The past 10 years have given popularity to cryptocurrencies. With the field’s potential to grow someone’s capital tremendously, the number of people interested in entering the field have grown too. However, as a newbie, what you must know is that there are also different ways to profit through cryptocurrency, not just by trading. One promising method is cryptocurrency staking.
What is staking crypto? Crypto staking is a way to passively earn from your assets. You have not maximized the opportunities for your investments to grow if you have not heard of this method yet. Learn it here in this article.
Defining Cryptocurrency Staking
Take this analogy: when you invest your money in a bank, you earn effortlessly by gaining periodic interests. This is very similar to what is staking crypto. The first idea that you have as a newbie cryptocurrency investor might be by relying to your asset’s appreciation value. But once you have saved enough capital, there is another opportunity that opens for you. By locking your funds in your crypto wallet, you can earn interest in the form of rewards. This is how crypto staking can give you passive earnings.
Not all digital money and platforms are can accommodate crypto staking. Certain crypto wallets and certain exchange platforms offer this service to their users. More of this later.
Proof-of-Work and Proof of-Stake
If banks give interest because they use your money as capital to other investments, what is in it for a cryptocurrency support that they give you rewards for your assets’ immobility? To simply put, they utilize your cryptocurrency to support the security and operations of a blockchain network instead of maintaining a highly demanding system.
For example, if you know how Bitcoin works, then you probably have an idea of what a Proof-of-Work (POW) mechanism is. Without the help of your locked-in investments, POWs are used to gather transactions into blocks, ultimately creating the blockchain where the whole cryptocurrency system rests. But the thing is, POW demands highly computational resources to support and maintain a decentralized consensus structure.
Here comes your immobile investment. An alternative framework uses Proof-of-Stake. The stake refers to the assets locked by investors. At certain intervals, the system will randomly assign an investor the right to validate the next block. This will help the whole system in maintaining a decentralized consensus structure. Higher locked assets will have a higher chance of being chosen and receive rewards.
What Coins Can You Stake?
Compared to before, the concept of what is crypto staking has been adapted by several exchanges and cryptocurrencies. However, you must know that not all cryptocurrencies are up for it. For those who do, interests are usually on an annual basis and rates differ from one crypto to another.
- Tezos @ ~7%
- ICON @ ~19%
- ZCoin @ ~14%
- PIVX @ ~9%
- NOW Token @ 25% maximum
- Komodo @ ~5%
- QTUM @ ~4%
- Decred @ ~9%
How Can you Stake?
There are general rules to follow to answer what is staking crypto and how can you earn from it. Refer to the mechanics below:
- Locked assets must reach a minimum amount.
- As mentioned earlier, higher value means higher probability to be chosen by the system.
- If the chosen investor successfully validates the block, then he/she will receive a reward.
- If a validator attempts to attack the system, he will lose part of his stake. Same goes with those who make double-signs.
You can do crypto staking through an exchange or through an individual staking investor. More on these two options below.
Exchange Crypto Staking
If you are a beginner and you want to experience what is crypto, staking, you might want to become a member of a large staking pool first. Do this through existing exchange platforms. Not all offers such service. However, the number of those who do has been generally increasing. Take a look at the following sample exchanges where you can do crypto staking:
- BlockFi
- Crypto.com
- ChageNOW
- Coinbase
- Binance
Note that most of these exchanges charge a small percentage from your profit. You will not be handling the pool’s private keys neither. However, they do make the whole process easier especially for those who want to avoid the hassle.
Individual Crypto Staking
If you want to go solo, you can make the arrangements yourself as an individual staking investor. Additional to the ones stated above, you must also be familiar to the rules below to do what is crypto staking outside a large pool:
- Your crypto wallet must be online 24/7.
- Your wallet must support cryptocurrency staking.
- A different minimum amount may be imposed by your wallet.
To make your crypto wallet online 24/7, you can set-up a local computer that is connected to the internet 24/7, get a VPS, or avail to a service that can do this for you. It must be emphasized as well that there are different rules per each blockchain. Those mentioned are the basic ones. It is advisable to research about the coin you would like to invest in for the specific mechanics. Learn more about staking crypto here!
Conclusion
If you want to move your assets to somewhere you can potentially gain passive income, you must really consider what is staking crypto. With this, you add another opportunity to generate money with minimal supervision just by staking. Do not forget that your locked-in assets will still be enjoying the potential to appreciate value at the same time. If you are simply ready to hold a chunk of capital, there is not much to lose if you make a staking arrangement.
If you are not confident enough about the ins and out of the staking set-up, join a staking pool first. But if you have the right equipment and are confident that you can already figure it out on your own, consider doing it individually. Individual staking investors do not have to pay the exchanges for transaction fees.