Cryptocurrency Staking Explained

Published on:

Last Updated on September 26, 2022 by Bitfinsider

What is staking?

Staking is the act of pledging your cryptocurrency to aid in the security and verification of transactions on a blockchain. In exchange, you will receive network rewards.

The Advantages of Staking
There are several advantages to staking your cryptocurrency:

  1. Income that is passive. Staking is primarily a passive activity, which means that you can earn rewards without putting in much (or any) effort.
  2. Returns. Staking typically provides a higher return on investment (ROI) than simply holding crypto, especially if you use a staking wallet.
  3. Low price. Because staking requires less computing power and no specialized equipment, it can help you earn rewards more cheaply than mining.

The dangers of staking
Before staking your cryptocurrency, consider the following risks:

1.Volatility. The value of your staked assets can fluctuate like any other crypto asset.

2. Control failure. You won’t be able to access your assets once you’ve staked them unless you unstake them (which usually takes a set period of time).

3. Slashing. In the event that a validator sends invalid transactions, the network may penalize, or “slash,” parties who would otherwise receive rewards. This is intended to discourage inappropriate network behavior.

How staking works

When you stake your cryptocurrency, you’re essentially storing it in a network-connected wallet known as a staking wallet.

Once you’ve set up your staking wallet and deposited your cryptocurrency, a “bonding period” begins, during which the cryptocurrency is locked and ineligible for rewards. You’ve secured the network after this window, so the reward distribution can begin.

The size of the rewards will be determined by the staking rules of the network you are assisting in staking.

Some networks, for example, pay stakers a fixed reward for each block they add to the chain, whereas others pay stakers a percentage of the transaction fees associated with the block.

Most staking wallets will tell you how much you can expect to earn in rewards and how long it will take.

Hardware wallets are safe and secure devices that can be used offline. They keep your cryptocurrency offline, making it impossible for you to be hacked. To find out more on the leading hardware wallets, you may view our reviews here: Ledger & Trezor
Disclaimer: The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, legal, tax or other advice. Investing in or trading cryptocurrency or stocks comes with a risk of financial loss.