understanding-staking

Understanding Staking

Staking is a concept you will hear more often if you are a crypto investor. This blockchain term defines several cryptocurrency projects, which allow their participants to earn rewards on their holdings, often by locking up their crypto assets.

Defining Staking 

In crypto trading and investing, staking involves placing cryptocurrency assets to a project and earning its returns. In the staking process, the user locks up their funds to reinforce a blockchain system and participate in confirming transactions. It entails placing funds in a crypto wallet to support the operations and security of a blockchain network.

Crypto traders can store their digital assets on crypto wallets and stake directly from the wallets to their desired projects. Commonly used crypto wallets include Coinbase, Hi.com, and Trust Wallet. In addition, some exchanges like Binance offer users staking services rewarding the platform’s users for holding their coins on the exchange.

Proof of Stake (PoS)

Staking can also be deployed in validating transactions on blockchains. This consensus mechanism is known as Proof of Stake (POS) works. PoS allows users to lock their coins, otherwise known as stakes, enabling the user to validate transactions and earn rewards.

The mechanism randomly gives the right of validating the next block to any of the network participants who have staked their coins. The more the user stakes, the more likely they will be selected to validate the block.

How Staking Works?

You need to find a blockchain platform that supports the staking model to stake. Some blockchain platforms that support staking include Tezos, Ethereum, and Cosmos. Your crypto earns awards when staked because the blockchain is put to work.

Cryptocurrencies allow the use of the “unanimity method” called proof of stakes. This ensures that all transactions are secured and verified without a payment processor or a bank in the middle. Users pledge their coins to the cryptocurrency protocol.

Protocols in cryptocurrency establish the structure of the blockchain. The protocol selects validators to confirm blocks to transact from users with the highest number of coins. The more coins one stakes, the higher the chances of being chosen as the validator.

New cryptocurrencies are dispensed and minted as staking rewards to the validator anytime a block is added to the blockchain. The rewards are often in the same type of crypto that the participant staked. In some cases, various blockchains reward participants using different digital currencies from what they staked.

Top up your crypto wallet with cryptocurrency that supports the PoS model to get started. Then, choose the amount you want to stake and proceed to lock your coins on the platform. Many cryptocurrency exchanges help you start purchasing crypto for staking, namely, eToro, Robinhood, Gemini, Coinbase, SoFi, Cash App, and many others.

Remember, even after locking up your coins, you still possess them as the process basically involves putting the staked coins to work. You can redeem your stake, a process known as unstaking, after a given period as provided in the platform’s staking terms. Some blockchains restrict unstaking to the agreed periods, while others will allow users to remove their stakes at any time they feel like it. So, you need to consider suitable terms for staking your crypto to select a preferred staking project.

⭐️ Read more on: Is taking crypto worth it?

How to Stake?

Here are simple steps to get you going on staking:

1. Top Up Your Crypto Wallet

Ensure you select and purchase a digital currency that supports staking as not all cryptocurrencies offer staking options. Examples of cryptocurrencies that offer staking include:

  • cross-chain compatible Polkadot, which allows several blockchains to connect and work together
  • highly scalable Solana, which offers low fees with fast transactions.

Secure your crypto by storing them in a safe crypto wallet. Since crypto is digitally native, it is stored in digital wallets either online or on specialized offline hardware known as cold storage.

2. Join a staking pool

Crypto participants merge their funds in staking pools to increase their chances of earning staking rewards. Here is what to look for while researching for the right staking pool:

  • Fees – most staking pools staking take a small part of earned reward as a fee. Select a pool that charges a reasonable fee such that the percentage fee should range between 2% to 5%
  • Reliability – pick a staking pool that is secure, trusted, and reliable. The expanding blockchain space is awash with fraudulent projects that could steal users’ funds.

Proof of Stake

With PoS, a blockchain validates transactions through a unanimity-based mechanism.

PoS is one of the most popular mechanisms used in cryptocurrency because it is efficient, with participants rewarded based on their proportion of the total stake.

Other blockchains have a set amount of crypto to reward the participant who will be chosen to validate a block of transactions.

Benefits of Staking Crypto

Crypto staking’s chief benefit is that the participant earns crypto rewards for contributing to the stake. Interest rates on staked coins make it a worthy investment for crypto traders, with many blockchains offering annual percentage yields (APY) of about 20% per year.

You get to support the blockchain of cryptocurrency you invested in by staking. Hence is important as cryptocurrencies rely on participants’ stakes to verify transactions and ensure things run smoothly. Other benefits include:

  • It is environmentally friendlier compared to the Proof of Work (PoW) consensus mechanism
  • Staking is a cheaper investment compared to PoW. You do not need dedicated equipment or expensive computers with high computing power for crypto staking as you would to mine crypto through PoW.
  • You earn interest easily on your cryptocurrency holdings.

Risks of Staking Crypto

Although staking can be beneficial, you can encounter several risks, including:

  • Participants may be required to lock up their coins for a specified amount of time within which they are not able to do anything with their staked assets, like selling them.
  • Crypto prices change and can drop during the staking period. If your staked coins suffer a massive drop in value exceeding the potential interests, your earnings will be in losses.

How to Start Staking on Ethereum?

To become a full participant, you require some technical knowledge, a computer or laptop that will enable you to carry out validations anytime without difficulties, and a minimum investment in the network. The Ethereum 2.0 (Eth 2) network requires a minimum of 32 ETH to join its staking program.

You can also participate in staking programs via a crypto exchange. This method is simple, allowing you to contribute an affordable amount to a staking pool, hence investing and earning rewards without a validator software

How Staking Rewards are Determined?

Different blockchains use different methods of calculating staking rewards. Commonly considered factors include:

  • Inflation rate
  • Amount of coins staked by the validator/network participant
  • The validator’s staking period – the longer the period, the more the potential staking rewards. However, bearish markets could wipe out the value of profits during the staking period.
  • The total amount of coins staked on the network

Other blockchains offer staking rewards as a fixed percentage. The awards are distributed to validators as a form of reimbursement. Inflation ensures users spend their stake instead of withholding them; hence there is an increased usage of cryptocurrency. In this model, a validator can calculate what staking reward they expect.

Crypto Staking and Wallet Solutions with Hi.com

hi is a next-generation financial services provider that allows users to earn, trade and transfer crypto assets. Over 3 million active users trust the blockchain-based crypto exchange and wallet. Here are some benefits of Hi:

1. Earn passive income at Hi.com

Hi offers several ways to earn passive crypto income. You can earn when you sign up for the platform’s services via mobile (Android and iOS) or web app and participate in daily trivia, earning HI for your answers.

HI supports staking, and the HI you earn are rewarded as tokens and will be locked for one year. So, you will claim the rewards after the period elapses.

Hi also has a referral program. When you refer a user, you will earn HI every time they answer a question. In addition, you will get to earn when your referrals refer other people.

2. hi Crypto Wallet

At Hi.com, it is easy to trade and transfer HI and other cryptocurrencies. Sending money via the HI wallet is also free. Also, you can earn crypto by holding HI on your HI wallet. Want to set up a Hi Wallet? Here’s how to get started:

  • Simply sign up for hi Wallet using your favorite messaging app on WhatsApp or Telegram app. Text “HI” in the chat, a menu will appear allowing you to create an account. Follow the instructions given to sign up and get your Hi wallet.
  • Transfer some amount of cryptocurrency to your wallet. Click on the Hi logo tab on the main screen, click menu, and select deposit.
  • Choose the cryptocurrency you would like to deposit, copy the deposit address to your clipboard and click confirm.

3. Earn Crypto at Hi.Com

hi offers up to 40% APY on holdings. You can earn crypto at Hi.com by referring people to their web app or phone app. You can also play to earn crypto or non-fungible tokens. The tokens earned can be converted into cryptocurrencies such as Ethereum, bitcoin. One can play Hi, play at Hi.com to earn.

Comments are closed.