Cryptocurrencies have become a global phenomenon today. People are eager to learn about this new, seemingly promising platform to achieve financial freedom. Moreover, the opportunity to double down the financial capital is making people more curious to learn how the entire system works. In this blog we’ll cover every aspect of staking process in crypto and how you can make money through crypto staking.
Earlier, people could only gain profits through trading or investing in the form of buying and selling crypto coins but now, with it is easy to make easy money through crypto staking, people can earn profits just by keeping their coins in the wallet.
Further, this practice allows cryptocurrency holders to earn a good amount of interest through their digital money holdings on the network. Many of you must be wondering how one can earn money by simply staking their coins. So in this article, we will explore what crypto staking is and how holders make profits through it.
Learning about cryptocurrency staking
Although there are high chances of sudden price rises and sudden price drops, crypto holders are finding crypto staking as a suitable way to generate passive income.
Crypto staking has been in existence since 2012. Two famous names in the crypto world Scott Nadal and Sunny King launched the practice of peer-to-peer cryptocurrency transactions. They introduced peercoin, which the system used as an incentive for the PoS consensus algorithm. Soon after that, numerous cryptocurrencies in the market started implementing proof-of-stake mechanisms in their ecosystem.
You might get confused with the term staking, but it is simply a type of algorithm that a network follows. Here crypto holders lock up their assets within the network for a certain period of time. During this period, they are not allowed to use the locked-up portion of their crypto holdings for any activity, including buying, selling, and trading.
How do users earn money through crypto staking?
As per the algorithm, the users with higher stakes within the network are chosen to play the roles of the validator. The validators are the entities that have the power to verify new blocks, approve or reject transactions. However, every process involves a consensus mechanism where a specific number of validators need to agree upon the validity of transaction information. Once validators verify, new transaction data gets added to the network ledger as a permanent record.
This way, the network streamlines its activities with the help of crypto holders. Also, this practice is very important for any cryptocurrency network to keep running efficiently.
Furthermore, validators get a certain amount of rewards in exchange for their service for the network. Usually, these rewards come in the form of valuable cryptocurrencies that get added to their digital wallet automatically once they verify a transaction.
Also, you can stake the earned rewards in the network, increasing the amount of your locked-up coins. Hence you will be liable for a higher value of rewards as per the rule of the algorithm.
The working of validating new blocks through crypto staking is more convenient in comparison to mining. Where mining users need expensive equipment to solve highly complex calculations for block verification, staking depends on a deterministic manner for completing the process.
This is why experts deem crypto staking as more eco-friendly in comparison to trading and mining, as it doesn’t consume high energy. Also, there is no need to maintain any kind of additional device in this process.
Why should one prefer cryptocurrency staking?
Cryptocurrency staking is one of the best alternatives to all the income sources that users get through crypto mining.
Also, to become a miner, you need to maintain a high functioning and costly supercomputer along with competent skills. While with crypto staking, none of them are a necessity. Also, holding cryptocurrency idle in a digital wallet saves you from a massive loss at a time of uncertainty in the crypto market.
It is like you can keep your crypto assets as long as you want in the wallet, and it’s up to you how you want to use them. And the best part is you keep on getting some percentage of interest for your held asset in the network.
As you do not need any additional machines or expertise hence, it becomes one of the easiest ways to double down your capital.
In a Nutshell
Cryptocurrency staking as a source of income has become a hit among the community as the rewards are considerably good, and anyone can make good money simply through crypto staking. Also, it allows users to hold as many crypto coins as they want in their digital wallets. However, there are some rules that people need to follow, like committing to not using locked up crypto assets for a certain period so that the network can smoothly run its operation.
On the other hand, certain risks are unavoidable in the crypto world, like hacking one of the platforms you are part of. However, being alert can save you from such risks. Always do your own research before making any financial investment.
Gargi Sinha is working as Senior Journalist at Confea. She has completed her Masters in Journalism from Delhi University. She has interest in crypto and blockchain technology.