Crypto Staking: A Good Way to Put Your Crypto Assets to Use?

What is Cryptocurrency Staking?

There are a lot of users who use crypto staking as a way to earn rewards. It is one of the ways that cryptocurrencies verify the transactions, allowing the participants to earn rewards on their holdings.

Staking is a process that involves the users committing their crypto assets and supporting a blockchain network, and confirming the transactions. This is one of the most popular ways to earn passive income on your crypto assets because the blockchain puts it to work. There can be different methods to stake, like usually, your wallets allow you to directly stake your coins like a MetaMask or Trust Wallet while there are crypto exchanges like Binance, etc.

What is Proof-of-Stake, and How does Crypto Staking work?

Staking is a feature available with the crypto assets that use Proof-of-Stake (PoS) algorithm to process the payments. The PoS model is said to be more energy-efficient than Proof-of-Work. And the PoW mechanism involves a lot of complex computation.

Whereas with Proof-of-Stake, users can stake or lock their crypto assets, and at regular intervals, the protocol assigns one of them the right to validate and verify the next block. And it depends on the amount of tokens held by the staker; more the coins are locked, higher the chances of being chosen. However, other methods to select the validator like Randomised Block Section and the Coin Age Selection. Because the PoS model uses less energy than the PoW model, the scalability is more and can handle transactions. The Ethereum network plans to shift from PoW to PoS in its upgrade called ETH 2.0.

The Randomised Block Section is a method in which the validators are chosen by going for nodes with the lowest hash value and the highest stake. Whereas the Coin Age Selection method is where the nodes are selected depending upon how long their coins have been locked for. And to prevent the domination of fewer nodes, once a node forges a block, its coin age is reset to zero. Different cryptocurrencies have different methods based on what best suits them.

Each time the blockchain is altered by adding a new block, new crypto coins are minted and are distributed as staking rewards to the validator of that block. Even though you put your crypto assets to work, you can still unstake them when you want, and the process might be different for different cryptocurrencies.

Benefits of Staking your Crypto assets:

Unlike crypto mining, no specific equipment is needed for crypto staking.
You are contributing to the maintenance of the security and efficiency of the blockchain.
It is a way of earning passive income and putting your crypto assets to work.
Environmentalists raise concerns about the mining process; hence, Staking is comparatively environmentally friendly.
Some projects also reward the validators with governance tokens giving them a say in future upgrades and changes.

How to start Crypto Staking?

The first step is to buy a cryptocurrency that uses the Proof-of-Stake consensus. A few notable crypto projects offering the PoS model are Solana (SOL), Cardano (ADA), Polkadot (DOT), Ethereum 2.0 (ETH), Terra (LUNA), etc. Before choosing any project, their working, rewards offered, staking process, etc., should be thoroughly researched.

Transferring your crypto asset to Blockchain wallet: The exchange where your crypto is available might have its own staking process where you can directly stake the coins. And if not, then you can move your locked funds to a blockchain wallet by depositing the crypto asset in the wallet.

Participate in a Staking Pool: Crypto Staking might work differently based on the crypto projects. But most of them use Staking Pools, which allow various stakeholders to bring together their computational resources to increase their chance of getting rewards. However, before joining a staking pool, its reliability, the fee they charge, and their size are certain factors to be considered. Although, solo Staking is also an option. Both have their own fors and againsts.

How to Stake Cardano (ADA)?

While Staking Cardano (ADA), the holder can either delegate their stake to a staking pool operated by another party or run their own staking pool. The more the stake is delegated to the pool, the higher the chance to add the next block. The rewards earned are distributed to each participant who delegates their stake in that particular pool. These stake pools can be Public and Private. Public stake pools are the ones of the Cardano network node, having a public address that the participants can delegate to. In contrast, private staking pools distribute rewards only to the owners.

The Delegation of ADA tokens is supported primarily by two digital wallets: Daedalus, a wallet developed by IOHK, and Yoroi, a wallet developed by EMURGO. Here are the steps to be followed in the case of Daedalus wallet:

Install the latest version of the wallet.
Create a Cardano wallet or restore it if you have it already.
The next step is to move your Cardano (ADA) from the crypto exchange you have used to purchase the ADA tokens to the Daedalus wallet. After sending the ADA to your new wallet, you are ready to stake your Cardano. The process can take time based on the blockchain traffic.
Now you can delegate your Cardano to a staking pool.
And now that you have staked your Cardano, you have to wait for at least 15 days as it takes time to onboard new delegations.

Crypto Staking is usually done by anyone who wants to participate. But having thorough knowledge is a prerequisite. There are specific requirements like a particular minimum investment beforehand, a dedicated computer to perform the validations, which cannot afford any downtime, and of course, technical knowledge.

Disclaimer:

The views and opinions stated by the author, or any people named in this article, are for informational ideas only, and they do not establish financial, investment, or other advice. Investing in or trading crypto assets comes with a risk of financial loss.