What is staking in crypto? How does it work?
We were comfortable with the proof-of-work (PoW) protocol. But, due to its increase in energy demand, we needed a better option. That’s why we now have Proof-of-Stake. However, bitcoin and some other cryptocurrencies still use PoW.
Crypto staking is a procedure of committing crypto assets to support a blockchain network and corroborate transactions. This protocol is also known as Proof-of-Stake (PoS). It is a better option as it reduces the energy requirement and keeps the blockchain secure.
Numerous cryptocurrencies like Ethereum, have now adapted this protocol. They have decided to use PoS for environmental concerns, as the number of digital currencies is increasing.
In this article, we are going to explain PoS in detail. We will also inform you about the best staking opportunities.
What is proof of the stake model?
PoS is a consensus mechanism in crypto. It is used for validating transactions. For validating a transaction, the nodes in a blockchain must agree on the network’s current state and the genuine transactions.
You can find different consensus mechanisms used by digital currencies. But PoS is famous for its efficiency. It also allows the participants to earn money.
Staking rewards are incentives that are provided by blockchain to the validators. Each block of a transaction has a set amount of crypto rewards for validating transactions.
Once you are chosen to validate transactions you will receive those rewards.
How does staking work?
Staking is a process of adding new transactions to the blockchain network.
For adding a new transaction, the participants will have to pledge their coins to a certain cryptocurrency protocol. The protocol will select a few validators to confirm blocks of transactions. To increase your chance of becoming a validator, you have to pledge more coins.
When a block is added to the digital currency, new crypto coins are mined and given as a reward to the validator. Most of the time, the reward will be in the same crypto that you are staking. However, some currencies can use different currencies as rewards.
Thus, if you are interested in staking, then you must own a blockchain currency that uses PoS protocol. After owning digital currency, choose the amount you want to stake.
Don’t worry. After staking you don’t lose coins. You are just using them to make more coins. You can unstake them whenever you want to. But, unstaking will not be a quick procedure.
Note: You will lose some of the coins if you are unable to approve transactions.
Moreover, staking is not available for all digital coins. You can only use it in cryptocurrencies that are using the PoS model.
What are the benefits of staking?
Staking has the following advantages:
- Staking is one of the easiest ways to earn interest on your digital coins.
- You will no longer need any mining equipment.
- You will help in maintaining the security and efficiency of your blockchain network.
- It does not harm the environment like the Proof of Work model.
Moreover, you will also earn more crypto with less effort. Also, the interest rates are quite generous in staking. Do you know you can earn up to 20% more per year with staking?
It is potentially a great way to invest your money. The only thing you need for staking is to buy a blockchain that uses PoS protocol.
Risks of staking
There are a few hazards of staking crypto to understand:
- Before you start staking, you should know the following risks associated with this protocol.
- Crypto prices are fluid; they can move up and down quickly. So, if there’s a price drop in your staked asset, you can lose all the interest you own on them.
- Some blockchains will keep your coins for a certain amount of time. You cannot unstake them before that period.
- The unstaking period can take up to seven days or more.
The biggest risk you face with crypto staking is the price decline. Keep this in mind if you find cryptocurrencies offering extremely high staking reward rates.
For example, many smaller crypto projects offer higher interest to attract investors. But then, their prices end up crashing. If you’re interested in adding crypto to your portfolio with less risk, you can opt for cryptocurrency stocks instead.
The biggest risk associated with staking is falling prices. Keep this in mind if you are thinking of staking your digital coins.
Although the crypto you are staking is yours, you must unstake it before using it for some other purpose. So, to avoid any unpleasant surprises, find out if there is a minimum lockup time and how long the unstaking process takes.
Coins to stake
Many blockchains are using the PoS protocol. But, before you invest in them, you should know whether it is a good investment or not. Buying crypto is a different scenario. But you should stake the coins only if you believe that it is a good long-term investment.
However, if you are interested in staking, then you can start with the following blockchains:
Ethereum: Ethereum has recently shifted to PoS. If you want to become a validator for this currency, then you must own at least 32 ETH. After becoming a validator, you will be responsible for:
- Storing data
- Processing transactions
- Adding new blocks in the network
Cardano: You only need 5.5 ADA to become a validator.
Polkadot: If you want to become a validator for Polkadot, then you will need 5000 DOTs
Crypto Space War Staking
We also support staking.
Not only in CSW and CSWD coins but also staking of NFTs.
In the case of staking NFTs, you can simply stake your NFTs from our dashboard and earn interest from onwing any kind of NFTs.
Interested is rewarded in CSW and it is locked until the release of the game.
After that, you will be able to check your balance in Dashboard.
Final thoughts
Keep in mind that staking is not similar to mining. Although, the risk of losing money is the same. You will be saved from the cost of equipment required for mining.
And do not stake your coins if you think it will be a loss in the long run.
