Staking cryptocurrency is the easiest way to earn crypto rewards and make a passive income. It works only by holding your digital assets in a cryptocurrency wallet.
The total amount of staking rewards are transferred to the stake participants, depending on how many crypto-coins the user holds in his crypto-wallet. Therefore, the bigger the amount of stake, the bigger the rewards. Also, the rewards are different for every crypto coin, because every cryptocurrency has a different annual percentage yield (APY), or annual return of investment (ROI).
Staking cryptocurrency on the blockchain
What is staking crypto?
Let's make it simple and take, for example, the traditional centralized financial institutions. Staking crypto works like a bank deposit, where you leave your funds for some time, and in exchange, you gain some interest. Only that, with cryptocurrency assets, you have complete control over them, your funds never leaving your wallet.
Staking requires to buy cryptocurrencies that use a Proof of Stake (PoS) consensus, and holding them into a crypto-wallet. As a result, you will help to validate the newly produced blocks or operations of a blockchain network. And by doing so, you receive rewards for supporting the crypto network, and adding extra security to the blockchain.
Don't worry about the validating processes, because all are done automatically. With staking you don't have to do any coding, or buy expensive computers and machines to mine, unlike in the Proof of Work scenario. In some cryptocurrencies cases, all you have to do is letting your crypto-wallet online, in order to receive your rewards.
How Proof of Stake works?
PoS - Proof of Stake consensus is a method that the blockchain nodes reach an agreement to validate, and to mint new blockchain blocks. The blocks with Proof of Stake are minted, and not mined, like in the Proof of Work (PoW) consensus method, Bitcoin being the largest cryptocurrency that uses a Proof of Work consensus method. The Proof of Stake partaker that allocates a larger crypto stake to the platform, have a higher probability to be selected for minting and adding further blocks into the blockchain.
Let's take for example two persons, A and B. The person A stakes an amount of $100 and person B stakes an amount of $1000. As a result, person B has a higher probability to be selected into adding newly produced blocks into the blockchain. Therefore, B will gain higher rewards from the network.
Security in staking
Proof of Stake works by following some rules on the blockchain. Firstly, the staking participants have to validate only valid operations on the blockchain. Therefore, they will not vote for double-spending transactions. And secondly, if a stake participant approves an illegal operation on the PoS blockchain, he will lose the staking amount, required at the beginning to enter in staking crypto.
Let's take it this way. The validators in the staking network are selected by the biggest amount they have staked. Therefore, if the validator approves fraudulent operations in the blockchain, the bigger the amount to lose. As a result, in this way, the probability to make illegal operations is lower.
Cold crypto staking
Cold staking is the process of staking cryptocurrencies by storing them in an offline environment, like a crypto hardware wallet. There are multiple hardware wallets in the marketplace, that offer the possibility to stake your funds.
This method, is the most secure one to gain rewards while keeping your crypto-assets in the safest way possible.
Note that you have to keep your assets in the wallet, and not transferring them from the cold wallet. If you transfer the funds, the staking rewards will cease to come.
Delegated Proof of Stake
DPoS - Delegated Proof of Stake extends the original PoS consensus method. With DPoS, the cryptocurrency holder is voting for a delegate, which will be responsible for the blockchain validation process.
DPoS is a selection process where the staking holder is voting for third parties to mint and add new blocks to the blockchain and also maintain the network. As a result of this process, based on the staking assets delegated to their selected nominee, the third party will be responsible for the network validating operations. Also, keep in mind that the funds are not transferred to third parties, these remain in the possession of the stakeholder, in their crypto-wallet.
The DPoS rewards are firstly distributed to the delegates, the third-party selected in the election process. After the delegates receive the blockchain rewards, they will send a part of them to stakeholders, based on the amount of stake they've chosen to invest.
Staking Pools
Staking pools are the best option for a beginner cryptocurrency enthusiast who wants to invest.
In order to get the most of your cryptocurrency assets staked, your crypto wallet has to be online all the time. Nowadays there are multiple stake pool operators that serve the blockchain and guarantee a steady uptime, of a connection.
You can even start staking crypto-assets on the cryptocurrency exchanges. Binance, the bigesst cryptocurrency exchange, offers a staking pool with no fees. Only thing you have to do is to hold your funds in your Binance account.
Also, to have a higher chance of minting new blockchain blocks, you have to stake a significant amount of coins. With a staking pool, the crypto holders combine their assets in a node. And as a result, having more chances to validate the blockchain operations and receiving bigger rewards.
In this case, the rewards are shared with the other crypto holders, based on the funds staked.
Staking pools are the easiest way to enter the staking cryptocurrency business and earn rewards. This way, there are no required equipment setup or complex installations for starting in staking crypto.
Staking crypto conclusion
I personally don't see any disadvantages in staking crypto. I use many staking pools operators, even on the cryptocurrency exchanges, runnig nodes on hardware devices,and also, using staking crypto mobile apps. Have to mention that I use them for quite some while.
If you want to hold your cryptocurrencies, you might as well keep them in staking. This way gaining rewards or multiplying your crypto holdings, until you want to sell them.
As for the advantages of staking, I have to say that is a simple method to earn passive income, by only holding your funds in a crypto-wallet. Also, it is more environmentally friendly than mining, Proof of Work blockchains. It is less costly, available for everyone, and more decentralized than the Proof of Work network.
As a final note, with all the advantages, remember the high volatility of cryptocurrency assets and do your research before investing in staking.
If you want to try the free Binance staking pool, register using the button below.
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Disclaimer
This document is intended for informational purposes only. The views expressed in this document are not, and should not be construed as, investment advice or recommendations. Readers of this document should do their own research, taking into account their specific financial circumstances. Also, the investment objectives and risk tolerance before investing. This document is not an offer, nor the solicitation of an offer, to invest, buy or sell any of the assets mentioned herein.
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