The crypto industry is undoubtedly vibrant at the moment. Digital assets are changing the world and the way we see things like money and finance. Even with the lack of regulation and the fact that people might still not necessarily know what they are, the crypto space is here to stay.
Interestingly, several concepts are even threatening to overtake the industry and become more prominent than others. Staking is one such concept, and 2021 has been the year of staking for sure.
Given that even traditional cryptocurrencies aren’t so clear to many, it’s easy to see the difficulty in understanding what staking is. However, it isn’t so difficult.
Put simply, staking is the process of storing funds in a cryptocurrency in order to get the chance to validate transactions on a blockchain. The feature is available to cryptocurrencies that run on the proof of stake (PoS) blockchain consensus algorithm, hence the name. These blockchains themselves are now becoming the industry standard, with most cryptocurrencies and blockchain that are launching preferring to be on the PoS algorithm.
How Cryptocurrency Staking Works
To understand staking, it’s important to know how these PoS blockchains themselves work. Traditionally, blockchains like Bitcoin run on the Proof of Work (PoW) block consensus algorithm. These chains use the mining process to validate transactions and add them to their chains.
The only problem here is that mining is a bit capital and resource-intensive. This means that you need to do a great deal to mine effectively. If you’re looking to mine Bitcoin alone, you’ll need to point up at least $5,000 to run a proper mining outfit.
So, PoS came along. With PoS, network participants will have to pledge their coins to a crypto blockchain or protocol. The protocol eventually chooses validators at random to ascertain these transactions. So, there’s no intensive mining process or resource waste - just commit your funds, and hope that you eventually get chosen to be the network validator when the time comes.
Whenever a blockchain is added to the blockchain, the cryptocurrency gets new units minted and are distributed to the chosen validator. The rewards are usually the same asset that you stake, although some blockchains use different assets as rewards to their block validators.
To stake crypto, you will need to own the cryptocurrency itself. Then, you can select the number of coins to stake in the network. The higher the number of coins you’re staking, the higher your chances of being selected as the validator. So, the more your chances of making money.
Today, PoS is the standard. Some of the most valuable coins - including Cardano, Solana, and much more - are PoS coins. Ethereum, the second most valuable coin, is also transitioning into the PoS mechanism.
What Makes Crypto Staking So Beneficial?
This year has seen a massive jump in PoS coins and the popularity of PoS blockchains. All of this is thanks primarily to staking. So, what about it makes people always want people to participate?
Impressive Returns
Today, several staking services allow you to get really great returns on your investment. Most PoS blockchains have their official staking services, while others are run by companies that want to support these networks. Whatever it is, the opportunity to get a passive income is undoubtedly attractive.
In some cases, you could even find staking services that offer fixed rewards. Slavi, an up-and-coming crypto project, recently launched with a fixed 500 percent Annual Percentage Rate (APR) of return. The service offers a fixed return, and customers have the opportunity to increase their wealth significantly.
The opportunity to make money is definitely alluring to investors these days. Given how easy it is for people to stake, this service has managed to get all the attention.
Convenience
Staking is a much better way of mining than, well, mining itself. With staking, you will be able to participate in the development of a network and validate transactions on your own. You don’t need to run a node on the clock, and you don’t even have to solve complex calculations.
All you do is commit your funds and you can rest assured that you could eventually be selected. If you’re lucky enough to get selected, you’re making money.
Accessibility
One of the best things about taking is that your cash remains in your hands. Even if you stake cryptocurrencies, you’re not losing them. You’re letting your money work for you, even while it grows.
So, if you stake 2 ETH at $4,100 today and leave your coins in a month, the coin’s price could increase in that time and you eventually get your coins when the staking period is over. If you do get selected while you stake, then you get your coins - whose values have increased - as well as the rewards for block validation.
No Specific Period
Most staking services don’t have a minimum staking period. This means that you can stake and unstake as you would like. At the end of the day, the point is for you to get selected as a network validator. If you need to pull your money from the blockchain network at any period in time, you’re more than free to do so.
But, it’s worth noting that some services will put a minimum staking period. If you’re not comfortable with that, you should be able to find other networks that allow you to enter and exit the staking mechanism as you like.