What is Staking? Complete Guide For Beginners
Staking is one way to get passive income from crypto assets. Passive income is income that does not involve you directly.
For example, income from things like rental properties, partnerships, or investing in assets such as crypto assets.
Crypto Asset Staking
It is the process of actively participating in transaction validation (similar to mining) on a blockchain with a Proof of Stake (PoS) mechanism.
In this blockchain, anyone with the minimum balance required for staking a particular cryptocurrency can participate in validating transactions on the blockchain and get rewarded for this process.
Your assets will be stored in a system that allows the staking process for a certain period. During the storage process, you can get profits for a certain period.
The process of staking coins or means betting and rewarding you because you have staked several assets in the network and contributed to the network’s resilience.
The ease of staking is almost similar to deposits, where you only need to deposit a nominal amount of money, ask the bank to manage it, and you will get the interest.
Such locked crypto assets or currencies will contribute to aligning all stakeholder desires. In short, if enough entities have digital assets at stake in a network, they all have a vested interest in keeping the network running and growing.
However, if there are not too many entities, this process can be detrimental because the network does not develop. Therefore, you should invest in tokens or coins that have a reputation and quality network for this process.
Proof of Stake (PoS)
Proof of Stake or PoS, the main idea of this algorithm is mainly that participants can lock coins. At certain intervals, the protocol randomly grants the right to one of them to validate the next block.
The more coins at stake, the more chances of becoming a validator.
In this way, determining which participant creates the block is not based on their ability to solve the hash challenge, as is the case with Proof of Work. Instead, it is determined by how many coins they hold.
How Staking Works
Blockchain Proof of Work relies on mining to add new blocks to the blockchain. In contrast, the Proof of Stake chain generates and validates new blocks through this process.
Staking involves validators locking their coins so that the protocol can randomly select them at certain intervals to create a block.
Usually, the participant who bets the larger amount has a higher chance of being selected as the next block validator. This allows blocks to be produced without relying on specialized mining hardware, such as ASICs.
While ASIC mining requires a significant investment in hardware, staking requires direct investment in the cryptocurrency itself. So instead of competing for the next block with computational work, PoS validators are selected based on the number of coins they stake.
“Stake” is what incentivizes validators to keep the network secure. If they fail to do that, their entire stake might be at risk.
Platform for Staking
You can do solo staking, using a staking pool, or through an exchange in this process.
In solo means, you must provide a wallet that complies with the terms of the crypto asset you wish to bet on, then must have the minimum amount of crypto required for betting.
Some coins have a minimum number of coins required to bet. Dash requires 1000 DASH while Ether is 32 ETH.
Then, you must have hardware connected to the network 24/7, so you need a fairly stable device and a smooth internet connection.
You can also take advantage of a virtual private server (VPS). Running in the cloud will add a lot of convenience to stakeholders as it minimizes the hassle of maintenance.
Once the wallet is set up, you can start the staking process. Make sure to be connected to the internet at all times, unless you are using a VPS. At this point, it’s just a matter of checking your nodes every time and then to make sure everything is running smoothly. The solo staking process is quite complicated for beginners, so beginners who want to try betting this crypto asset more easily. You can choose a staking pool or stake through the services provided by the exchange.
Choice of Staking Points
A staking pool is a group of coin holders who pool their resources to increase the chances of validating blocks and receiving rewards. They combine power and share the prize in proportion to their contribution to the pool. Setting up and maintaining a staking pool often requires a lot of time and expertise.
Staking pools tend to be most effective on networks where the technical barriers are relatively high. As such, many pool providers charge additional fees resulting from this process reward.
If you join the prize pool, you will not get as much as if you do it solo. This is because you have to share profits with other people who are members of the pool.
However, using this pool has the advantage of being much more consistent, requires a low minimum balance, and is easier for beginners to use. Next to locking assets in the exchange, this is the easiest way to stake. However, not many exchanges provide this service.
Exchanges that already provide include Binance, Kraken, OKEx, Bithumb, and others.
In this exchange, you simply deposit several coins that you want to stake. The process on this exchange will run automatically, and users only need to check at least once a week to find out how much interest is being generated.
Benefit
# Earn passive income without mining or trading crypto assets which tend to be riskier for those who don’t understand how it works.
# Capital is lower, and everyone can participate in staking if they have the required coins.
# If you use a staking pool or exchange, the process is easier
# Save energy because you don’t need to provide devices with high electrical power like Bitcoin mining.
This process is considered a cheaper and less risky way of participating in the blockchain network validation process.
Moreover, it is an energy-efficient and environmentally friendly way that can generate additional revenue in the digital asset market.
