential returns. Other risks include staking pools being hacked, which can result in total loss of the crypto asset staked.
Author: Emmanuel Baiden
7 years experience within the financial services sector most notably in Sales, Trading, research and writing articles within the crypto space. I have a bachelor's degree in International Business and a Master's in Investment and Risk Finance . I am also an associate member of the Chartered Institute for Securities and Investment.