How To Earn Coin Rewards Through Crypto Staking? | DecentralBuzz

Cryptocurrencies belong to an extremely volatile asset class. The unpredictable nature of Cryptos has been a mix of experiences for investors and traders. While every now and then the constantly fluctuating market absorbs the cries of investors losing on their bets. The same market also holds the joy of several millionaires whose Crypto investments appreciated exponentially.

Although the yields of Cryptocurrency have been unbelievingly realistic, the risk in investing in this asset class is equally enormous. So, for Crypto investors willing to become a part of this phenomenal Crypto space while moderating the risks, risk-averse Crypto investing becomes extremely complex and unfeasible.

However, there are several ways besides investing or trading for risk-averse investors to participate in the Crypto market and benefit from revolutionary and promising Cryptocurrencies. For instance, quite popular among Crypto holders and investors, Crypto-staking provides investors the opportunity to invest with minimal risks and get rewarded for locking up their Crypto assets.

What is Crypto Staking?

When bitcoin, the world’s first Cryptocurrency, was launched over a decade ago, it innovated finance by eliminating the need for a supervisory party to monitor transactions and promoted a decentralized infrastructure.

At that time, a consensus mechanism known as PoW (Proof of Work) was introduced to implement peer-to-peer transactions in the absence of a supervisory body.

Later, when many other Cryptocurrencies such as Ethereum were launched, they revised their consensus algorithm and updated it to PoS (Proof of Stake). That marked the beginning of Crypto-staking. While PoW requires the members of the blockchain network to utilize computing power to solve an arbitrary mathematical puzzle and the first one to solve gets the reward, PoS allows members to stake i.e. participate with their Crypto shares and get rewarded accordingly i.e. a person who owns 10% of the total coins available can participate in mining 10% of the blocks. While both aforementioned algorithms aim to validate the transaction on a Crypto’s blockchain, PoW demands much more energy and computational power for validating a transaction on the blockchain network when compared with PoS. For PoS based Cryptocurrencies, participants have to lock up their assets and funds that are then used for staking.

What is Crypto Staking

Staking is considered as a sound passive income source for investors not looking forward to taking risks associated with exclusively trading Cryptos. Staking rewards vary from Cryptocurrency to Cryptocurrency and from platform to platform. However, the general rule about staking rewards is that they are reminiscent of interests in investments. Different platforms offer different percentage returns on staking. For a particular PoS Cryptocurrency, a Crypto holder maintaining a minimum balance required to qualify as a validator automatically becomes a validator and participates in staking. Afterward, the network randomly chooses a validator who has to authenticate, validate or attest to a transaction. For a particular transaction, all or a few validators selected by the network are chosen and asked to check the transaction and either accept it or decline it. Whatever is agreed upon by 2/3 of the total validators is finalized as the ultimate verdict for adding or not adding a new block.

How To Immediately Start Staking?

As explained earlier, every Cryptocurrency can’t be staked. Only the Cryptocurrencies employing the PoS consensus algorithm can be staked. So the first step to start staking begins with finalizing the Cryptocurrencies you can stake. At the moment, a number of best Cryptocurrencies to invest such as Ethereum (ETH), Decred (DCR), Synthetix (SNX), VeChain (VET), Tezos (XTZ), etc. can be staked.

What are The Different Types of Crypto Staking?

After deciding the Crypto, select the type of staking you’re interested in. The major staking types include:

Solo PoS Staking:

To become a validator on any PoS based Cryptocurrency, one has to lock minimum balance as prescribed by the Cryptocurrency platform and run a few commands in the terminal to begin the process. After setting up the environment and following the procedure explained by the underlying Crypto platform, one can initiate staking immediately and then participate in accepting or declining the addition of new blocks.

Cold Staking:

Many platforms have introduced cold staking in order to lower down the risk of Crypto hacks by employing the use of cold wallets instead of hot wallets. After the amount to be staked and the type of Cryptocurrency is finalized, in cold staking, the assets are locked in a cold, offline wallet.

Also Read: What are Non-custodial Wallets?

The assets allocated in the cold wallet must be locked over there and not transferred to any other wallet or else if Cryptos are moved from the cold storage to hot wallets or any other address, the staking protocols will be broken and the user will be automatically ruled out of staking.

Staking Pool:

It’s not mandatory to always participate as an individual validator. At times when a Crypto enthusiast can’t fulfill the criteria needed to become a validator such as locking up the minimum amount of assets required to become a validator, one can always turn to a staking pool where all users participate in staking by sharing their computers and assets. In return, participants get rewarded according to their assets and computing shares. A user can join a staking pool via an exchange by first creating a wallet on best Crypto exchanges such as Binance or Coinbase and then heading towards staking options. After specifying the amount and type of assets to be used for staking, the exchange locks the user’s assets for a long period such as up to 24 months on Binance. Staking rewards are then automatically added to the wallet on a weekly, monthly, or yearly basis.

4 Thing to Consider Before Staking A Cryptocurrency

There are a number of factors to consider before staking a Cryptocurrency. The reward for staking is dependent on several factors so it’s important to understand the fundamentals and then evaluate all staking options before choosing the best-suited one. These factors include:

• Minimum coins to be locked for staking
• Time duration for locking the assets
• Platform fees charged to the validator
• APY (annual percent yield) offered on staking

Conclusion:

In a nutshell, anyone willing to participate in Crypto staking can do so by simply holding his assets on hold and locking them for a long time. While getting rewarded for participating in staking is very welcoming for the participants, doing it carelessly can result in severe losses. For instance, whenever a validation is ongoing, the validator’s computer must adhere to 100% uptime or else a penalty is to be paid by the validator. Similarly, whenever one doesn’t adapt to cold staking, the exposure and risk of theft or loss increase substantially. Therefore, it’s necessary to adopt great care while opting for staking. At the moment, staking is a reliable passive income source for Crypto investors but it’s not the only method. Crypto users can explore running master nodes, Crypto lending, Crypto interest accounts, and yield farming as well to fulfill the goal of generating passive income with the help of Crypto assets.

Originally published at https://decentralbuzz.com on July 7, 2021.