Introduction
There are loads of videos on YouTube with people giving accounts of how they made it by investing in cryptocurrency and still making it.
They even offer to show you the ropes.
You might wonder if it’s all true or not. Undoubtedly, investing in cryptocurrency has proven to be lucrative for many people.
These people have invested time, money, and then blended these with expertise, favourable trading conditions, and some luck to rake in profits.
If you have the appetite for making a profit off trading and investing in crypto, that alone can’t get you profitably in the game.
You need a mix of expertise, favourable trading conditions, and some luck.
One of the biggest problems for crypto investors is knowing when the trading conditions are favourable to buy or sell a coin to make a profit.
But don’t be intimidated by that as there’s still a way for you to join the bandwagon of the winners in crypto trading and investing.
The path to gathering wealth through cryptocurrency is one that anybody can walk.
One of the ways you can tread it is through Crypto Staking.
What is Crypto Staking?
In some ways, crypto staking resembles a type of account in which you put your funds and they are locked for a specific time where they accumulate interest for you.
Crypto staking involves locking up your cryptocurrency holdings for a stipulated period to earn interest or rewards.
Crypto investors use it to increase their existing crypto holdings without having to buy more coins.
With some cryptocurrencies, you could earn between 10-25% in reward annually. However, not all cryptocurrencies accept staking.
How does staking work?
Your crypto holdings, when staked, earn rewards because the blockchain of the coin you hold puts them to work.
Also, note that staking is a method used by cryptocurrency networks to prevent fraud and errors in their transaction processes.
When you opt for staking, you’re proposing a new block to be added to the blockchain, or voting to accept a proposed block on the blockchain.
In doing so, you put some of your crypto holdings on the line.
The more coins that you stake, the more your chances of earning transaction fee rewards.
Different cryptocurrencies have different minimum amounts of coins that can be staked.
For example, the minimum amount of coins a user must have to stake in the Polkadot network is 40 DOT (approx. US$749).
Whatever cryptocurrency you own, if they allow staking, it’s because of a system put in place called “Proof of Stake” (PoS).
PoS is the way that such cryptocurrencies ensure the security and verification of all transactions on the blockchain.
This is important because cryptocurrencies use a decentralized system, therefore, there are no banks or payment processors in the middle to carry out any verifications.
Your staked coins become part of that verification process once you offer them for staking.
There are several ways in which to start crypto staking. One of them is for you to validate transactions using your computer.
Conversely, if you don’t want to be the Validator, you can also have your crypto “assigned” to somebody and then have them validate you.
We’ll give the details of these later in this article.
Cryptocurrencies that currently allow staking include Ethereum (ETH), Algorand (ALGO), Tezos (XTZ), Polkadot (DOT), and Cardano (ADA).
Also, not all cryptocurrency Exchanges allow staking.
Exchanges that make it possible for crypto staking include Binance, KuCoin, Coinbase, and eToro.
Why don’t all cryptocurrencies allow Staking?
Whether a cryptocurrency allows staking or not, depends on what blockchain to which the cryptocurrency is linked.
Cryptos linked to a blockchain network that uses Proof of Stake (PoS) as its method for validating transactions may allow the staking feature.
Currently, ETH, the token of the Ethereum network, is the biggest crypto asset that allows staking, as well as others listed above.
Conversely, some cryptocurrencies don’t allow staking.
Such cryptocurrencies are linked to a blockchain network that uses what is termed “Proof of Work” (PoW) as its method for validating transactions.
Bitcoin (BTC), the first and, by far the most valuable cryptocurrency, uses the Proof of Work method of validating transactions on the network.
Consider these before staking…
Before you stake your tokens you should consider these points to see if you are comfortable with staking them.
Possible Negatives
Staking requires that you commit your tokens for a stipulated period.
During that time, you wouldn’t be able to transfer or sell your tokens even if there is a favourable price shift.
If you aren’t sure that you’d be able to put off your crypto for quite a while, maybe staking wouldn’t be an option for you.
Also, cryptocurrencies are quite volatile. Just as you would be offered a percentage of interest when you stake, equally, you could lose an unexpected percentage after staking.
This could happen when the market value of your crypto drops during the period you staked them.
If that happens, your reward for staking may not be too impressive.
Positives
Staking offers a way for you, if you are a long-term investor, to make your tokens work for you much like the money that you invest in other assets like bonds, stocks, etc.
With staking, you’re also helping in the security and productivity of the blockchain network you support.
What are the ways to start staking Crypto?
There are quite a few choice ways to stake crypto. But one must ensure to choose crypto that uses the PoS method of validation.
Consider the following ways of crypto staking:
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Staking by joining a pool
Usually, one would have to resort to joining a pool when they can’t find an exchange that supports staking for the kind of token they have.
A staking pool is usually operated by a fellow user who is a validator.
So, in this case, it means you are delegating your tokens to somebody else.
You would connect your tokens to the validator’s pool using your crypto wallet.
These validators have specific ways that they should operate. So, to increase user safety, PoS blockchains usually include on their websites information on validators.
Such information helps you to research such validator and their pools to stay informed before you commit your tokens to them.
From such information, you can discern the track record of validators whether they’ve been penalized before; their commission, fees, etc.
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Being a validator
Another option for you is to become a validator yourself.
Blockchain technology essentially stores information in a sequence of “blocks”.
Once one block gets full, it gets validated by more than one validator; and when a specific number of the validators verify that the block is accurate, it is finalized and closed.
You can make yourself one of such validators by setting up your pool.
The process involved is quite intricate. Aside from having the relevant computing hardware and software, a validator would have to download the entire blockchain’s transaction history.
In terms of entry cost, becoming a validator is quite more costly.
The requirements for staking through an exchange or a staking pool are easier than being a validator.
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Using an exchange
The primary and simplest way of staking crypto is through a crypto exchange.
This is an online platform that allows you to trade cryptocurrency.
Using this method means you are offering your coins to be staked on your behalf by the exchange; commissions may apply here, in this case.
Of the crypto exchanges that offer staking, eToro, Binance, KuCoin, and Coinbase are the most prominent.
Conclusion
When opting to stake your crypto, be mindful that you don’t stake crypto with very high inflation rates.
Its volatility could get you juicy profits, but could also cause you to lose heavily too.
Find out about the coin to ensure it has a fixed supply.
When a particular crypto has a limited supply in the market, it makes for a huge demand and price raise for the crypto.
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