Crypto staking is a trend that has evolved in response to the rising demand for energy that has resulted from the PoW (Proof of Work) protocol such as the one that has been used by the BTC (Bitcoin) blockchain in validating transactions.
Cryptocurrency staking involves assembling and setting aside a specific number of tokens that will be used in validating the transaction that has been made via the blockchain. This new protocol which is known as PoS (Proof of Stake) is less energy consumption as it eliminates or at least decreases the requirement for utilizing a lot of mining equipment to secure the blockchain.
Many blockchains that include Ethereum have now embraced the PoS algorithm to provide power to their networks to revert back to the increasing environmental issues over the rising acceptance of digital currencies.
What Is Crypto Staking?
Staking digital currency is a process that includes purchasing and setting aside a specific number of tokens to become the network’s active validating node. By holding these cryptos simply, the buyer becomes an important source in the security setup of the network, and accordingly, it is compensated.
Staking income is provided in the form of interest that is being paid to the holder, while the rates differ from one network to the other depending on various factors that include demand and supply dynamics.
As there is a continuous increase in the PoS based network, new alternatives for crypto staking have evolved which include the launch of group staking which is also termed as staking providers, staking pools, and cold staking.
These initiatives focus on democratizing the access to chances in the staking arena to retails the investors who grab a small amount of token of any particular blockchain.
Advantages And Disadvantages Of Crypto Staking
Lately, the popularity of crypto staking has increased due to the attractive crypto staking rewards that have been received by the digital coin holders from their activities. Presently the rate of interest that is being provided by staking can reach from 6% per year that is provided by networks that are well reputed like Cardano (ADA) and Ethereum (ETH) to as much as 100% that is provided by smaller networks like Kava (KAVA) and PancakeSwap (CAKE).
However, these rewards of the high crypto staking do not come without any risk as there are various factors that can affect the security and performance of your staked tokens.
The first risk that comes to mind is the chance of a cybersecurity incident that can result in the loss of your crypto which is kept in a specific exchange or online wallet. To discard that thread there are some crypto investors who have shifted towards cold staking. It is an activity where you store your token on a piece of hardware like a hard drive.
Cold storing protects your crypto from cyber threats as the hardware will have no connection with the internet. However, damage or loss of the hardware remains a risk when using it in the form of crypto staking.
Another risk involved in staking results from a high decrease in the crypto price during the period of staking. Since staking performs by locking your coins you will not be able to liquidate your holding if the market witnesses any alterations and hence you are exposed to the risk of losing your part of crypto.
Finally, there are also risks that are related to the uptime of the validator node which implies holding your staked coins. In most scenarios, a validator is penalized by the network if the ability of transaction processing is affected, which implies that your staking income can be diminished by any hindrances in the uptime of the validator.
Best Crypto Staking Coins
The process of selecting the best coin to stake should not completely focus on the rewards that are provided by the network. Other factors should also be considered which include liquidity of the token and lockup period.
From the dimension of the reward, low caps tend to provide higher rewards compared to more established protocols like ETH to attract more users and create more demand. However, it may be difficult for you to sell the tokens that you have earned if the coin is very illiquid which implies that its daily trading volumes are very low.
On the other hand, the period of large lockup can expose you to the risks of the market which means that you can lose a sizable part of your total crypto by not being unable to sell your coins during a decrease to trim your losses.
The best crypto staking coins include VeChain, Neo, Tezos, Lisk, and Cosmos. Here is a list of the best crypto staking platforms:
- Binance: Crypto staking in Binance is of great benefit. It is one of the largest digital currency exchanges and it dominates the crypto exchange market. There are many features available in Binance staking.
- Kucoin Earn: It is another big exchange with a higher trading volume. Exactly like Binance. They also offer an array of features for their users.
- BlockFi: BlockFi is a centralized channel. This is not exactly a staking platform, in fact, they do not allow staking, all they allow is lending.
- Celsius Wallet: This is similar to BlockFi. It is also a centralized platform that enables you to earn a yield for lending your token. They offer a good range of crypto staking tokens. The highest APY crypto staking includes Bitcoin with 6% APY.
- Aave: This is the future. This is a completely decentralized platform that is built on the Ethereum network and it is fully automated.
Crypto staking has now become a lucrative resource for the investors who seek to earn from holding digital currencies. This is similar to high dividend stocks or bonds. The lucrative APRs that are provided by some present day tokens have pulled billions of dollars to this process and the Proof of Stake protocol has also relieved some networks from the environmental issues which are the result of the energy consuming attribute of the traditional Proof of Work protocol.
Frequently Asked Questions On Crypto Staking
Crypto staking is a process that includes purchasing and setting aside a specific number of tokens to become the network’s active validating node. By holding these cryptos simply, the buyer becomes an important source in the security setup of the network, and accordingly it is compensated.
Yes, staking digital currency is worth it if done in the correct manner. Staking deals with how many coins you are holding. The amount evaluates your reward. A user who has protected more of a specific coin is more likely to be selected as the new block validator.
The period of large lockup can expose you to the risks of the market which means that you can lose a sizable part of your total crypto by not being unable to sell your coins during a decrease to trim your losses.