Sep 10, 2021
5 Things To Look Out for in Staking Cryptocurrencies
Staking cryptocurrencies is an increasingly popular activity amongst investors and blockchain advocates; it’s a simple but powerful concept that is a means to earn a passive income and provide critical infrastructure to any given network.
While a relatively simple practice, there are still some hurdles and pitfalls that stakers (validators), new and old should be aware of. In this post, we’ll be walking you through the basics of staking, the troubles you may encounter, and how to avoid them, as well as showing you just how easy staking can be with AVADO.
Crypto Staking Explained
Decentralized finance (DeFi) has introduced the world to a plethora of financial products and tools built on blockchain technologies, including staking, depositing digital assets into specific wallets, and earning interest on these holdings for providing vital infrastructure to a blockchain.
Staking crypto offers extremely attractive interest rates that often beat those you may find in a traditional bank account; sometimes, these rates can exceed 13% APY. The implementation of staking will vary depending on the network, but, in most cases, validators are bolstering the security and efficiency of a blockchain. They can often be granted voting rights on proposed changes to their network.
As you can see, there’s quite a lot to staking, including the fact that it’s a more energy-efficient solution to Proof-of-Work (PoW) systems such as Bitcoin. Blockchains that employ Proof-of-Stake (PoS) are touted as the bedrock of blockchain’s future, further cemented by major networks such as Ethereum who are working to become PoS systems.
Ethereum founder Vitalik Buterin noted: “Proof-of-stake is a solution to the [environmental issues] of Bitcoin — which needs far fewer resources to maintain.”
The Risks
As with any new technology, especially in cryptocurrency, there are some pitfalls that you should watch out for. While some may seem like common sense, there are several elements of risk in play whenever you’re staking.
- Loss/Theft
A validator requires the user to ensure that their computer and all associated passwords and private keys are secure. There’s little that can be done to recover funds if you lose them. The first things you should do when becoming a validator are using a VPN (such as the one built-in to the AVADO Box), backing up your wallet, and storing vital private information properly offline.
2. Market Volatility
Amongst all the risks listed, the price movements of cryptocurrencies are probably the biggest of them all. When you stake crypto, the value of your assets will still fluctuate and potentially cause huge losses.
Furthermore, many staking protocols have minimum lockup periods, ranging from a day to over a year. So before you commit, be sure to research the status of your desired staking crypto, as well as making sure you are comfortable with the minimum lockup period.
Additionally, some cryptocurrencies have tiny market caps and don’t have substantial trading volumes; these can dwindle to such sizes that it is hard to swap/sell these tokens out, so consider staking assets with high trading volumes to minimize this risk.
3. Initial Investment
To stake, users need to purchase their desired staking cryptocurrency, which can sometimes be incredibly expensive. Many networks such as Qtum have no minimum, and others such as Ethereum require thousands of dollars worth. Remember, these cryptocurrencies have a market value, and sometimes they can plummet, so keep an eye on your investments at all times.
Additionally, there can be certain overheads, such as purchasing mining hardware or using a third-party service to take part in staking. Purchasing a miner will incur electricity costs and often require some knowledge to set up and maintain. Platforms that pool together numerous validators’ computing resources take a percentage of your earnings. Do your research and make sure you find a sustainable option for you.
4. Reward Duration & Distribution
Similarly to lockup periods, some staking cryptos don’t pay interest earned daily. A validator may need to wait a certain period before they receive their rewards. In many cases, users will still be able to withdraw their stake, but it will affect their APY (which can be avoided if you stake for a whole year).
There are also many ways in which a PoS system could distribute rewards to validators; some networks distribute rewards evenly or in proportion to the amount staked, and some work on a lottery system where the winners are selected at random, though again, the higher the amount staked, the better the chances of winning are.
5. Slashing Penalties
The term “slashing” refers to when a validator loses a portion of their staked tokens which are burned or redistributed. This can occur when a validator goes offline (downtime), when two blocks are signed twice at the same block height (double-signing), or when a validator fails to vote or votes multiple times on a single consensus. These votes contradict one another (governance fault).
Avoid downtime by ensuring you have a high-quality internet connection that can run 24/7. An instance of double-signing can occur if a user is attempting to attack the network or due to poor setup infrastructure, and when it comes to voting, pay attention to what you’re doing.
Staking with AVADO
In many cases, becoming a validator is almost as simple as depositing assets into a wallet. Still, more often than not, these systems require some relatively advanced programming knowledge to get set up, and then there are the maintenance, electricity costs, and security to consider.
The AVADO Box is a state-of-the-art piece of hardware that is designed to solve all of these problems. It’s an affordable plug-and-play device that allows users to become network validators with ease.
Each box comes packed with a built-in VPN, powerful processors, a minimum of 1TB storage, and 16GB RAM. Simply connect all the necessary cables. Using its intuitive user interface, you can browse the decentralized application (DApp) store, locate the network you’d like to stake on and leave all the hard work to AVADO.
A Valid Point
Up until the arrival of AVADO, the worlds of mining and staking were beginning to hit a wall as the money, electric power, and knowledge required to take part in the decentralized future increased exponentially.
Representatives of financial giants such as JPMorgan have estimated that cryptocurrency staking is a $9 billion business that will grow to some $40 billion by 2025, noting:
“We think staking will make the cryptocurrency marketplace increasingly attractive relative to other asset classes, yield-generating or not,”
The AVADO Box is another victory in the journey of blockchain as it makes its way into every facet of our life. By becoming a validator, users are not only in with a chance to earn a passive income, but they are also bolstering the efficiency and presence of blockchain technologies worldwide.
Most importantly, the AVADO is proof that these technologies are evolving rapidly and stands as a message to the world that blockchain and cryptocurrencies are here to stay.
AVADO is a plug-and-play blockchain computer. Running a blockchain node on AVADO is the easiest way to participate in decentralized networks that reward you with crypto. ⛓️⬛
You get access through its WiFi hotspot or VPN. 🌐💻
The user-friendly UI allows you to use and manage the device from anywhere in the world.🌎
It comes pre-installed with the AVADO OS, saving you a lot of time and research setting up a node. ⌛Using an AVADO is convenient, secure and true to the spirit of decentralization. 🙌🏻
Get your AVADO at www.ava.do/shop or join our Telegram group https://t.me/joinchat/F_LlkBLEoDrFioPNviEpsQ
