Key Things to Consider Before Getting Started with Crypto Staking
Staking is a part of a consensus mechanism known as ‘proof of stake’ – or, simply put, it’s part of the process that some cryptocurrencies use to verify transactions. In this process, blocks are transactions that become part of a blockchain by individuals who already hold some stake in the native currency of that blockchain. The process is somewhat similar to mining, which adds blocks to the blockchain of proof-of-work blockchains like bitcoin.
However, there’s a difference: in proof-of-stage blockchains (like Cardano), the process is referred to as minting or forging, and the individuals who do it and known as forgers or validators (not miners).
If you have some proof-of-stake crypto, you can earn coins in exchange for your stake, with a particular amount based on how you stake your coins and the currency at hand. However, there are certain risks associated with staking.
Here, we discuss key things to consider before getting started with crypto staking:
Risks associated with staking
Although it may seem that cryptocurrency staking will help you earn more money, you should know that there are some risks involved.
The volatility of cryptocurrency is the most significant danger. For instance, while a 30% yield may look attractive, you’ll end up losing if the price of the cryptocurrency drops 50% or more.
Also, be skeptical of cryptocurrency platforms that promote enormous payouts. So, before choosing any platform, don’t forget to do your homework.
In addition, certain staking platforms may require you to store your cryptocurrency for a longer time. At that time, you won’t be able to use that cryptocurrency. So, keep this in mind as well.
Lastly, hacking may be another potential risk that may affect either a cryptocurrency or a platform.
While staking may be a decent way to earn money with your cryptocurrency, always consider the cons too before jumping on the bandwagon.
How to start staking?
Most cryptocurrency exchanges provide staking rewards, at least on some coins. So, the simplest method to begin cryptocurrency staking is by using an exchange. If you used an exchange to purchase your coins, notify the exchange that you’re willing to participate in its staking program. Then the rewards are sent instantly into your account.
Some of the staking platforms you may consider are Voyager, Kraken, Crypto.com, AQRU, Coinbase, and Binance.
Cryptocurrencies that allow staking
Staking is allowed for cryptocurrencies that use the model of proof-of-stake to process payments. Compared to the proof-of-work model which requires the computing power of mining devices to solve mathematical problems, the proof-of-stake model is more energy efficient. For example, bitcoin uses the ‘proof-of-work’ model and, therefore, doesn’t allow staking.
Some cryptocurrencies that allow staking are Solana, Polkadot, Cardano, and Ethereum (via the ETH2 upgrade).
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