Staking in cryptocurrency is a way to put your coins to work and earn rewards on it.
If you’re a cryptocurrency investor, staking is an idea you’ll often hear about. Staking is the way many cryptocurrencies allow participants to earn rewards on their holdings.
But what is cryptocurrency staking? Staking in cryptocurrencies is a process that involves committing your crypto assets to support a blockchain network and confirm transactions.
It’s available with cryptocurrencies that use the proof-of-stake model to process payments. This is a more energy-efficient alternative to the original proof-of-work model. Proof of work requires mining devices that use computing power to solve mathematical equations.
Staking in cryptocurrency can be a great way to use your coins to generate passive income, especially because some cryptocurrencies offer high-interest rates for staking. Before you get started, it’s important to fully understand how cryptocurrency staking works.
How cryptocurrency staking works
With cryptocurrencies that use the proof-of-stake model, staking is how new transactions are added to the blockchain.
First, the participants pledge their coins to the cryptocurrency protocol. From those participants, the protocol chooses validators to confirm blocks of transactions. The more coins you pledge, the more likely you are to be chosen as a validator.
Every time a block is added to the blockchain, new cryptocurrency coins are minted and distributed as staking rewards to that block’s validator. In most cases, the rewards are the same type of cryptocurrency that participants are staking. However, some blockchains use a different type of cryptocurrency for rewards.
If you want to stake cryptocurrencies, you need to own coins that use the proof-of-stake model. Then you can choose the amount you want to stake. You can do this through many popular cryptocurrency exchanges.
Your coins are still in your possession when you stake them. You’re essentially putting those staked coins to work, and you’re free to un stake them later if you want to trade them. The unstacking process may not be immediate; with some cryptocurrencies, you’re required to stake coins for a minimum amount of time.
Staking in cryptocurrency isn’t an option with all types of coins. It’s only available with cryptocurrencies that use the proof-of-stake model.
Many cryptocurrencies use the proof-of-work model to add blocks to their blockchains. The problem with proof of work is that it requires considerable computing power. That has led to significant energy usage from cryptocurrencies that use proof of work.
Proof of stake, on the other hand, doesn’t require nearly as much energy. This also makes it a more scalable option that can handle greater numbers of transactions.
How to stake cryptocurrency
Staking cryptocurrency may seem a little confusing the first time around, but it’s a simple process once you get the hang of it. Here’s how to stake cryptocurrency step by step:
1. Buy a cryptocurrency that uses proof of stake.
As mentioned earlier, not all cryptocurrencies offer to stake. You need a cryptocurrency that validates transactions with proof of stake. Here are a few of the major cryptocurrencies you can stake and a little bit about each one:
- Ethereum was the first cryptocurrency with a programmable blockchain that developers can use to create apps. Ethereum started out using proof of work, but it’s transitioning to a proof-of-stake model.
- Cardano is an eco-friendly cryptocurrency. It was founded on peer-reviewed research and developed through evidence-based methods.
- Polkadot is a protocol that allows different blockchains to connect and work with one another.
- Solana is a blockchain designed for scalability since it offers fast transactions with low fees.
- CGA Coin is a cryptocurrency used for online casinos.
Start by learning more about any proof-of-stake cryptos that catch your eye, including how they work, their staking rewards, and the staking process with each one. Next, you can look for the crypto you want and buy it on cryptocurrency apps and exchanges.
2. Transfer your cryptocurrency to a blockchain wallet.
After you buy your cryptocurrency, it will be available in the exchange where you purchased it. Some exchanges have their own staking programs with select cryptocurrencies like CGA Coins in CGA Games. If that’s the case, you can just stake cryptocurrencies directly on the exchange.
Otherwise, you’ll need to move your funds to a blockchain wallet, also known as a cryptocurrency wallet. Wallets are considered the best way to safely store cryptocurrency like Explace Wallet. The fastest option here is to download a free software wallet, but there are also hardware wallets available for purchase.
When you have your wallet, choose the option to deposit crypto and then select the type of cryptocurrency you’re depositing. This will generate a wallet address. Go to your exchange account and choose the option to withdraw your crypto. Copy and paste that wallet address to transfer your crypto from your exchange account to your wallet.
3. Join a staking pool.
While staking can work differently depending on the cryptocurrency, most use staking pools. Crypto traders combine their funds in these staking pools to have a better chance of earning staking rewards.
There are a few things to look for in staking pools::
- Reliability: You don’t earn rewards while your staking pool’s servers are down. Pick one that has an uptime as close to 100% as possible.
- Reasonable fees: Most staking pools take a small cut of the staking rewards as a fee. Reasonable amounts depend on the cryptocurrency, but 2% to 5% is common.
- Size: Smaller pools are less likely to be chosen to validate blocks but offer larger rewards when they are chosen since they don’t need to divide rewards as much. You don’t want a pool that’s too small and could potentially fail. On the other hand, some cryptos limit the number of rewards a pool can earn, so the largest pools can become oversaturated. For most investors, mid-size pools are best.
Once you’ve found a pool, stake your crypto to it through your wallet. That’s all you need to do, and you’ll start earning rewards.
What is proof of stake?
Proof of stake in cryptocurrency is a concurrence mechanism for a blockchain to validate transactions. The nodes in a blockchain must be in agreement on the present state of the blockchain and which transactions are valid.
There are different agreement mechanisms that cryptocurrencies use. Proof of stake is one of the most popular for its efficiency and because participants can earn rewards on the crypto they stake.
Staking rewards are an incentive that blockchains provide to participants. Each blockchain has a set amount of crypto rewards for validating a block of transactions. When you stake crypto and you’re chosen to validate transactions, you receive those crypto rewards.
Staking in cryptocurrency is simply holding your coins for a certain period of time and earning rewards. But if you’re planning to stake in cryptocurrency make sure you will understand the whole process. Especially when choosing the best Coin that suits you. The easy concept on that is the longer you hold your coin the more chances of earning Big Rewards.