Coming in as a newbie in the crypto ecosystem, as a way to get profit, you may think of ways like mining or even purchasing crypto outrightly. However, another way may be crypto staking.
While staking coins is a relatively new addition to the financial lexicon, it is vital for those interested in crypto investing to understand what it is. It is also vital to know how it works and what crypto it can be used to obtain.
This article will run through crypto staking from the basics.
What is Staking in Crypto?
Crypto staking constitutes the process of locking up crypto holdings as a way to obtain rewards or earn interest. Staking allows crypto holders to put their digital assets to work and earn passive income without the need to sell them.
You can compare staking to putting your money in a high-yield savings account. When you deposit your funds in a savings account, the bank takes that money and lends it to others. To reward you for the money locked up with the bank, you receive a portion of the interest earned from lending- albeit a meagre portion.
Similarly, when you stake your digital assets, you lock up the coins to participate in running the blockchain and maintaining its security. In exchange for that, you earn rewards calculated in percentage yields. These returns are typically much higher than any interest rate offered by banks.
How Crypto Staking Works
For you as an investor, crypto staking is a passive activity. In other words, when you stake their holdings (or leave them in your wallet), the network can use them to forge new blocks on the blockchain. Besides, the more you invest in crypto, the better odds your holdings will be selected.
Information is written into the new block, and your holdings are sued to validate it. As such, by allowing the holdings to be used as validators, the network rewards the staker.
Advantages of Crypto Staking
It is less energy-intensive
It is easier to earn rewards
There is no special requirement required.
Disadvantages of Crypto Staking
There is the issue of questionable security as PoS is a relatively new mechanism compared to PoW.
PoS networks can be controlled by those who hold the most tokens.
Increased centralization.
Popular Crypto Staking Coins
Cosmos (ATOM)
Cardano (ADA)
Polkadot (DOT)
How Profitable is Crypto Staking?
Staking is a good option for investors interested in generating yields on their long-term investments and is not bothered about short-term fluctuations in price. Anyone can earn crypto by staking cryptocurrency. But unless someone sits on a massive stash of proof-of-stake coins, they will not likely get rich from staking.
Staking rewards are similar to stock dividend payouts in that both are a form of passive income. They do not require a user to do anything other than hold the right assets in the right place for a given time. The longer a user stakes their coins, the more significant profit potential there will be, thanks to compound interest.
Comments