Staking is a way of earning rewards for holding specific cryptocurrencies. The concept can seem a bit complicated at first, but it’s actually relatively simple if you understand how Staking works. Once you decide which cryptocurrency to invest in, you’ll stake your coins by sending them to what’s called an ‘address.’ This is a string of alphanumeric code that acts as the definitive location for your coins. You will then earn rewards for holding these coins in the form of newly created tokens or other forms of crypto-assets over time.
Don’t get confused with Staking or minting.
The process of Staking, or minting, is not too different from what occurs when you deposit money into a savings account that pays interest. In a nutshell, Staking refers to the process of earning “interest on your interest.” Staking rewards you for holding a certain amount of coins in your wallet or on an exchange. The
more coins you hold, the more you receive as an interest payment.
What is a staking reward? & How is it calculated?
The staking reward is the amount of tokens you will receive for holding a certain amount of coins in your wallet. Staking rewards are calculated by taking your current number of coins and multiplying it by the staking reward percentage listed on the individual coin’s website. Staking rewards are paid incrementally as you reach each tier, though there may be minimums required before you can claim some or all of a particular stake reward.
How does Staking work?
For rewards-oriented investors, staking cryptocurrency can be a great way to earn passive income from your holdings. There are currently three cryptocurrencies that allow staking: Tezos, Cosmos, and Ethereum (via the new ETH2 upgrade). The benefit of Staking is that you receive rewards for providing security for the blockchain (since you help verify all transactions using Proof of Stake). To stake a cryptocurrency, you must first set up a “staking wallet.” This is different than your normal crypto wallet, as it gives you access to the validator node that produces blocks in the blockchain and earns rewards based on how much of the blockchain you control. It’s also important to note that staking wallets are digital commodities — they contain digital assets, not physical property — therefore, they can be stolen or hacked just like any other type of digital good.
Proof of stake
Proof of Stake is a newer consensus mechanism that’s been gaining attraction and attempts to solve the issues with Proof of Work. Proof of Stake is observed as a more energy-efficient and faster alternative by reducing the need for miners to churn through math problems in order to add transactions to the blockchain while also reducing network fees. Instead, it relies on users who are literally invested in their tokens via Staking — meaning they have more skin in the game — to validate transactions as a way to earn rewards. The exact implementations vary in every project, but in essence, users put their tokens at risk by staking them against being able to validate new blocks and earn rewards as a result.
- Diversify your portfolio, and earn crypto rewards over time.
- The main advantage of Staking is that it helps keep the currency’s network secure in comparison to mining.
- Reduce the number of coins lost to burnt hard-drives
- It creates a form of crypto lending; it brings liquidity to the market
- Flexibility and ability to earn passive income
- Enjoy competitive returns, transparent reporting, and maximum peace of mind.
- It is cheaper than the POW system and uses less electricity.
How to initiate Staking?
Staking is a way to earn more with your cryptocurrency without having to trade it. In the case of Ethereum, anyone can participate in staking by joining and contributing to one of many staking pools. Staking is only economically viable when you have substantial amounts of cryptocurrency, but the return on investment can be substantial as well.
It can be done in two ways.
Staking with a wallet and staking pool: staking with a hardware wallet is similar to running a validator node on a computer. However, there is no risk of losing funds if your computer is damaged or compromised. Hardware wallets are also affordable, starting at about $60 USD. Staking through a particular Wallet generally involves more steps than hardware wallets: you must send your funds from the wallet to an address managed by the wallet, wait for the funds to fully confirm with some number of blocks, then enable staking on that address within the Wallet app. As mentioned above, it’s important to be aware that depending on the Ethereum network’s congestion level at any given time, transaction times may vary widely – sometimes taking hours or even days instead of minutes as expected on traditional blockchains.
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