If you’re a crypto investor, staking is a concept you’ll hear about often. Staking can be a great way to use your crypto to generate passive income, especially because some cryptocurrencies offer high-interest rates for staking. Before you get started, it’s essential to understand how crypto staking works fully. Follow this article to know “What is Staking in crypto? Here’s what you need to know about staking”.
What is staking in crypto?
What is Staking? Staking is holding an amount of cryptocurrency in the digital wallet of a Blockchain project for a certain time to receive rewards. The reward that investors will receive depends on the number of coins and the time of coin stake.
Staking income is offered in interest paid to the holder, while rates vary from one network to the other depending on several factors, including supply and demand dynamics.
What is Proof of Stake?
Proof of Stake is a consensus mechanism that has emerged — with the idea of increasing speed and efficiency while lowering fees. A significant way Proof of Stake reduces costs is by not requiring all those miners to churn through math problems, which is an energy-intensive process. Instead, transactions are validated by people who are invested in the blockchain via staking.
Staking serves a similar function to mining in that it’s the process by which a network participant gets selected to add the latest batch of transactions to the blockchain and earn some crypto in exchange.
The exact implementations vary from project to project, but in essence, users put their tokens on the line for a chance to add a new block onto the blockchain in exchange for a reward. Their staked tokens act as a guarantee of the legitimacy of any new transaction they add to the blockchain.
The network chooses validators based on the size of their stake and the length of time they’ve held it. So the most invested participants are rewarded. If transactions in a new block are discovered to be invalid, users can have a certain amount of their stake burned by the network.
The process of staking starts by buying a certain number of tokens in the network. It is important to note that staking can only be done in a network that supports a PoS protocol. After the purchase is completed, the user has to lock the holdings by following the procedure indicated by the developers of each particular network. In most cases, you can perform a staking transaction in a few minutes by following your wallet’s instructions.
In most cases, the higher the number of staked coins, the higher the number of transactions a given node will be assigned to validate. Nodes are ranked, in most cases, based on the number of tokens they hold.
As a result, the nodes that hold the most significant number of tokens will often receive higher compensation, which is why staking pools have become so popular these days.
On the other hand, a user can stake tokens for a certain period – known as fixed staking. The more tokens you use for fixed staking, the more rewards you get. Some providers are also offering the possibility of entering a more flexible scheme in which the user can withdraw their tokens at any given point – known as flexible staking.
The rigid nature of fixed staking results in higher interest rates offered to the holder, while flexible staking offers less attractive terms.
Benefits of staking crypto
Here are the benefits of staking crypto:
- It’s an easy way to earn interest in your cryptocurrency holdings.
- Don’t need any equipment for crypto staking like you would for crypto mining.
- Help to maintain the security and efficiency of the blockchain.
- It’s more environmentally friendly than crypto mining.
The primary benefit of staking is earning more crypto, and interest rates can be very generous. In some cases, you can earn more than 10% or 20% per year. It’s potentially a very profitable way to invest your money. And, the only thing you need is crypto that uses the proof-of-stake model.
Risks of staking crypto
There are a few risks of staking crypto to know about:
- Crypto prices are volatile and can drop quickly. If your staked assets suffer a significant price drop, that could outweigh any interest you earn on them.
- Staking can require that you lock up your coins for a minimum amount of time. During that period, you’re unable to do anything with your staked assets, such as selling them.
- When you want to unstake your crypto, there may be an unstaking period of seven days or longer.
The most considerable risk you face with crypto staking is that the price goes down. Keep this in mind if you find cryptocurrencies offering highly high interest rates. Many smaller crypto projects do this to entice investors, but their prices often end up crashing.
How do I start staking?
Staking is generally open to anyone who wants to participate. That said, becoming a full validator can require a substantial minimum investment, technical knowledge, and a dedicated computer that can perform validations day or night without downtime. Participating on this level comes with security considerations and is a grave obligation, as downtime can cause a validator’s stake to become slashed.
But for the vast majority of participants, there’s a more straightforward way to participate. Via an exchange like GIG Exchange, you can contribute an amount you can afford to a staking pool. This lowers the barrier to entry and allows investors to start earning rewards without operating their own validator hardware. GIG Exchange is going to launch in October 2021.
Here are GIG’s shares about “What is Staking in crypto? Here’s what you need to know about staking”. Staking can be a good way for crypto investors to put their holdings to work, earning them interest and rewards. Plus, it can get you involved in the governance and validation side of blockchain networks, which may be something of interest to certain investors. Subscribe to GIG Dollar to stay up to date with the latest news on blockchain, cryptocurrency, digital asset investment, etc.
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