Staking is verifying a transaction and earning a reward in return. It entails committing your crypto asset to help a blockchain network confirm a transaction. The process is commonly used to process payments in the proof-of-stake model. So when an investor stakes, they allow their cryptos to be used to verify transactions and, in return, generate passive income.
So How Does Trader Stake Cryptos?
If you are a trader and own some cryptocurrencies, you may allow the cryptos to be used to validate transactions. When blockchain uses your cryptos for this purpose, you receive a reward. Just the same way banks pay interest on deposits.
Staking, thus, allows a trader to commit cryptos to be used in verifying transactions while they sit and earn a passive income. If you are new to cryptos or experienced, but do not know how to stake crypto works, continue reading.
How Staking Cryptocurrency Works
If you participate in staking, you will pledge your coins to a cryptocurrency protocol. The protocol will then select you to join a team of validators and confirm blocks of transactions. Investors who pledge more cryptos stand a better chance of being chosen validators.
Note that a new crypto coin is minted when an additional block is added to a blockchain. It is then distributed as a reward to validators. Blockchains may use the same cryptocurrency to reward the validators or may use other types of reward.
When you stake your coins, you still own them, but you are putting them to work where they can be used to validate transactions. The cash will be available for other users when you unstake them. Each cryptocurrency determines the duration it takes to unstake a cryptocurrency.
Only those cryptocurrencies that use a proof-of-stake model will allow you to stake cryptos. Proof-of-stake does not require a lot of energy. Besides, it is a scalable option that handles more transactions compared to the proof of work model that bitcoin uses.
Unfortunately, all cryptocurrencies do not allow staking. The service is only available to cryptos that use proof of stake to validate a transaction. Here are some of the cryptocurrencies that allow staking.
Ethereum
It started by utilizing the proof of work but later moved to the proof-of-stake model. It is a programmable blockchain used to create apps and is ideal for staking.
Cardano
The cryptocurrency was founded after peer-to-peer review and research. It is evidence-based and ideal for staking.
Polkadot
It allows different blockchains to work with one another, enabling them to connect easily.
Solana
The blockchain is scalable, charges the lowest fee, and allows fast transactions. It is, therefore, ideal for staking.
But before you stake, you must transfer the cryptos to the blockchain wallet when you want to stake crypto. If the exchange has a staking program, you can stake the crypto on the exchange directly. But if it does not, you will be required to transfer the funds to the wallet, before you can be allowed to join a staking pool.
A staking pool allows one to move cryptos to a pool that enables traders to stake and earn a reward. But you may need to research many aspects before choosing the right pool for staking. Here are some of the things you must research on.
Reliability- a pool with servers whose uptime is close to 100% is better because it is challenging to earn reasonable rewards through staking when the servers are down.
Fees charged- Pools charge fees. Some of them take a cut of the staking reward. So, choose one that charges the least fee, say 2 or 5 %. Also, the chances of failure are higher when working with smaller pools than large ones.
Final Thoughts
Staking is becoming a popular way of earning rewards on blockchains. But the reward differs from one blockchain to another. Also, it requires that you get selected as a validator. This may not be easy for individuals with a limited amount of cryptos. So by choosing to join a pool, you stand a chance to stake cryptos.
