Staking cryptocurrency has become a popular way for people to make money without doing anything and help blockchain networks grow. By holding a certain amount of a specific cryptocurrency in a wallet and participating in the validation of transactions on the blockchain, stakers can be rewarded for their contributions to the network. But like any other investment, staking cryptocurrencies comes with risks and things to consider that you should think about before deciding whether or not to do it. In this post, we will examine the benefits and drawbacks of staking cryptocurrency to help you decide if it is right for you. (Also Read: What Crypto Can I Mine on my Phone?)
What is Crypto Staking?
Staking cryptocurrencies is like “minting” new currencies because it verifies transactions and adds blocks to the network. It’s important to remember that not all cryptocurrencies support staking, and the specific requirements and rewards for staking can vary a lot depending on the cryptocurrency and the blockchain network.
To participate in staking, an individual typically needs to have a certain amount of the specific cryptocurrency, as well as a wallet that supports staking. Staking and getting rewards can be a bit complicated, and the cryptocurrency that is staked needs to be maintained and kept an eye on to make sure that it stays valid and can still earn rewards.
How to Stake Crypto?
1. Opt for a coin that can be staked.
The option to stake cryptocurrency is not available in all digital currencies, so be sure to select one that does. Some popular staking cryptocurrencies include Tezos, Cosmos, and EOS.
2. Set up a staking-compatible wallet.
In order to stake your cryptocurrency, you will need to use a wallet that is specifically designed to support staking. Some options include Ledger, Trust Wallet, and MyCrypto.
3. Purchase the cryptocurrency that you intend to stake.
You must first purchase the cryptocurrency that you wish to stake through an exchange or other platform.
4. Transfer your cryptocurrency to your staking-compatible wallet.
Once you have purchased the cryptocurrency, you will need to transfer it to your staking-compatible wallet.
5. Enable staking in your wallet.
Each wallet will have its own specific process for enabling staking, so be sure to follow the instructions provided by your wallet provider.
6. Wait for the required “unlock time” to pass.
Many staking cryptocurrencies have a required “unlock time” before you can begin earning rewards. This is typically a set amount of time after the initial purchase or transfer of the cryptocurrency.
7. Start earning rewards.
Once the unlock time has passed and staking is enabled, you will begin earning rewards for your contribution to the blockchain network. The amount and frequency with which rewards are distributed will vary depending on the cryptocurrency and blockchain network.
What are the Pros and Cons of Staking Crypto?
Pros of staking crypto:
- Opportunity to earn a passive income: One of the main benefits of staking crypto is the ability to earn a passive income through the receipt of block rewards. When an individual stakes their cryptocurrency, they are effectively “locking” it up and using it to support the network by participating in the process of reaching consensus on the blockchain. Stakeholders can earn a passive income from their contributions to the network by getting a share of the block rewards.Depending on the cryptocurrency and blockchain network, the amount of rewards and how often they are given out will be different.
- Increased network security: Stakeholders can help increase network security by validating transactions on the blockchain.This is because the people who have a stake in the blockchain are essentially “vouching” for the transactions, which helps to keep the blockchain’s integrity.When a stakeholder confirms a transaction, it becomes much harder for an attacker to change or undo the transaction.
- Influence on the direction of a blockchain’s development: Many staking cryptocurrencies give stakers the ability to vote on protocol changes and governance decisions, which allows them to influence the direction of the blockchain’s development. Given that stakeholder votes can influence the network’s direction, this may be particularly crucial for blockchain networks run by decentralized autonomous organizations (DAO).
- Reduced risk of centralization: Staking can help reduce the risk of centralization on a blockchain network, as it requires individuals to hold a certain amount of a specific cryptocurrency in order to participate. This can help make sure that control of the network is not held by just a few big players, but by a larger group of people who have a stake in it.
- Potential for increased adoption: By participating in staking, individuals can help to increase the adoption and use of a specific cryptocurrency, which can lead to increased demand and value for the coin. This can make staking an attractive option for individuals who believe in the long-term potential of a specific cryptocurrency.
Cons of staking crypto:
- Risk of losing staked cryptocurrency: There is always the risk that the blockchain network could be attacked or experience a technical malfunction, which could result in the loss of the staked cryptocurrency. This could be due to a hack, a software bug, or other issues that could compromise the security of the network. It is important for stakers to carefully research the specific cryptocurrency and blockchain network that they are considering staking, and to understand the associated risks.
- Lower potential return on investment: The potential return on investment from staking cryptocurrency may be lower compared to other methods of earning a passive income, such as traditional investments or other cryptocurrency strategies. The returns from staking will depend on the specific cryptocurrency and the performance of the blockchain network, and there is no guarantee of any particular level of return.
- Requires significant upfront investment and ongoing maintenance: In order to participate in staking, an individual typically needs to have a significant amount of the specific cryptocurrency, as well as a wallet that supports staking. This can be a significant upfront investment, especially if the price of the cryptocurrency is high. Staking also requires ongoing maintenance and monitoring to ensure that the staked cryptocurrency remains valid and eligible for rewards. This may include keeping your wallet software up to date, monitoring the health of the blockchain network, and replacing any lost or stolen keys.
- Limited compatibility: Not all cryptocurrencies support staking, so individuals may be limited in their options for staking. Additionally, not all wallets support staking, so individuals may need to use a specific wallet in order to participate.
- Dependence on network performance: The rewards earned from staking will depend on the performance of the blockchain network, which can be affected by different factors such as the number of transactions being processed, the overall level of activity on the network, and the overall demand for the cryptocurrency. If the network experiences a downturn, it could impact the rewards earned by stakers.
Staking cryptocurrency can be a way to make passive income and change the way a blockchain network works, but it also comes with risks that should be carefully thought through before deciding to take part. Before making a decision, people should do a lot of research on the cryptocurrency they are staking and understand the risks and rewards that come with it.(Also Read: How to Buy Bitcoin with Visa Gift Card?)