If you are a cryptocurrency investor, staking is a term you will hear often. Staking, like many things in cryptocurrencies, can be a complex or simple concept, depending on how many levels of understanding you want to explore. It is the process by which various cryptocurrencies validate their transactions. The main lesson for many traders and investors is that staking is a method of collecting rewards for holding certain cryptocurrencies. But even if you just want to earn some rewards from staking, it’s always helpful to know the concept better to understand how and why things work the way they do.
What is cessation and how does it work?
While many people make money from buying or selling cryptocurrencies, another group of investors make a profit by putting out rewards. The return of strike yields is similar to a dividend or interest on a savings account, but with a much higher risk.
Let’s explain further. You can stake a portion of your cryptocurrency holdings and earn a percentage reward over time if the cryptocurrency you have allows it. This is usually done through a “staking pool,” which, as we mentioned earlier, is similar to the interest-bearing savings account.
Because the blockchain puts your cryptocurrency to work, it generates incentives as it is deployed. Staking-enabled cryptocurrencies use the “proof-of-stake” methodology to ensure that all transactions are validated and secured without the need for a bank or payment processor.
Which cryptocurrencies allow staking?
Staking is available with cryptocurrencies that process payments using the “proof-of-stake” model. It is a more energy-efficient alternative to the original “proof-of-work” model, which requires mining equipment to solve math problems using computing power. Bitcoin, for example, does not allow staking, as it uses the “proof-of-work” model.
Ethereum (via the ETH2 upgrade), Cardano, Polkadot, and Solana are some of the cryptocurrencies that enable staking.
How to start staking?
Many cryptocurrency exchanges offer strike rewards, at least for a few coins. So, using an exchange is the easiest method to get started trading cryptocurrency. If you bought your coins on an exchange, it is easy to notify the exchange that you want to participate in the staking program. The rewards are then immediately sent to your account according to the schedule provided by the exchange.
Some of the staking platforms to consider include Binance, Coinbase, AQRU, Crypto.com, Kraken, and Voyager.
What are the risks of hacking?
While it may seem that participating in cryptocurrency staking will earn you more money, be aware that there are significant risks involved.
The biggest danger is the volatility of cryptocurrency. For example, while a return of 30 percent may seem attractive, if the price of the cryptocurrency falls by 50 percent or more, you will end up losing money.
Second, be skeptical of cryptocurrency platforms that advertise huge payouts. Before getting involved with any platform, do your homework and vet it thoroughly.
Some staking platforms may also want you to store your cryptocurrency for a longer period of time. You cannot use that cryptocurrency at that time. Think about that too.
Finally, hacking can be another potential risk that can affect a platform or a cryptocurrency.
Staking can be a great way to monetize your cryptocurrency. However, in addition to the pros, consider the cons before jumping into the strike wagon.