Crypto Staking: Under 5 Minutes [2022]

Crypto Staking is for the daring and smart crypto souls. However, a simple process can get a bit technical if you choose to DIY.

Simply put, you lock in a certain amount, do math and earn strike rewards.

But that won’t be enough. Will it?

So, fasten your seat belts as we start this with the most important…

What is crypto strike?

Crypto Staking locks staking supported coins to a specific blockchain network to earn staking rewards. One can bet individually or with crypto exchanges/staking pools.

Let’s go back a bit and go through the consensus protocols first.

There are many. But the top two are Proof-of-Work (PoW) which governs some notable blockchains such as Bitcoin, and then there is Proof-of-Stake (PoS), which Ethereum plans to shift

PoW is crypto mining. Basically, it means that all miners try to solve the crypto hash at once. And the first to do it, probably with the most computing power, wins the mining reward. The rest get nothing but an excessive electricity bill.

This centralized mining power to the mega corporations with huge mining companies. In addition, the energy waste was significant for the environmentalists to campaign against it.

Then came the savior, Proof-of-Stake† This consensus mechanism assigns the transaction verification to the validators.

In this way, a single validator is chosen based on various parameters such as the stake amount, the investment period, etc. Some networks also combine a degree of arbitrariness to decentralize the selection.

The validator invests with their calculation to verify the transactions and get rewards. In addition, they will be given voting rights in future network protocols.

Each network has specific minimum requirements for validators.

In addition to some system requirements, they may require a minimum stake in the native blockchain network. For example, you need to have at least 32 ETH to run a full validator node on Ethereum. Or a 16-core CPU with 256 GB of ram for solo validation on the Solana network.

In short, solo validation involves a higher degree of risk, investment, and in-depth technical knowledge, which I believe is beyond the scope of this article.

Read this interesting blog post about how a ConsenSys employee became a full validator on Ethereum 2.0.

Further sections mainly focus on a viable alternative: crypto staking in pools.

How Does Crypto Staking (In Pools) Work?

Crypto stake pools are supported by the crypto exchange platforms like Coinbase or Binance. However, there are some third-party strike pools, as it was with crypto mining platforms.

Source: Solana

They handle the complicated software installation and hardware requirements.

For pool staking, you must have sufficient cryptocurrency (specific to the pool) and the willingness to lock it for the stated period. This lock time again depends on the crypto network or the exchange.

It essentially means that the amount wagered cannot be withdrawn before the contract expires, no matter how lucrative the price jump you see in the markets.

Source: crack

Bet prices are returns achieved on an annual basis, which are normally stated in advance. Some exchanges pay more often, such as Kraken, which pays twice a week.

After integrating a crypto wallet into the staking platform, one can bet coins in staking pools with just a few clicks. You will get rewards after the lock-up period, which are generally offered in the cryptocurrency wagered.

In a nutshell, crypto staking is:

Set up a crypto walletPurchase (swapping for) staking coinsConnect wallet to the staking exchange or poolConfirm staking

So now the million dollar question:

Benefits and Risks of Crypto Betting

Since crypto has yet to go mainstream as a currency, they are essentially practical investment opportunities.

The main benefit of staking is to earn from otherwise dust-gathering cryptocurrencies (with an excuse for Metaverse Crypto Coins for now).

In conclusion, you get strike prizes. These prices are generally in the form of cryptocurrency wagered. Still, some platforms offer rewards in currencies other than the one you wager.

In addition to the alleged financial benefits, you get the pride of supporting the underlying project. And as mentioned before, you have a say in the network decisions based on your share.

Now hold on to risks.

First, you can’t lift your bet and sell it if you see the price hitting the peaks. You are locked in for the period and the coin you wagered may fall flat during your contract period.

Strike thus adds the risks of the already volatile crypto.

In addition, you rely on middlemen by staking with exchanges/staking pools, which undermines one of the core principles – zero trust – of blockchain technology.

In addition, betting a coin with a smaller market cap can lead to a liquidity crisis as the rewards are paid out.

Finally, a hack on your staking pool or exchange could wipe out your investments with little hope of recovery.

Conclusion

Crypto Staking is risky.

And it almost becomes stupid if you are not sure about the supporting crypto project.

Because many start every day with flashy promises, but still 92% crashwith an average lifespan of only 1.22 years.

Still, a few succeed and give their investors unprecedented returns.

However, there is a much safer way if you are interested in earning free cryptocurrencies.

Related Posts

Leave a Reply

Your email address will not be published.