What is Crypto Staking? Earn Passive Income by understanding the mechanism of staking
The Year 2021 has been a boom for cryptocurrencies and blockchain technology. Cryptocurrencies like bitcoin and ethereum have reached their all-time high while others who have been hard skeptical are starting to change their minds. In the era of evolving technologies, we should understand how technology works.
The term crypto staking is being widely used but misunderstood. Today we will understand what crypto staking is and what benefits and risks are brought along staking. Also how we can earn by staking the cryptocurrencies.
Background:
The existence of decentralized cryptocurrencies has given people the opportunity to send money without a central authority. The blockchain is a publicly distributed ledger that allows anyone to see the incoming and outgoing of cryptocurrencies. But the biggest flaw of this system is that there was no consensus mechanism to verify who can send who? How much one can send?
Blockchain Mining is the process of verifying transactions on the public ledger. Transitions are verified by the community members who are using high-power GPUs to solve the puzzle. The first person to solve the puzzle is given the authority to create the block in the bitcoin blockchain. Miners(who verify the transactions) in the blockchain are rewarded with a fixed sum of bitcoin.
This system was designed to create a consensus and large computational power is required to solve those tricky mathematical algorithms and this concept is known as Proof of Work(PoW). Remember this concept and we will look at the alternative for this system.
Proof of Stake
With the use of extensive and raw computational power to verify the transactions, a more effective method has emerged which uses cryptocurrency tokens/coins themselves. Community deposits the fund into the collective pool know as staking. These staking rewards would be on the network of computers which is known as Node. This node would act as a Proof of stake which will allow the community to validate the transactions on the blockchain. The illustration is shown below how the staking network actually works.
Each cryptocurrencies existing in the space of crypto have a different mechanism of distributing the rewards, How rewards are chosen and distributed among the community who are participating in the pool (staking pool) but principles remain the same.
Staking Options:
Well, there are a lot of staking options. One is through the crypto exchanges and another one by staking the assets in the staking pool. Both have their own pros and cons, with exchange being the easiest method and fees are the drawbacks. While staking crypto in the staking pool requires one to have a strong foundation on what he’s dealing it.
Important points to consider while staking yourself:
If you are ready to stake your assets by yourself, get yourself a pen and paper, note down all the fundamentals before staking your crypto. One should look at the following the points
- How much time you are willing to invest
- About the security and privacy
- Fee’s associated with pool (maintenance fee)
- Where can I get higher staking rewards?
One has to look at those fundamentals while staking the crypto assets. People have different reasons behind staking their crypto’s. For instance, I prefer to choose Binance for staking purposes. You’ll be able to stake your coins directly from your crypto wallet, such as Trust Wallet, in the majority of situations. Many exchanges, on the other hand, provide staking services to their users. Staking on Binance is a straightforward way to earn rewards — all you have to do is keep your coins on the exchange.
