Staking Crypto Explained: Pros & Cons
Staking cryptocurrency has evolved as a popular method of earning investment income in the crypto asset markets. However, staking, like all sorts of investing, is not without danger.
This tutorial will teach you about the major staking dangers so that you know precisely what you’re getting into if you decide to stake your crypto.
Is It Worth Staking Cryptocurrencies?
If you are an inexperienced investor with little capital, betting may not be right for you. Those looking to invest small amounts are often looking for quick returns that will allow them to grow the returns to make larger investments.
Cryptocurrency staking is usually for a specific and longer period of time. This could be 3, 6 or 12 months. Once the staking period has passed, it is at this point the stakers receive their rewards.
So is cryptocurrency staking worth it? If you can stake a significant number of tokens and don’t need quick returns, then staking cryptocurrencies can be a fruitful way to earn passive income without trading.
However, if you only need to make a small investment, the stake will not yield any significant or recognizable return.
Advantages of Staking Crypto
The first major advantage of staking cryptocurrencies is the passive income. Once you have deployed your cryptocurrency, you don’t have to do anything but wait for the end of the set time period to receive your initial stake and reward. Some investors who know that they will hold cryptocurrencies for the long term prefer this method instead of leaving cryptocurrencies idle in their wallets.
Second, using cryptocurrencies gives individuals the opportunity to support projects they like. As mentioned earlier, some blockchain projects and cryptocurrencies require staking to process and verify transactions. Staking helps your favored project stay secure, handle malicious attacks, and maintain high transaction processing speeds.
Moreover, staking cryptocurrencies is incredibly easy, even for beginners. All you need is a crypto wallet with a suitable crypto currency.
When you open your wallet, you will have the option to make a staking. Click on it and choose the amount of cryptocurrency you want to stake.
Cryptocurrency Staking Risks
Cryptocurrency markets are volatile. Double-digit fluctuations are incredibly common. This can be fruitful for both stakers and traditional investors, but it also has the potential to go the other way.
If your chosen cryptocurrency drops dramatically in value, you could suffer a loss as an investor.
You already know that stakes are usually locked in for a period of weeks or months. So, during a market downturn, you cannot sell your cryptocurrency. As your initial investment loses value, you still earn returns, but at the current market price. Thus, you suffer losses.
All the risks of betting are focused on potential losses, losing part of your bet, or losing the value of a cryptocurrency.
It cannot be stressed enough that you should do thorough research before deciding if betting a certain cryptocurrency is the best thing for you. Each cryptocurrency has different rules and rewards, so it’s not a one-size-fits-all solution.
The Difference Between Mining and Staking
Not every cryptocurrency offers staking. Ethereum 1.0 and Bitcoin are obvious examples of this.
As we have noted, staking cryptocurrency is used to verify transactions securely. However, this has not always been the case.
Traditionally, platforms used proof of work rather than proof of stake. The main difference is how transactions are verified using these different methods.
First, we already know that Proof of Stake uses staking. Proof of Work, on the other hand, uses mining. Validation of a transaction is done by solving mathematical equations. For this purpose, the computing power of miners around the world is used. Each time a new transaction is entered into the blockchain, miners compete to complete the equation. Whoever gets it done first is rewarded with cryptocurrency. However, as cryptocurrencies have become more popular, their impact on the environment has also become more apparent. For this reason, Proof of Stake has gained popularity.
Moreover, the processing speed can be incredibly slow when blockchain activity is higher. Proof of Stake counteracts this.
Should You Stake PoW Crypto?
That depends on your financial goals, currency conditions, and the cryptocurrencies you own. First, if you don’t own a cryptocurrency that offers stacking, you need to buy some or exchange tokens you own for stackable tokens.
Second, if you want to make big profits quickly, don’t commit to a staking contract. This ties up capital that you could use for daily trading.
If you decide to wager, you should pay attention to how long it will take to get your initial wager back at the end of the wagering period.
In addition, watch out for ridiculously high interest rates – as the saying goes, if it sounds too good to be true, it probably is. Stick to trustworthy, well-tested bets before you get used to the market.
If you see yourself as a long-term investor looking to build passive income rather than letting cryptocurrencies gather dust in your wallet, then it’s definitely worth taking advantage of them.
Crypto Staking Summary
So now you know what cryptocurrency staking is, how it works, its risks and benefits, and who it’s suitable for. Now it’s your turn to decide if it’s right for you.
Remember that everything you’ve read here is not financial advice. These are our thoughts on crypto staking and an insight into what it is.
Like any type of investment, there are risks involved in staking money. It is up to you to assess and minimize them. It can be an easy way to generate additional passive income with your cryptocurrency investments, but it can also leave you with losses and no capital to trade with.
Due to the high energy consumption of mining and the proof of work model, it is likely that most cryptocurrencies will move to a proof of stake consensus model. So now is a good time to look at staking.
Overall, staking can be a fruitful and rewarding way to earn steady passive income while supporting the crypto and blockchain projects you believe in the most. For consistent returns over time, this is a great option. But as always, don’t risk money you can’t afford to lose, and only bet after you’ve thoroughly vetted the project, the rewards, and how long you’ll be betting for.