For some people earning money can be a nightmare. Okay! Let’s keep things straightforward. There are thousands of ways to earn passive income. Yes, you’ve heard it right. Today let’s discuss one of the popular ways to make money with crypto staking.
If you’re a cryptocurrency trader or looking to invest in cryptocurrency then Crypto Staking is the best way for you. There are few crypto’s that are offering better interest rates. Before you dive, you need to understand how cryptocurrency staking works.
Let’s start with the concept of crypto staking.
If you’re a cryptocurrency investor, you might have heard about staking or proof-of-stake several times. Staking is an effective approach most cryptocurrencies verify the transaction. Also, it enables investors to earn few rewards on their crypto holdings. Investors can earn around 5% to 20% every year on the total amount of cryptocurrencies they stake.
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Definition of crypto staking
Crypto staking is the process that is commonly used to verify every transaction on the blockchain. It includes committing crypto holdings in order to support the network and confirm every transaction. Most investors are earning passive income through staking on their crypto holdings.
If the cryptocurrency you’re holding allow staking the crypto, you can stake and earn rewards as passive income. This process happens through the staking pool. In general, you can assume crypto staking as earning interest on a savings account. You can earn interest between 5% to 20% every year on the total amount of the cryptocurrencies you stake.
There might be a question running in your head, what do investors earn rewards? The answer is straightforward. The blockchain network will keep your crypto holding in order to work. It means they can use the “proof-of-stake” consensus mechanism to ensure every transaction is safe and secured. Few cryptocurrencies that allow staking are Ether, Solana, Polkadot, Cardana and more.
How does staking in cryptocurrency work?
With crypto coins that use the “proof-of-stake” consensus model, staking is the process of how new transactions are being added to the blockchain network.
At the initial step, investors will pledge a few coins to the crypto protocol. Now, the protocol will choose a genuine investor to confirm the block of the transaction. Many investors pledge more tokens because when they pledge maximum coins, they are more likely to choose as the validator by the protocol.
Whenever a new block is added to the blockchain, new tokens are minted, distributed as the staking rewards to a particular block’s validator. With respect to the blockchain, rewards can vary.
Want to stake and earn rewards? Yes! You should own crypto’s that allows proof-of-stake mechanism. Later, you can select the amount that you would like to stake. You can perform staking through popular crypto exchange platforms. All your tokens will be under your control while staking the coins. You’re just keeping those staked tokens to work. Later, you can unstake the coins if you’re planning to trade those coins. Keep a note, the unstaking process cannot happen immediately.
Not every cryptocurrency offers a stake. The staking concept is available with crypto that often uses the “proof-of-stake” consensus mechanism. Most investors use this mechanism while adding new blocks to the blockchain. But, the only problem associated with the proof-of-work model is that it needs maximum computing power. It means staking can consume energy. The popular coin Bitcoin has encountered several environmental concerns. Staking crypto can be a scalable way to handle multiple transactions.
What is meant by the Proof of Stake mechanism?
The idea behind the invention of the proof of stake mechanism is to improve speed and lower the fees. It’s no surprise that the proof-of-stake mechanism will definitely reduce the overall cost and also miners don’t need to stir through mathematical calculations, this is a highly energy-intensive method. Instead, all the transactions are verified and validated by the users who are involved in the blockchain network via staking.
The staking process works similar to mining. As mentioned earlier, during the staking process, a few network users will be selected in order to add the new blocks to the blockchain. In return, network participants will be rewarded with cryptos. Keep a note, the implementation may vary depending on the project. But in reality, network participants will keep their tokens or coins on the line. When participants add more tokens, there will be high chances for them to add the new block and gain reward in exchange. All the staked tokens are considered as proof of the new transaction that has been added by the network participant to the blockchain.
Blockchain networks will choose the validators according to the staking size and the time duration they have held it. As per analysis, most of the investors are rewarded with the proof-of-stake mechanism. There might be times when the transactions that are added as the new block can be discovered as invalid. At that moment, an amount of the participant stake will be burned by a blockchain network. This process is called a “slashing event”.
Popular advantages of crypto staking
Hope you’ve understood what is staking and how it works. Now let’s discuss the advantages of crypto staking.
- Cryptocurrency staking is one of the popular ways to earn interest on crypto holdings. You can make money through crypto mining, but you need equipment. For crypto staking, you don’t require any equipment. Sounds amazing! Without using any equipment, you can earn money.
- With crypto staking, you’re helping the blockchain network. On the other hand, you’re maintaining the efficiency and security of the network.
- When compared to crypto mining, crypto staking is environmentally friendly.
- The key advantage of the crypto staking process is that investors and traders can earn cryptocurrencies. Also, interest rates will be more generous. According to research, crypto staking participants are earning around 15% to 20% every year.
- For all the new and experienced traders, cryptocurrency staking can be a profitable approach to investing money. All you need to do is use the “proof-of-stake” mechanism to earn more cryptos.
- Cryptostaking is an effective approach to providing immense support to the blockchain network that you have already invested in. Everything works smoothly, as these cryptos depend on the participants to verify every new transaction.
What are the types of cryptocurrency staking?
If you’re a newbie to the crypto market, you might be unaware of the different types of crypto staking available. Generally, there are two types of crypto staking in existence. It includes
- PoS (Proof-of-Stake)
- DPoS (Delegated Proof of Stake)
Proof-of-Stake consensus mechanism is making the blockchain network efficient and secured. As PoS algorithms avoid the computational mining procedure that is already inherent in the “Proof-of-work” protocols. In the proof-of-stake, it freezes the stakeholder tokens for a time period to perform validation that is done across the blockchain network.
DPoS is a popular type of cryptocurrency staking. In this scenario, a delegate will be selected by the stakeholder. They will be assigned as validators. Sometimes, validators are also called block producers. The validator needs to validate the transaction carefully and add the new block to the blockchain. In case, if the validator confirms the fraud transaction, the penalty is imposed.
What are the available crypto staking rewards?
- Earning a portion of the transaction fee through delegated proof-of-stake. It means participants apply to become the delegated proof-of-stake (DPoS) and earn transaction fees.
- Earning a percentage of the coin as a reward in order to stake.
- Holding the transaction fee for the staking process on an exchange.
Why is cryptocurrency staking is trending?
It is an open fact that crypto mining can be a daunting process. As it requires multiple resources to complete the process. Also, mining can be harder than anyone can think. Many new investors considered crypto staking as a good alternative. This is an excellent way to diversify their assets and get an opportunity to reduce the transaction charges on the blockchain. For a couple of years, the exchanges have introduced amazing investment tools to make the process easy for the network participants.
Conclusion
Crypto staking is an effective way of freezing crypto holding to earn rewards or interest. Also, it’s another way to ensure security, effectiveness and safety to blockchains. In exchange, participants will receive incentives as rewards. The incentives can be transaction fees. No resources are required to perform crypto staking. The process is completely dependent on the “Proof-of-Stake Consensus Algorithm”. The validators will be selected randomly, the selected participants will validate the transaction and add the new block to the blockchain.
