HomeEconomyEverything you must know about cryptocurrency staking

Everything you must know about cryptocurrency staking

Crypto staking is a welcome trend initiated by the advent of Proof-of-Stake (PoS) consensus mechanism in blockchain networks. Ironically,  Bitcoin, the crypto king, is not a part of staking given its PoW network- but the majority of crypto coins today allow crypto staking. Staking, essentially, is a process of verifying and validating a new batch of transaction blocks before they are conjoined with the existing chain of the overall blockchain network. A PoS blockchain network needs stakers to stake their coins to complete the verification process. In return, stakers receive the opportunity to earn decent passive income. Read more about crypto to buy now

Are you aspiring to sign up with crypto staking to expand your income portfolio? That’s smart no doubt- but before you proceed, make sure to amp up your know-how on crypto staking to ensure informed staking decisions.

What and how of crypto staking

As mentioned previously, crypto staking is a validation process used by PoS crypto blockchain networks to verify transaction data recorded on new blocks. A blockchain network needs to verify the authenticity of every block before it is added to its existing chain.

Difference with mining

The traditional Proof-of-Work (PoW)-based blockchain networks verify new blocks through a process called mining. Though crypto staking and mining are driven by the same purpose yet there is a sharp difference in how these two are executed.

For mining, miners have to solve complex mathematical puzzles or equations to verify a new block. The first miner to come up with the right answer is rewarded with new coins. This is how Bitcoin (and other PoW) coins are generated and brought to circulation.

Read more: Tips to maximize your crypto profits

On the other hand, crypto staking involves pledging of a sum of crypto tokens. The PoS blockchain needs these pledged tokens to forge up a fresh block. Who offers the coins for crypto staking? Well, these are token holders who are looking for a passive income from crypt staking. As blockchain platforms take staked coins from stakers, these portals reward the latter with new coins. And, that’s how a PoS block is verified and new PoS coins come into circulation.

Compared to mining, crypto staking uses less energy for executing the validation process. In other words, staking is less energy-intensive and hence more eco-friendly in comparison to mining.

Number of coins to stake

Well, some tokens can demand a high entry point. For example, you will need to pledge at least 32 ETH for Ethereum staking. On the other hand, some coins, like Algorand, only ask for 1 ALGO for crypto staking. Currently, ALGO price is less than $1 – so, that’s a low entry point.

Crypto staking platforms

You can directly participate as a potential validator in a PoS blockchain for crypto staking. But that would mean you would have to invest in developing a staking infrastructure.

A smart, simpler, and more economical option is to look for crypto staking platforms. The most popular ones are cryptocurrency exchanges. Then, if you want a low entry point, you can join the staking pools. Staking pools deploy the cumulative staking resources of multiple stakers for crypto staking.

Other options are hardware wallets. Yes, some hardware wallets do offer staking facilities. Then, there are DeFi lending portals that are now offering staking provisions- and that too with the promise of higher APY than exchanges.

Staking fees

Staking platforms generally charge staking fees for executing the staking activity on your behalf. However, some of the leading exchanges do not charge staking fees at all. So, try to find a staking platform that does not charge staking fees.

More coins translate to higher chances

It all depends on the blockchain network as to whom to select for the status of validator in a crypto staking process. The validator is chosen randomly. But, the volume of coins pledged plays a decisive role in pumping up your chances in “validator” selection. Stakers who offer a large amount of coins for staking generally hold better chances of being chosen as a validator.

More coins also imply bigger crypto staking rewards.

Staking period

The staking period is the tenure that the blockchain needs to complete a batch of crypto staking to verify one set of fresh blocks. Stakers must know that their pledged coins will stay locked-in throughout the staking period and they cannot withdraw (either partially or completely) the pledged coins during that period.

The crypto staking period is not the same for all tokens, nor is it the same on all crypto staking platforms. Some crypto staking platforms might allow you to choose between various levels of staking periods, as per your convenience.

Then, there are crypto staking platforms that also offer flexible staking, added to locked-in staking. In flexible staking, you will have the freedom to take out the staked coins if needed, before you complete the whole staking period.

Staking rewards

The new coins that are rewarded to validators for helping a blockchain network with staking are called  crypto staking rewards. There is no definite amount for staking rewards- the range of reward varies from one token to another. The volume of reward is also influenced by the crypto staking platform you sign up for.

On an average, a crypto staker can expect to receive something around 10-12% crypto staking reward APY (Annual Percentage Yield). Most of the blue-chip coins offer something like 4-10% staking reward on an average. Some leading altcoins, like Polkadot, can even offer up to 14% APY on staking reward. Some DeFi platform coins provide up to, say, 75% APY.

The newer altcoins might surprise you with even 100% – 1000% APY. But, these altcoins are not exactly reliable as they can plummet anytime, thereby rendering you with almost worthless coins despite their rocket APY.

Another thing to be mentioned here- higher locked-in period especially offers bigger crypto staking rewards. If you go for flexible crypto staking, you will receive less APY.

You should also know that you will get less reward if you join a pool as staking pools distribute the rewards among participating stakers.

Ethereum is one of the most promising coins for crypto staking in the coming years. Other good options for staking are Cardano, Solana, Decentraland, Polkadot, Avalanche, and so on.

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