The cryptocurrency world used to be a thing that only tech-savvy people knew how to handle. Right now, it’s developing with the utmost speed and basically, everyone can handle having some crypto portfolio. Moreover, no coding skills are required. You can simply download an app on your phone and access all your crypto instantly at your fingertips.
But no matter how simple the crypto space becomes, there are still some terms that are hard to comprehend. And in order to keep up with the rapid progress, the user needs to be aware of those terms. Let’s say, complex concepts like liquidity farming are good to know, but not absolutely necessary. Yet, terms like staking and mining have been hitting the headlines for a good reason. So why not use them to your own advantage? Read on to know what is staking and why it’s taking over the whole mining thing.
What is staking?
Staking is when you lock some amount of cryptocurrencies on the blockchain so that the network could use them to verify transactions. As soon as one or few validation rounds are completed, you can get your coins back with an interest.
Investors use staking for getting passive income on their crypto. If you’ve got some stake-able coins in your portfolio, you can just hold them in your wallet expecting their price to go up. However, you could also use this time for getting additional income with the help of staking.
Remember, this type of activity is only available for the blockchains that use the proof-of-stake algorithm to verify their transactions and add new blocks. Proof-of-work coins are unavailable for staking.
How is staking different from mining?
Mining cryptocurrencies requires using large amounts of computing power to process transactions and develop the blockchain. At the same time, in a proof-of-stake model, participants in the network don’t compete to add blocks, unlike miners on the blockchains like Bitcoin. Instead, the ability of the nodes to validate transactions depends on how many coins they hold. The more coins they lock up in staking – the more power they have to participate in growing the network, and the more coins they get as a staking reward.
While the mining process requires a lot of electricity, it ends up being more costly than staking. In proof-of-stake blockchains, participants are able to process transactions much quicker than on proof-of-work blockchains. To boot, the process is more cost-efficient.
What you should know about staking?
There are two different ways in which you can do crypto staking and try to get a passive income. One of them is more for beginners and the other one is more for professionals. Let’s see what are the advantages and disadvantages of each method.
Staking on the exchange
This is a beginner-level way of staking. Anyone can do it, even if they know literally nothing about cryptocurrencies and how they work. What’s even better, the staking rewards are landing directly on the wallet, and there are no additional actions that need to be done.
Here’s what you need to do to stake crypto on the exchange:
- Go to the CEX.IO website or another exchange that offers crypto staking.
- Launch an account with the exchange that provides staking
- Verify your identity
- Buy the coins you want to stake
- Participate in staking
Staking on the exchange is often an easy, one-click option. Most of the action happens behind the scenes automatically so the user doesn’t have to worry about anything. Also, staking with the help of a third party often doesn’t require the lockup period and fees for staking. The user can withdraw their coins or trade them anytime. Also, the minimal amount of coins to stake is often very low so anyone can afford it. No matter how big or small is the sum, the user will get their interest rates according to the amount and the time that they were staking the coins.
Staking on the node
This type of staking requires a more sophisticated understanding of blockchain technology. However, the reward also might be bigger. Also, since such users stake directly on the blockchain, they don’t have to disclose their personal information to the other party, unless they would like to withdraw fiat money.
Here’s what you need to do to stake crypto on the node:
- Launch a crypto wallet
- Transfer the coins of your choice to this wallet
- Go to the blockchain explorer of the network which coins you want to stake
- Choose the node with which you want to stake
- Choose the amount and period of staking
- Proceed with your staking
When the chosen period of staking completes, you will get the crypto back to your wallet plus the interest rate. Keep in mind that this method requires locking the coins up during staking so you won’t be able to use them.
Also, most probably, you will have to pay some amount of fees in order to stake directly on the node. On many blockchains, the fees are paid with a special type of token that’s designed specifically for this task.
Staking is a new way to earn passive income on your crypto holdings. It is only available for coins that use the proof-of-stake algorithm of validating transactions. Luckily, more and more blockchains start using this algorithm, even Ethereum that has long been on the proof-of-work scheme and required mining.
Staking is more energy-efficient and less expensive than mining. It also allows processing much more transactions with a higher throughput per a certain time period. The amount of staking rewards is directly proportional to the percentage of coins locked up in staking on the node. However, it’s also possible to stake small amounts and still get generous rewards if you do this through a crypto exchange.