What is crypto staking?
Whether or not you are new to cryptocurrency, you have probable come across the expression (staking) and are now want to know what it is and how it works.
Here is a short guide for beginners and novices. we will use those terms interchangeably.
Crypto staking is a way to gain negative rewards for cryptocurrency that you hold inside of a wallet or platform, all that helping to secure that cryptocurrency network and assist it in reaching assent through a mechanism called Proof-of-Stake (PoS). In simple and relative terms: think of it like gaining interest on money in your savings account with the bank.
How does crypto staking work?
Staking crypto is very easy. It’s created that way to be easy. The people purpose these PoS systems want you to stake your currencies and so they have to make it easy and user friendly.
First of all, you buy a cryptocurrency that uses a PoS assent mechanism and offers the option of staking. Two such cryptocurrencies are Binance Coin (BNB) and NEAR Protocol (Near). These are two of the more popular cryptocurrencies that offer staking.
Tip: there are several ways for you to find a cryptocurrency that uses PoS and offers staking. You can do a simple search or you can use tools like StakingRewards.com which displays a list of crypto staking assets.
Next, you download the related wallet or third party wallet for that specific cryptocurrency, follow the Instructions provided to set it up and get it running. You will be want to bring the cryptocurrency that you bought or gained previously into this wallet address to be able to stake it.
Finally, there will be a two or three more step process whereby you will tell the wallet how much of that cryptocurrency you want to stake, and it will ask you to ‘envoy’ that amount to something called a validator, eventually, you will be asked to confirm and input your password.
This process varies from crypto to crypto and lean on if you decide to stake your crypto with the project’s wallet, a third-party wallet, or an platform like Du Crypto.
How do you make profits off staking?
PoS cryptocurrency networks are secured and achieve unanimity over the act of staking. If there is no one interested to stake their crypto, the network will not achieve agreement, the network will not be secured properly, and the network is, thus, vulnerable to attack and fail.
To beat this, cryptocurrency projects offer an stimulant to anyone want to stake their coins by way of a reward. This reward is the way you make money through crypto staking. The reward is mostly more of the same token. The rewards are usually divide with a fixed or variable percentage that can be calculated as Annual Percentage Yield (APY).
The coins that you commissioner go into a sweepstakes pool along with a pack of other people’s tokens, and whenever the computer network selects one of the tokens in your pool, all of your pool is rewarded with more tokens as a reward.
Note: the purpose for many people ‘pooling’ their tokens is so that there is a major chance and higher likelihood of the pool being selected and in turn rewarded. it like by lottery or raffle tickets, the more tickets you have the further chances you have of winning. In this way, the cryptocurrency network can reasonably distribute new tokens, achieve assent and secure its network. This is a win/win for all participatory.
What are the risks of cryptocurrency staking?
There are a little risks with staking. The headmost 3 risks are as follows:
- The Lock periods: most cryptocurrency projects that offer staking usually have a ‘lock-down’ period. This means that you need to stake your crypto for a specific time period for you to gain rewards. The lock period varies from project to project and can be throughout from a slight days to 30 days or more. While your crypto is locked You can not access it and thus if you wanted to access your crypto to sell it, You won’t be able to do that.
- The market: If you are gain 10% annually (APY) on your staked crypto but that specific currency falls 20% in price, you may have heaped up more of the currency, but it value may be less at the end of the day.
- Rewards paying table: This is like to the the lock period. Cryptocurrency wallets and platforms that pay rewards have a reward pay table. This again varies from project to project and wallet to wallet and can be up to 30 days or more.
When you should look for staking?
You should consider staking if you are looking to generate a financial return or gain more tokens, want to support a crypto project, and are ok with the risks involved.
Staking works fully for holders whom investment strategy is to basic buy and hold for the long to mid term. An section of this ‘buy and hold’ method is referred to as Dollar Cost Average (DCA). This is where the holder or investor will orderly, once per month, for example, buy a particular amount of that specific cryptocurrency and hold to it for the long term with the idea that their dollar cost investment amount will average out over time and decrease the chances of only buying when the price is high.
The DCA method joint with staking could be a good method to look for the beginner.