The opportunity to mine, in other words, to mine cryptocurrency seems attractive to you, but the prospect of buying equipment for it does not inspire at all? If you answered yes to both parts of the question, staking is exactly what you need.
This term means the prospect of passive income by storing crypto coins.
Namely, in order to earn money by storing coins in your crypto wallet, you need to choose an algorithm in the blockchain called Proof-of-Stake (PoS), which means proof of ownership.
Interest for storage depends on the type of coin and the period of its retention.
In turn, the accrual of interest inspires more and more users to stake, which ensures the smooth operation of the blockchain.
It is also important that PoS is one of the methods to protect the blockchain from interference and placement of false data. Let's take a closer look at the stacking features.
Staking is rightfully considered a full-fledged way to make money on cryptocurrency, a worthy alternative to mining. Let's see what are the differences between them.
Traditional cryptocurrency mining is provided based on the Proof-of-Work (PoW) algorithm. Miners, as the participants in the process are called, create new blocks in the chain, making the necessary calculations and finding a secret combination of characters. At the same time, it is worth noting the impossibility of supporting the computing power required for these actions by standard PCs. This forces miners to buy expensive equipment that is designed specifically for such purposes. ASICs are an example of this technique.
The Proof-of-Stake algorithm allows users to avoid unnecessary expenses, since in order to receive passive income from staking, it is enough just to keep the cryptocurrency in the wallet and not use it. The number of coins on the account can be accumulated: the more coins you have in storage, the higher the percentage will be.
The absence of the need to purchase powerful equipment, as well as the low cost of many cryptocoins, makes staking accessible to a wide range of users with different income levels. Although there are special projects with a high entry threshold.
Staking is often compared to a bank deposit, since the principles of these types of passive income are identical. However, like each bank, each blockchain system may have its own conditions and features of work. In this regard, there are several types of staking, namely:
Fixed staking is a kind of analogy for an irrevocable deposit. In this case, the user places funds for a certain period, until the end of which it will be impossible to pick up coins or trade them. The interest rate on it is higher than when placed under other conditions. The user chooses the term himself, in accordance with personal preferences.
Perpetual staking is the storage of crypto coins, in which no end date is indicated. In this case, the user can pick them up when he needs to. Interest is accrued during the entire period of storage of coins. The payments themselves are made about once a month. This option is suitable for those who are not used to a long freeze of their assets.
Defi staking is a passive income option using decentralized finance. The latter refers to services running on the blockchain, which may have the functions of lending, insurance, forecasting, etc.
Smart contracts that automatically enforce deals are the backbone of Defi projects. The main feature of this type of staking is that the user does not need to puzzle over the choice of assets, because the system itself will choose a profitable project. The interest in this case is high, however, the entry threshold when working with Defi is also quite high.
Considering the concept of staking, it is impossible not to take into account the potential risks of this activity. First of all, you need to take care of choosing a suitable crypto platform with a good reputation, a security system, user verification and multilingual technical support. Then the main possible risk will be only the high volatility of cryptocurrencies and the possibility of depreciation of frozen assets. However, in this case, there is a way to protect yourself from hypothetical losses by choosing to stake stablecoins.
Stablecoins are tokens with an advanced stabilization mechanism that allows you to maintain the value at a certain level even in the event of a depreciation of the coin.
Stakers who want to minimize risk also prefer to freeze well-known cryptocurrencies that are less likely to fall in price. There is another, more risky strategy: individual crypto enthusiasts buy little-known tokens with the expectation that the coin can significantly increase in price after listing on the exchange. In this case, the yield can be very significant. But at the same time, this may not happen.
Тaking into consideration all the facts mentioned above, it is necessary to choose coins for staking very carefully.
Staking: advantages and disadvantages
Like any method of earning income, staking has its pros and cons. Let's start with the positive.
The main benefits of staking are:
Among the disadvantages the following ones can be mentioned:
The importance of choosing a coin for staking is obvious, since, as mentioned earlier, the profitability of the user depends on the rate of the selected token. Popular coins are more reliable, but their profitability is moderate. Unknown coins have a high potential return, but also a corresponding risk. Everyone determines for himself the acceptable degree of risk.
Among the popular assets among stackers are EOS, TRON, Polkadot and some others. In addition, these tokens are designated by experts as promising for the current year.
Staking is quite rightly called the new trend of the crypto market. With multiple advantages, in particular, the need for lower costs compared to mining, this method of obtaining passive income is available to a wide range of users.
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