A Beginner’s Guide to Cryptocurrency Staking – What You Need To Know
Are you a rookie crypto investor? Are you wondering how you can make passive income in the crypto world? There are many ways of earning rewards and interests and maximizing your income in the crypto world, including lending, mining, staking, etc.
Crypto mining, for instance, introduced in 2009, was the first way of earning crypto rewards. Mining participants are supposed to solve complex computations to get a chance at validating transactions and releasing new blocks. However, mining has proven to be flawed over the years, especially increasing the risks of 51% attacks and the enormous electricity costs.
A new, better way of introducing new blocks, staking, was introduced in the crypto world. But what is staking, how does it work, what are the benefits of staking? Keep reading to find out more.
What is Crypto Staking?
The crypto staking concept was first pioneered in 2012, with the launch of a crypto coin dubbed Peercoin by Sunny King and Scott Nadal.
Initially, crypto platforms were using proof of work consensus, dubbed mining, to release new blocks. Bitcoin is up to date, majoring on the POW consensus, but the consensus faces many risks.
Proof of stake (POS) was introduced to solve all the troubles clouding the POW algorithms. Recently, POS has been growing and getting wider adoption with many coins, including the latest Ethereum 2.0 launching using proof of stake systems.
Staking is a consensus algorithm that provides new blockchain blocks, leading to new coins’ release.
How Does POS Crypto Staking Work?
The staking consensus follows several stages, all vital for completing new blocks and releasing new coins. Staking involves validators locking up their coins and participating in creating blocks.
This process often depends on the value of a validator’s stake, i.e., the validator with a higher stake will always get the first chance of validating the next transaction. Therefore, validators are not selected based on some computational work as in POS; rather, they value their stake.
Many platforms prefer having a single token, but some choose to have a dual token system, with the rewards being paid using the second coin.
In staking, an individual only needs to store some amount of a particular currency in a wallet and await rewards depending on their participation in completing some functions. Additionally, there are staking pools designed for the sole purpose of staking and providing rewards.
The following guide will help you to stake;
- The first step is primarily choosing a coin to stake from the world of coins to stake.
- Find the best wallet to store, hold, or stake your coins.
- Check the minimum staking requirement. Different minimums are depending on the coins staked. Therefore see the minimum requirement of the selected coin.
- It’s a principal requirement in many staking platforms to ensure your system is connected 24/7. As such, you need to choose hardware that will always be on and have good internet access.
- Immediately after the wallet is ready to go, you will start the staking process and always connect to the internet. Since the platforms are autonomous, you need to relax and, from time to time, check your node to ensure it’s working smoothly.
Benefits and Drawbacks of Crypto Staking
Crypto staking is full of advantages. Among them is that it allows users to generate high passive incomes at cheaper costs. In staking, you don’t need complex, expensive hardware.
Moreover, crypto staking is cheaper, and there are no barriers to entry, something common in POW consensus blockchains. The systems are highly energy efficient.
Depending on the amount of stake and the length of stake, the user can make supernormal incomes.
There is one certain drawback of the POS staking coins. Most of them are designed for the sole purpose of staking, and therefore they do not have real-world use cases.
Best Staking Coins
There are dozens of staking coins in the crypto world, with some of them providing some of the best results. Among the coins listed below are some that have existed for months or even several years.
Here are some of the best staking coins that will guarantee you a good return on investment;
- Ethereum 2.0 with a reward rate of 5% to 17%
- Tezos with an interest rate reward of 6%
- Dash has an interest rate of 7%
- Cosmos with a return rate of 8%
- PIVX has a 4.8% return rate
Best Crypto Staking platforms
There are many crypto staking platforms, but here is a shortlist of some of the best crypto staking platforms;
Although the crypto world launched leveraging proof of work algorithms, the technologies advanced, and most new platforms are leveraging proof of stake algorithms. In proof of stake, the validators have to stake some amount of a particular crypto coin and participate in the validation of transaction and release of blocks, all dependent on the stake’s value.
Staking is an easy process that only involves selecting coins, choosing the right wallet, finding the best wallet, checking the minimum staking requirements, and staking. Staking is full of benefits that include being cheap with a fairly easy grasp of the concept. The write up has also highlighted some of the best staking coins and staking platforms for investors. As an investor, it’s up to you to choose the coin that best fits your profit needs.