There are more ways to earn additional profits from cryptocurrency, and one of them is through crypto staking. Crypto staking is another good way to earn enough rewards besides buying coins, participating in airdrops
mining, and others. What makes it even more interesting is that you get to earn enough rewards without doing much.
If you wish to know what this crypto staking is about, this article will give you enough foundational knowledge on all you need to know, including how to stake, why you should stake, when to stake, the pros and cons of staking, and how to earn money from crypto staking.
What is Crypto staking?
Crypto staking is a way of generating additional income from cryptocurrency. Crypto staking is a way of earning other interests with your local bank account, and it is a very popular activity amongst investors and traders.
Crypto staking is an act of committing your crypto assets to support a blockchain network and confirm transactions. By doing this, blockchain puts it to work, and you will earn a reward from the crypto.
When you stake your coins, there are still yours. You only staked them to be doing temporary work for you. You can still decide to unstake them whenever you wish. Just bear in mind that the unstaking may not be immediate. Some cryptocurrencies require that you stake for some time before you can unstake.
How does Crypto staking work?
First, you should bear in mind that not all cryptocurrencies allow staking. The cryptocurrencies that will allow you to stake use proof of Stake. This proof of stake is known as a consensus mechanism that enables all your transactions to be verified and secured without using a payment processor.
While staking crypto, different protocols use validators in confirming blocks of transactions. These validators are selected from participants that pledge their coins. You will have to pledge more coins to be chosen as a validator.
As a validator, you will earn a reward when a new block is added to the blockchain. There will be minting and distribution of new cryptocurrencies distributed to the validators as rewards with each addition.
Advantages of Crypto staking
- It is an effortless way of earning additional interest with your cryptocurrency.
- Crypto staking does not require any equipment.
- It is energy conservative as opposed to crypto mining.
- Crypto staking helps to uphold the security and efficiency of the blockchain.
- Crypto staking promotes faster and cheaper transactions
Disadvantages of cryptocurrency
- When you stake your crypto, you may be required to lock it up for some time. Within this period, you won’t be able to trade them even if the prices increase or do any other thing with your staked crypto. It would help if you conducted deep research on the staking rules and requirements specific to the project.
- If you eventually want to unstake your crypto, it may take up to 7 days.
- The prices can be very unstable, and most times, they are volatile and can quickly drop.
Why is crypto staking not allowed by all cryptocurrencies?
There are different consensus mechanisms used in cryptocurrency transactions. Some of these consensus mechanisms include proof of work, proof of stake, and proof of burn.
For a cryptocurrency to allow staking, they need proof of stake. Some cryptocurrencies choose proof of work over proof of stake. It is believed that proof of work offers more protection to the blockchain, thereby resisting attack. Note that proof of work was developed long before proof of stake.
Other cryptocurrencies choose proof of stake because it uses less computational power, thereby using less energy.
The third consensus mechanism is proof of burn. For miners to validate their transactions, they will have to destroy their crypto in proof of burn. This explains why fewer cryptocurrencies adopt this method.
What Is proof of stake?
Proof of stake is a consensus mechanism developed to lower transaction fees and increase speed and efficiency. In proof of stake, the people staking in a particular cryptocurrency validate the transaction. This saves a lot of energy.
How can you make money from Staking Crypto?
- Purchase a cryptocurrency that uses proof of stake- Not all cryptocurrencies allow staking, so the first step is to find one that offers to stake.
Few such cryptos include Ethereum, Cardano, Polkadot, Mina, and Solano.
Find the one that interests you and do deep research; find out how they work, their rewards (staking rewards), and the staking process.
It is simple to make money from staking crypto; you have to learn how to stake crypto. It may seem hard at first, but you can master it. So here is a step-by-step procedure on how to stake crypto.
- Move your crypto to your wallet- You can stake your crypto in two ways. Either you stake directly on the exchange or move it to your blockchain wallet. You will find your crypto in the exchange where you bought it from. If the exchange you got your crypto from has a staking program, you can stake directly on the exchange.
However, if the exchange doesn’t have a staking program, you will have to move your crypto to your blockchain wallet. You can get a software or hardware wallet if you don’t have a wallet.
Click on the type of cryptocurrency you want to deposit inside the wallet.
- Next is to join a staking pool- With a staking pool, stakers have the chance to earn block rewards. They earn these rewards by mutual sharing of their resources. Each pool has an administrator that sees to the work of the validators, ensuring that things go smoothly. The rewards earned are usually shared between the delegators and validators. So before joining a staking pool, look out for these qualities.
- Do they have a reliable server?- if the server of your staking pool is low, you might not be able to earn rewards. So choose a 100% reliable server.
- Minimal fees– as expected, most staking pools will take a small cut from your staking rewards. However, these fees shouldn’t be so high. The most common you will find is from 2-5%.
- Go for mid-size pools – nothing should be in excess. Small pools offer large rewards because the number of people sharing the rewards is few. However, they are not often chosen to validate blocks. So if you go for a small pool, you might not become a validator. Another downside to very small pools is that they can fail. Large pools can become oversaturated. So it is best to go for a moderate-sized pool.
How can I start staking?
We have already discussed how you can earn money from staking. Next is how you can start staking. There are no restrictions; anyone who wants to stake can participate there is no restriction. The first thing you need to do is have good technical knowledge and computer. Ensure that you can perform validations day and night with your computer without having to worry about downtime.
Again, you will need to make a minimum investment. This varies with different cryptocurrencies. If you choose this level of participation, you have to be careful as any form of downtime can cause your stake as a validator to be slashed.
Another option is to participate via an exchange. This has been treated above. Participating via an exchange enables you to stake without being in charge of operating your validator hardware.
When should I stake crypto?
What is the use of having excess crypto in your account when you can stake it to earn a reward? If you have crypto, you don’t have plans of train goon. Then it is only wise of you to stake it. You will not do much; you have to stake it and start earning more crypto.
If you do not have any crypto that allows staking, you can research and choose the one to stake it. While making this decision, try to ensure that the cryptocurrency you select is a good investment. If you don’t believe that a particular cryptocurrency is a good investment, there is no need to stake it even if they allow staking.
Having a good knowledge of staking now, you can start researching the best crypto to stake with. This will enable you to join the host of crypto investors already benefiting from it.
What is the Difference between Crypto staking and Crypto Mining?
Is there a difference between mining and staking crypto? Both crypto staking and mining use a consensus mechanism. They both function to confirm the legitimacy of transactions. However, crypto staking uses proof of stake, while mining uses proof of work.
What is Mining?
In mining, miners earn by solving cryptographic puzzles. The person that solves the cryptographic puzzle first gets to earn the reward, so miners are always in competition. Any miner that solves first will have the opportunity to verify the newest transaction block added to the blockchain.
Unlike crypto staking, mining uses a lot of computing power and energy.
You will start earning enough rewards once you research how to stake and when to stake. Most people stake without earning rewards because they do the wrong things. If you must invest your money in crypto staking, then you should try to do extensive research. Crypto staking allows you to earn additional rewards without spending much energy.