Staking 101: All you need to know about PoS, Staking, and how to earn passive income

For those new to the crypto space, crypto staking can be a new concept. It’s a way of earning passive income by holding cryptocurrencies over time. You can lock up some of your crypto funds on the native blockchain for a designated period of time to earn rewards- that is essentially what crypto staking is about.

Recently on September 15, the popular Ethereum blockchain shifted from its previous proof-of-work consensus algorithm to a proof-of-stake one. Now, this proof-of-stake algorithm is what makes use of the staking mechanism to keep a blockchain safe. The big event on Ethereum is known as the much-hyped ‘Ethereum Merge’. The Ethereum Merge has brought much attention to the act of crypto staking and earning crypto staking rewards.

So how does crypto staking work? And how can you earn staking rewards? Let’s find out!

Crypto Staking: What is It?

As crypto staking grows more popular with every passing day, it opens a new way for users to earn crypto as staking rewards. In simple words, crypto staking is basically locking up a portion of your crypto to make it a part of a proof-of-stake blockchain network and contributing to its security. In return, you get staking rewards for your troubles. Staking rewards can be generated in the form of more native crypto, governance rights, and more.

So crypto staking is a lot like a banking system where you deposit some amount, and the bank pays you interest. Some cryptos that allow crypto staking are Tezos, Cardano, and after the Ethereum Merge, ETH.

How Does Crypto Staking Work?

As mentioned before, you can participate in crypto staking only on proof-of-stake blockchains. You can stake your crypto directly on the chain as a ‘validator’ and participate in block validation, or you can stake your cryptos through a staking pool or a crypto exchange that allows the function.

Proof-of-stake blockchains make validators work in place of any intermediaries to verify payments on the chain. To become a validator, however, you have to invest a large amount of money on most protocols that few can afford. This is why most stakers choose to participate in crypto staking through staking pools and exchanges. Staking solutions like P2P Validator and Stakin allows several contributors to pool together their funds, and the staking rewards earned are distributed through all participants at equivalent measures to the funds they put in.

Is Staking Crypto Safe?

As crypto is a highly risky asset class to begin with, of course crypto staking has its own share of risks. Before staking crypto, you must be aware of these threats, including:

• The volatility of the crypto market might cause you to bear some losses; after you have staked a coin, its price may fall, resulting in losses.
• If your choice's staking pool or exchange comes under hacking attacks, you stand to lose your funds.

While these risks are something you must be aware of before you choose to participate in crypto staking, the activity still brings you undeniable profits. So just remember to stake only that you can afford to lose, and make sure to do proper research before choosing a proof-of-stake platform for staking rewards.

Why Doesn’t Every Crypto Allow Staking?

Only a proof-of-stake can allow staking, so cryptocurrencies running on other consensus mechanisms can not let you do the same. For instance, the Bitcoin blockchain runs on a proof-of-work algorithm where blocks are added to the chain through a process called ‘mining’ that involves solving mathematical puzzles. It’s only natural then that Bitcoin won’t allow staking.

So, on chains that do not follow the proof-of-stake algorithm, staking is not needed because it is not an integral part of the block validation process.

What are the Benefits of Crypto Staking?

The many benefits of crypto staking include:

• Earning additional tokens and crypto: The biggest benefit of crypto staking is that you can earn additional tokens or crypto as a staking reward.
• Less exhaustive: As compared to mining, staking is less exhaustive. You do not need to run energy-intensive hardware to validate blocks on a proof-of-stake chain.
• Increased efficiency of blockchain network: Staking contributes to the security and efficiency of proof-of-stake networks. Through staking, you are making the network more resilient and strengthening its capabilities.
• Blockchain governance: Stakers can be involved in on-chain governance decisions and vote for and propose new upgrades.

Conclusion

To sum it all up, crypto staking can be a good option for crypto investors to earn rewards while putting their idle funds to work. It’s important to remember both the positives and negatives of crypto staking before taking part in the activity.

Interested in crypto trading? Giottus is one of the top crypto exchanges in India, trusted by over 10,00,000 users! Give our website a visit today to get started!