If you have read somewhere the word ‘staking’ but don’t know what it refers to, don’t panic. Today I will explain what cryptocurrency staking is, how it works and how to earn with it.
But, before I go any further, I’ll give you two hints….
Well, to understand what staking is, first you have to know that some cryptocurrencies like Bitcoin pay their miners (who are no more and no less than the master nodes of the network), with rewards to protect their networks. To do so, many coins like Bitcoin use a mining algorithm called Proof of Work (PoW).
However, PoW-based mining has some disadvantages. One example is high energy consumption and constantly increasing costs of mining equipment.
This is why Proof of Stake was born, an alternative mining algorithm, which provides a consensus mechanism that allows users to protect cryptographic networks with minimal energy consumption and difficulty.
So, the word Staking comes from the PoS algorithm and in the following paragraph we will see how it works, how it differs from the PoW algorithm and what are its benefits.
The Proof-of-Work (PoW) based consensus mechanism works in this way: miners have to solve with powerful equipment, complex mathematical puzzles to validate blocks on the blockchain, thus ensuring the security of the network in exchange for a reward.
With staking, on the other hand, the user generally buys a cryptocurrency to lock it (hold it) in a wallet or smart contract, with the purpose of receiving a commission (fee) as a reward.
The Staking process is similar to the cryptocurrency HODL, except that in staking the staked cryptocurrencies are locked and cannot be used freely.
Once a user’s participation is blocked, users can vote to approve transactions.
Please note that the rules of participation vary by network and in many cases users do not have to vote and the transaction validation process is done automatically.
Once the transactions are validated, the network rewards randomly with a participation prize, and it does so taking into account the user’s wealth, i.e. depending on how many cryptos of that coin the user owns.
The amount of the reward is variable and depends on the total number of stakers participating in the process.
As you have seen in the image above, the PoW and PoS mining algorithms have some important differences:
There are two types of staking: centralized and decentralized.
Centralized staking is when you use blockchain providers that offer the possibility to stake your cryptocurrencies. In this case, the user transfers his funds on the exchange and the provider will take care of everything else.
This means that the staking occurs outside the user’s own personal wallet and the user gives the staking provider full control of his funds. Thus, all earned rewards will be deposited into the account created on the exchange rather than into your personal wallet.
The downside is that, in case of theft of the platform, the user could lose all his assets.
In contrast, decentralized staking, or dStaking, does not use a third-party exchange for staking cryptocurrencies. This means that the user retains control of their private keys and ownership of the assets, ensuring greater protection against fraud.
This happens because when a user bets and locks their funds in a smart contract or wallet, it will help an attacker not have enough cryptocurrencies (51% of the entire network) to be able to execute a 51% attack.
This makes users rewarded for good behavior, making the network much more secure than in the proof-of-work mechanism.
If you want to staking cryptocurrencies and start earning some extra income, you will have to follow a few simple steps:
Start staking: once you have configured your wallet, you can start betting.
You can bet crypto both online and offline.
If you don’t want headaches and prefer to have an external platform handle the management of transactions, the wallet and the security of your private keys, then the best solution is to staking on an exchange platform.
Below you will find a list of the main exchanges where you can staking cryptocurrencies online:
Most of these platforms offer staking services for a wide range of cryptoassets while some only support their associated projects. Binance currently offers the largest variety, with a total of 42 cryptocurrencies available for staking.
Another option for earning passive income through cryptocurrency staking is by joining a pool.
Staking in a pool or group allows you to join with other crypto asset holders to combine computing resources and increase your chances of receiving rewards. Although staking pools generally produce smaller payouts, as the reward must be divided among the participants in the group, working in a team will make it easier to earn rewards.
Pool of Stake is an example of a staking pool that you can use.
Whichever method you choose, before you start betting cryptocurrencies, it is very important that you check that the blockchain uses the PoS algorithm. Then you should inform yourself about the general conditions, which the platforms you are going to bet on, ask from their users.
Some platforms may ask for the following:
Note that each blockchain has different rules for its cryptos. Therefore, it is advisable to find out specifically for each token what restrictions apply.
More and more cryptocurrencies that use the PoS algorithm are joining the crypto universe and below I will show you a list of the most popular ones for staking,
Most of the listed coins can be purchased at Bitnovo at the best price on the market.
Most PoS cryptographic tokens have their own wallet designed for staking.
However, there are a couple of wallets that support multiple tokens.
There are also Cold wallets like Ledger that provide a staking platform. The negative note is that not all PoS based cryptos support cold or offline staking.
As the popularity of staking increases, so do the resources that help users undertake this activity.
So, before you get started, I advise you to take a look at these useful resources that will make it easier to start staking cryptocurrency.
Here is a list of calculators for the most popular PoS tokens:
Now you have all the information and resources to start staking Cryptocurrencies. You just need to jump into the ‘pool’ 😉 Are you up for it?