Staking, what you need to know
Decentralised Finance has the potential to rewire how the financial system works globally.
The rise of the DeFi system, by which financial products are available on a public decentralised blockchain network rather than through intermediaries like banks, allows transactions to be made in more efficient, flexible, and secure ways.
Crypto staking offers a way in which to earn investment income on their digital assets.
What is Crypto Staking?
Not dissimilar to depositing money in a bank, Crypto Staking allows cryptocurrency holders to lock up their assets and earn rewards or ‘interest’ in return.
“Staking is a term used to refer to the delegating of a certain number of tokens to the governance model of the blockchain and thus locking them out of circulation for a specified length of time,” Nicole DeCicco, owner and founder of CryptoConsultz, a cryptocurrency consultancy in Portland, Oregon, is reported as saying.
This increases the value of the token by limiting the supply, and the tokens can be used to govern the blockchain if the network uses a proof-of-stake (PoS) system.
In PoS systems, coins are staked to forge new blocks in the blockchain, for which participants are rewarded.
“Winners are selected through randomisation, ensuring no single entity will gain a monopoly over forging,” DeCicco has said.
The Rewards according to Trust Wallet
- Crypto holders who stake can earn income (on top of potential campaign gains) on their staked digital assets.
- Participation typically doesn’t require specialised equipment.
- Crypto staking allows users interaction with blockchain technology in a more in-depth manner, which leads to further knowledge of the industry.
- The market may move in a way that is adverse to the value of your staked coins. What is perhaps worth $1,000 one day may be worth only $100 tomorrow.
- The token you stake may be a small one with no liquidity on exchanges. In this case, you will have trouble selling your coins and turning them into BTC or ETH.
- You are unable to access your coins in the lock-up period. If you need the money for an emergency, you will be unable to access your assets. Alternatively, you may gain access, but incur a fine, which significantly slashes the value of your original investment.
- Some networks also have a rewards duration, meaning you don’t get profits paid out daily, only after a certain amount of time. Mitigating this risk boils down to proper research and choosing coins that pay out daily as well as only investing money you will not need in an emergency.
- If your node is not up and running as it should be, you may be liable to fines and penalties. Thus, if you are self-staking, it’s important to ensure your node is always running as it should be to avoid this scenario.
How to Start Staking
- Choose a coin to stake – among them are Ethereum, Cardano, and Solana.
- Download the wallet – this is where you store the funds used for staking, just go to the website of the coin you want to stake and download the wallet.
- Determine the minimum requirements – some PoS networks have a minimum number of coins required in order to stake.
- 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.
- Start staking – at this point it’s important to check your node occasionally to ensure everything is running smoothly.