Among the various techniques of earning passive income in the cryptocurrency realm, the use of staking has emerged as a prominent one. For beginners in Web3 and crypto, staking is a way to increase one’s assets while helping the networks that one believes in, without the need for active trading or mining. The following is the working principle of staking and the method to earn rewards presented in simple terms.
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What Is Crypto Staking?
Staking is the act of setting aside a certain cryptocurrency for the purpose of approving and securing a decentralized ledger system. Many blockchains are designed to use Proof-of-Stake (PoS) as the main consensus mechanism, where the validators carry the main burden of the network by confirming the transactions. When you stake your tokens, you power these single entities with your coins, thus enabling them to operate the system smoothly. In exchange, you receive an income which is usually given to you in the form of the very coin you have staked.
How Does Staking Work?
Pick a crypto asset that enables staking (the notable ones are Ethereum, Solana, Cardano, and Polkadot, etc.).
Buy and keep the needed tokens either in your wallet or on a (crypto) exchange which facilitates staking.
Pick a platform for staking or a validator: in some cases, you can send tokens directly from your wallet to the network, in others, through an exchange or a staking service account.
Assign your tokens to a validator or a pool you liked the most. Your tokens remain in your control; you are not permanently sending them away.
Get paid frequent incentives depending on how much and for how long you staked as well as the network’s reward rate (generally referred to as Annual Percentage Yield or APY).
Why Stake Crypto?
Staking can be compared to receiving interest from a bank deposit, but in most cases, the rates of returns are higher. It is a way of making use of your crypto while still owning it instead of having to sell it or trade it. Moreover, as more people stake, the blockchain will be safer and more efficient.
What You Need to Know Before Staking
Staking rewards can vary and cannot be relied upon, a sum being influenced by the network and the validator’s good run of work.
For example, if you decide to stake some tokens you will not be able to access or trade them until the end of the locking period.
One of the greatest mistakes that can lead to financial loss is the ignorance of the importance of choosing a reliable validator who will neither cause you to lose your rewards nor face what is called slashing; the occurrence of penalty points on your stake.
Know and understand the rules in the blockchain as well as the platform used for your staking activities.
How to Get Started
The very first thing one should do is to collect relevant information on coins to stake that are trustworthy and clear from the technical point of view. Then, one has to create a wallet which will be compatible with the coin that one wishes to stake or find an exchange which is trustworthy and offers staking services. There are plenty of platforms that offer step-by-step tutorials through the process. You can check them out.