What is cryptocurrency staking?
Cryptocurrency staking involves locking up one's cryptocurrency holdings to earn interest or rewards. Technically, "staking" is how certain blockchain networks verify transactions.
From an investor's perspective, cryptocurrency staking is a way to grow one's cryptocurrency holdings without needing to buy more. Betting on cryptocurrencies for maximum passive income is a legitimate way to earn returns through existing cryptocurrency holdings. Investors who participate in the participation enjoy a higher interest than what is offered through a normal bank account.
If you are interested in betting cryptocurrency but are not familiar with the term, let us bring you up to speed. Before going there, it is essential to understand the concept of blockchain technology. Cryptocurrencies are built on blockchain technology. Transactions involving said cryptocurrency must be validated before the corresponding data can be stored on the blockchain. This validation process is called stakeout.
Let's break it down further.
Because blockchain networks are decentralized, there are no middlemen. This is in clear opposition to the traditional financial systems that banks use, for example, to serve as a repository for the public's money.
As such, decentralization mandates a publicly accessible registry across the network to ensure that there is full transparency and validity in all transactions. Transactions are collected in "blocks" and submitted for inclusion in this record, which is immutable.
By the way, that is the biggest security feature of blockchains. Since everything is accessible and verifiable through a distributed public ledger (the registry), it is very difficult to cheat or hack.
That said, once these blocks are accepted, users who own these blocks get a transaction fee as payment in the form of cryptocurrency.
What does staking have to do with all this? you might ask In a nutshell, staking is a protection against errors and fraud that can occur during the process.
Every time a user proposes a new block or votes to accept a proposed block, they put part of their cryptocurrency on the line. This process encourages compliance with the rules. So, in principle, the more crypto a user puts into play, the higher the chances of earning transaction fee rewards.
However, if a user's proposed block is found to have fraudulent or inaccurate data, you may lose what you wagered. This process is called 'cutting'.
How does cryptocurrency staking work?
There are many ways to start staking cryptocurrencies. For starters, you can choose to validate transactions using your own computer. You can also "assign" your crypto to someone you trust and have them validate it.
Please note that not all cryptocurrencies can be used for gambling. We'll talk more about this later, so read on.
What is proof of stake?
Proof of stake is a consensus mechanism that allows blockchains to validate transactions. In Proof of Stake (PoS), the number of coins (or the amount of the stake) determines the chances of validating a new block.
PoS was created as an alternative consensus mechanism to the original Proof of Work (PoW). PoS is one of the most common consensus mechanisms and is continually gaining ground for its efficiency and the ability to earn cryptocurrency staking rewards.
Unlike PoW, which consumes a lot of energy and requires a lot of computing power, PoS does not require as much computing work to verify transactions. Coin owners "stake" their coins as collateral to validate blocks.
What are participation rewards?
Participation rewards are incentives provided to blockchain participants. On each blockchain, there is a certain number of crypto rewards assigned for transaction validation. As such, crypto staking participants receive staking rewards when they are chosen to validate transactions.
Basically, staking allows participants to earn more cryptocurrencies. Interest rates vary by network, but participants can earn between 20% and 30% per year. Many people make crypto bets to earn passive income or invest their money.
Ways to bet crypto
To stake crypto, crypto that uses the proof-of-stake model, such as Ethereum, must be selected. There are several ways to bet cryptocurrencies:
through an exchange
You can choose to use an exchange to stake your tokens on your behalf. An exchange is an online service that specializes in crypto matters. Most exchanges ask for a commission in exchange for staking services. Some popular exchanges that offer staking are Binance.US, Coinbase, and eToro.
By joining a participation group
Some investors do not use exchanges simply because not all of these platforms support a wide range of tokens. So another alternative is to join what is called a "participation group", usually operated by another user.
You will need to connect your tokens through your crypto wallet with the validator pool. To ensure the legitimacy of these validators, be sure to check the official websites of proof-of-stake blockchains to understand how they should work.
Being a validator
Validators own coins with staked coins. They are randomly selected to validate a block. It is the equivalent of 'mining' when using a competency-based mechanism such as proof of work.
Naturally, one of the most effective ways to stake crypto is to become a validator. Blocks are validated by more than one validator, and when a specified number of validators verify that the block is accurate, it is finalized and closed.
However, it is a bit more complicated than using an exchange or joining a group, as it requires you to build your own participation infrastructure. You need to have the right equipment with the right computing power and software and download the full transaction history from the blockchain.
Becoming a validator usually involves a high cost of entry as well. On the Ethereum network, one needs to have at least 32 Ether (ETH), which roughly converts to $140,000, give or take. Read more about staking and becoming a validator on the Ethereum network here.
Is it profitable to bet on cryptocurrencies?
So the burning question really is: How do you make money from cryptocurrency staking?
Let's put it this way. If you are already familiar with the practice of crypto mining and trading, then this is a great start. Staking can be just as profitable, minus the risk that comes with mining and trading.
So yes, cryptocurrency staking is profitable. Basically, you have to buy and hold some coins and add them to the mining pool. The profits you make, which usually come in the form of transaction fees, will depend on how much you wager and how long you wager.
Things to consider when increasing your participation benefit
In general, you get more profit from the bet as you continue to bet more. However, there are other things to consider when it comes to increasing your earnings:
- coin value: Avoid betting a currency with very high inflation rates. You might earn big rewards initially, but since the value of the coin is volatile, you might be left with little or no profit.
- fixed supply: Make sure the token or coin has a fixed supply. The limited circulation of coins within the market ensures a healthy demand and a constant increase in prices.
- real applications: The demand for cryptocurrencies largely depends on the actual applications of a currency. If it is widely used for various real-world applications, such as digital payments, it will continue to be in healthy demand and price.
Which cryptocurrency is better to bet?
As mentioned above, not all cryptocurrencies are viable for staking. bitcoin (BTC), for example, does not support staking because it uses a different method to validate transactions: proof of work. In general, if a cryptocurrency is linked to a blockchain that uses proof-of-stake as an incentive mechanism, it could be eligible for participation.
Ethereal
Ethereal It offers substantial staking returns because it remains one of the most popular altcoins on the market today. The average rate of return for staking on Ethereum is 5-17% per year.
Cardano
like Ethereum, Cardano it is also a smart contract platform. Cardan (THERE ARE) is the digital currency that powers the platform's proof-of-stake network. Binance supports ADA staking and offers returns of up to 24%.
eos
eos it is also used to support decentralized programs, such as Ethereum. EOS (eos) can be wagered to earn rewards averaging 3.2%.
Cosmos
Dubbed the 'internet of blockchains', Cosmos allows different blockchains to transact with each other through interoperability. Several platforms support Cosmos staking (ATOM) including Coinbase, Kraken, and Binance. The ATOM bet yields an average of 7% per year.
Tezos
Tezos is an open source network with Tezos (XTZ) as its native currency. XTZ can be staked on various platforms such as Kraken, Binance, and Coinbase. The average return for staking XTZ is currently 6%.
Moles
Moles, like Cosmos, encourages interoperability between various blockchains. Despite being relatively new, Bet Polkadot (POINT) is compatible with several platforms, including Kraken, Fearless, and Binance. The current average return for staking Polkadot is 12% per annum.
Can you lose money betting crypto?
When investing, the first and foremost thing to consider is the risk involved. So is cryptocurrency staking safe?
I bet it is, but there are definitely some risks involved.
Generally speaking, you cannot "lose" money by staking crypto itself. What you need to be aware of are things like inflation and illiquidity, to name a few. Given how volatile cryptocurrencies are, there are chances that the coin you put up to stake will drop. For example, if you stake your crypto and it loses value even after making returns after staking, technically speaking you could still lose money.
And, if you are a day trader, you cannot use the coins for several weeks or months and thus miss out on lucrative gambling opportunities. This is why it is important to be smart when choosing which coins you want to bet on.
Review the tips we outlined in the section "Is Cryptocurrency Staking Profitable?" to make sure you are making the right decision before placing a bet.
