What does staking crypto mean?
The term ‘Cryptocurrency’ has been in vogue for quite some time now. However, its popularity has increased tremendously over the past few years, especially in the Indian scenario, with the numbers ranging from 1.5 to 2 crores, according to WazirX founder Nischal Shetty. In comparison, other sources claim the number to be ten crores.
If you are an aspiring trader in cryptocurrencies or a general enthusiast, you have come to the right place to know about staking in cryptocurrency.
Staking in cryptocurrencies
To understand the concept of staking, we need to go over the fundamental concepts of cryptocurrency.
Blockchain technology is solely responsible for the existence of cryptocurrency, which is achieved by using cryptographic hashing, ensuring that the history of the digital asset remains unalterable. This technology, also known as Distributed Ledger Technology (DLT), essentially creates a transparent ledger that stores the encrypted data blocks and binds them like a chain to create the database.
The earliest form of cryptocurrency employed the Proof-of-Work algorithm in the blockchain network to create new blocks, confirming its transactions. This algorithm is the main backbone of Bitcoin, Ethereum, Litecoin, and other Bitcoin-based cryptocurrencies. While this algorithm provided a good defense from DoS attacks and provided ample opportunities for mining, it also had the major drawback of huge expenditure and the major waste of time and power to generate more blocks.
To counter this, other cryptocurrencies were introduced, which use the proof of stake model; wherein new transactions have to be verified before being added to the blockchain. The existing coins are used for validation to confirm these blocks. These cryptocurrencies essentially support crypto staking.
In crypto staking, unlike the earlier methods to mine the coins, the traders can lock a fraction of the cryptocurrencies owned by them, which, in turn, contributes to the existing blockchain network. These traders are then required not to withdraw the locked cryptocurrencies until the completion of a said period.
These traders are rewarded with a set amount of coins, or rather, an interest in the form of the newly minted coins of cryptocurrencies.
This practice does carry risks due to the volatility of the cryptocurrency market. It should also be noted that this practice incurs a fee that will be deducted from the rewards.
Crypto staking is considered fairly beneficial to the blockchain network and for the traders to generate more value for the cryptocurrencies in their possession.
The added benefit comes along when many individuals invest through this method, which can substantially increase the crypto token’s value.
To name some of the popular cryptocurrencies that support staking:
With the news of a parliamentary bill seeking to ban cryptocurrency in India making rounds, the spotlight has again fallen on it. As a result, many investors have been found to sell the large fraction of cryptocurrency they have invested in. However, several platforms — which support cryptocurrency trading — have been sending messages to the traders to not panic.
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However, it has to be noted that the news surrounding it has also claimed that the bill allows the use of cryptocurrencies under certain exceptions, which will be made clear when the bill is passed through in the winter session of the parliament.
So if you wish to continue to trade with cryptocurrencies, follow the safe practices with stipulated guidelines and with proper reference.