We have talked a lot about Bitcoin Mining but let’s turn the page now and throw another shrimp on the Barbie. Let’s discuss another trend called Cryptocurrency “Staking”.
What if you didn’t HAVE to buy the expensive mining equipment or pay any cost associated with Mining? No massive use of electricity to run the powerful computing machines used to validate transactions, YET, still earn a passive income in the Cryptocurrency markets?
Governments through their Central Bank systems, own all the creation, minting and issuing all of the Fiat currency of the world. They also need infrastructure to be able to carry out this control over the world fiat Currency.
Cryptocurrencies also need an infrastructure within the Blockchain to be able to provide a secure, efficient and stable environment. There are KEY differences on how each one derives its infrastructure.
While Governments depend on the Central Bank System, Blockchains depend on its users to provide the infrastructure with two basic incentive mechanisms. One is Mining and as discussed in a previous blog, miners earn Bitcoin by verifying the transactions that are placed on the Blockchain whereby creating an orderly and secure system. The other mechanism is “Staking”.
So What is Staking?
Staking is the purchasing and holding of a cryptocurrency in a wallet for a certain period of time. This is similar to earning interest rates for holding Fiat in an account for a certain period of time.
This concept is known as PoS or Proof of Staking which is an agreement algorithm by which you can add blocks to the Blockchain. These newly created blocks are actually Staked by someone holding cryptocurrency already and helps to validate a new deal on the Platform.
You can then validate or mine new deals for cryptocurrency equal to the number of Cryptocurrency you have staked. Hence, the more Cryptocurrencies you stake, the higher the power you will have to validate transactions and the more you can earn and increase your wallet holdings.
Staking provides a financial incentive that helps to build a blockchain and helps to keep a node honest. Any Node that tries to broadcast fraudulent information will be shut down and no longer be allowed to do validations or earn the accruing rewards. In many networks the dishonest node will lose any cryptocurrency it has earned as well.
Overall Staking is cheaper than Mining. Since Mining hardware is upgraded continuously you could stand to lose a a good amount of money by selling outdated equipment for mining or be stuck with it.
What is a Staking Pool?
When large PoS networks need big amounts of Staked coins in order to qualify for doing validations, they will pool their Cryptocoins together then divide what is earned among the pool members.
Some Staking pools have voting systems and even though the nodes that can validate are small, this does give the incentive to work for the good of the network.
What are the Benefits of Staking?
- Forget the costly mining equipment such as ASICs or high-end GPUs as you won’t need them.
- The cryptocurrency for Staking, you hold in your own crypto-wallet
- The value of cryptocurrency staked through PoS doesn’t depreciate, however the normal fluctuation of value does effect the value of your Stake.
- Proof of Stake is more Eco-friendly and energy efficient than the Proof of Work (PoW) used in bitcoin mining.
- Staking guarantees you a predictable source of income as the value of cryptocurrency increases in a predictable manner.
The only drawback cryptocurrency staking has is that they hold the cryptocurrency up for a period of time. Furthermore, you cannot sell the cryptocurrency until that amount of time runs out.
OK, How do you Earn from Staking?
In cryptocurrency staking, you can calculate the earning rates based on the maturity period you need to keep the Cryptocurrency you stake up. But, every cryptocurrency has different rules and rates while the basic operation method remains the same.
For staking of 3 months, you will receive a minimum of 20% in your returns. In 6 months though, staking grants you a minimum of 50%, and 12 months staking locks you into a 100% return.
How do you get started in Staking?
According to https://www.bitcoinmarketjournal.com/staking-cryptocurrency/ here’s how to get started in Staking:
To start staking cryptocurrency, you need to follow these five steps:
- Choose a coin to stake.
There are a lot of PoS coins available in the altcoin market. One can surf the web and decide which coins they want to stake. On top of that, we have compiled a list of the most profitable coins to stake recently.
- Download the wallet.
A software wallet is essential to the staking process. It is where you store the funds used for staking. Simply go to the website of the coin you want to stake and download the wallet.
- Determine the minimum requirements.
Some coins have a minimum number of coins required in order to stake. Dash requires 1000 DASH while Ethereum plans to start with 32 ETH. Although, there are also coins like PIVX, NEO, and PART that have no required minimum.
- Decide what hardware to use.
Most staking schemes require a validator (staker) to be connected to the network 24/7. Therefore, you need a device that has uninterrupted internet access.A standard desktop computer would do well, preferably one that consumes less power as it needs to run around the clock. A raspberry pi can do the job as well and might save electricity.You can also take advantage of virtual private servers (VPS). Running on the cloud adds a lot of convenience for the staker as it removes maintenance hassles.
- Start staking.
After your wallet is set up, you can begin the staking process. Be sure to be connected to the internet at all times, unless you’re using a VPS. At this point, all that’s left to do is occasionally check in on your node to ensure everything is running smoothly.