How does staking work?
Staking is a fact that the investor keeps coins on the PoF (Proof of Stake) algorithm, which means “proof of ownership”. This allows you to maintain the performance of the entire Blockchain system, protect against hacking and the publication of fake information. This provides the staker and receives a percentage for this. Only owners of cryptocurrencies working on this algorithm can do this - for example, BTC, Tezos, TRON and Cosmos.
Staking is a substitute for mining, it allows users to get cryptocurrency without resorting to difficult mathematical calculations. The meaning of such activity is to maintain the operation of the blockchain and the processes taking place inside it. For stimulating the network working, the system issues a reward. The larger the amount of digital asset a staker has, the more likely it is to get a new block - i.e. cryptocurrency.
Staking as a way to get cryptocurrency
Speaking about the ways to get cryptocurrency, it is impossible not to mention mining. It is based on complex mathematical calculations using the most powerful computers. This is an active income tool based on the PoW (Proof of Work) algorithm. The power of computing technology on mining farms maintains the blockchain system and the correct execution of all transactions. In turn, the miner receives cryptocurrency for this. Industry experts say that mining is a competition for computing technology, and staking is a competition for holders of digital assets. Staking is the exact opposite of mining. In order to engage in it, special equipment and high energy costs are not required, it is a passive income due to the storage of cryptocurrency.
Types of staking
The main principle of staking is universal for all its types - a certain amount of cryptocurrency is on the user's account, for which he receives passive income. The level of profit is determined by the amount of capital. Also, the mechanism of work can be supplemented by other conditions that depend on the type of staking. For example, some systems provide payments only to validators. Then, stakers sometimes combine assets, creating pools and becoming validators, and draw up a common contract, and the profit is divided among the pool participants in multiples of the size of the contribution.
Consider what types of staking exist and what are the additional conditions for holding a digital asset.
Working with this type of staking, the user specifies the specific period for which he holds the digital asset. The duration of this period cannot be changed. The main advantage of this type is the high interest rate. Usually, when concluding a contract, a specific amount is stipulated that the staker will receive after the specified period for holding the cryptocurrency. Usually this method is chosen by users who are interested in the highest possible profit.
In this case, the contract does not provide for a specific period for holding coins. The user can terminate it at any time and take the cryptocurrency. Interest is accrued until the staker transfers funds to another wallet or places an order on the exchange to sell tokens. Usually, the first transfers for holding a digital asset are made within 24 hours after the conclusion of a perpetual staking contract. This doesn't happen every day. Usually payments occur once a month. Perpetual staking is suitable for users who are not ready for long-term agreements to hold cryptocurrencies and who want to have constant access to their capital.
Decentralized systems are common in the field of digital assets, with their help they store, transfer, lend and exchange cryptocurrency. The main advantage is that no one has direct access to finances - all operations are performed automatically according to pre-established algorithms.
Decentralized staking is based on the fact that certain individuals and organizations can borrow funds from your wallet, and the system will ensure the implementation of all lending conditions automatically. In fact, the mechanism resembles a regular bank deposit.
Decentralized staking has several advantages:
- Quick profit. Funds are credited every day, so you can easily and quickly receive your percentage for holding an asset.
- High profit. The entry threshold for decentralized staking is lower than for other types of this way of earning. At the same time, profitability is up to 10 times higher. Sometimes the income exceeds 100% per year. The chosen coin and its holding period are of key importance.
- Guaranteed payouts. On reliable platforms, interest payments are guaranteed and no loss of funds is possible.
The main function of decentralized staking services is competent control over the execution of transactions. Although, experts recommend checking the terms of each contract - it may contain vulnerabilities that can put your capital at risk. To eliminate gaps in the contract, contact the technical support of the site.
How to get started and choose an asset to stake?
Initially, you will need to accumulate or buy a certain amount of tokens, which will act as "free" funds. That is, in case of their loss, the investor will not suffer significant losses. You should not invest all your funds in staking.
Also prepare in advance to block the asset for a certain period. Focus on staking conditions on different platforms. It is convenient when interest is charged on several tokens at once. This is how you protect yourself from losses when the price of an asset decreases: if one token loses in price and the other grows, you will significantly reduce or completely eliminate your losses. When choosing an asset, give preference to those that have less volatility and higher trading volume. Volatility shows price stability and risks, while trading volume reflects the overall demand for cryptocurrency.
It is better to redistribute your investment portfolio every three months: during this time, the volatile and dynamic digital asset market can completely change, and in order to keep your positions in the markets from falling, you need to monitor current trends and novelties.
Examples of staking different tokens
All tokens are generated over a different period of time and have different staking conditions. Let's take a look at what they are and how beneficial they are.
This digital asset is the most profitable for staking. One of the advantages is the high speed of transactions. In addition, it is backed by currency, unlike bitcoin, which is of particular value to the common man. In other words, BTC is quite real money that can be converted into foreign currency. BTC is a kind of bitcoin that has monetary backing. Its price usually does not fall below the value of bitcoin.
You can get BTC through staking. Cryptocurrency is generated every two minutes and is divided in the ratio of 1 to 99. The staker receives 0.01 BTC. To do this, you need a desktop wallet and at least 1 BTC on it. The reward is distributed depending on the amount of capital, expressed in BTC on the account.
At the moment, this is a developing promising project. Transactions here are quite cheap and fast, with an average profit percentage of 7 to 20 percent per annum.
Appeared back in 2014 and during this time acquired its own circle of fans. The application contains smart contracts that provide decentralized staking services. Asset holders vote and submit ideas for the further development of the project. The percentage of profit is on average from 3 to 11 percent per annum.
This cryptocurrency supports the dPos algorithm. Staking is possible both on exchanges and from a decentralized wallet. Profit is 3-12% per annum.
Key differences between mining and staking
As mentioned above, mining and staking are two independent, self-sufficient methods of obtaining cryptocurrency. Let's see what other differences they have
Now mining has become popular all over the world. Since more and more people are involved in the mining of coins, the system complicates the algorithm for obtaining new blocks. It is no longer possible to carry out all the necessary operations on a simple stationary PC; especially powerful computing equipment is required. Now special equipment is being actively created, and miners are united in teams to jointly solve complex mathematical algorithms and combine computing power. In addition, mining requires constant involvement in the process of mining coins. The system is constantly updated, and only the miner who has completed a certain calculation for the current period receives the block.
Staking does not require technical support and constant involvement in the work. This can be done by one investor on any device at a convenient time. All he needs is to purchase cryptocurrency and keep it in his account without reselling it on exchanges or in any other way. To enter this industry, you do not need a lot of capital - everyone determines the amount of investments by himself, choosing the most profitable cryptocurrency. It is important to note that there are also fairly inexpensive coins, so people with little capital can earn on their staking.
The main risk of staking remains the loss in the price of a digital asset. The more the coin rate decreases, the smaller the amount will be the interest specified in the contract. This is especially acute when concluding a contract for a fixed period. Noticing a sharp decrease in price, the user will not be able to sell the asset.
Therefore, experts recommend choosing a cryptocurrency with the lowest volatility coefficient for staking. It is advisable to choose not dynamic, but steadily growing assets in value. Pay attention to the level of system security. Before entering into a contract on the platform, read the reviews or consult with experienced industry representatives. Remember that it is much more difficult to restore an account here than in the usual social networks. Work on the security of your profile, monitor the reliability of personal data.
Please note that if the validator asks you to send funds directly, then this is a way to take possession of your asset. Make sure that scammers do not gain access to it and ignore such requests