Crypto Staking Explained For Beginners
Nowadays, it seems that individuals are always on the lookout for new ways to perform their investments. Now, one of the best ways to do this would be through crypto staking.
According to the experts at SoFi, the best way of understanding crypto staking is to think of it as simply just like depositing money into a standard savings account.
For that purpose, when you engage in crypto staking, you will be “rewarded” with interest so that the entity can utilize the money you invest for a different purpose.
However, there is much more to learn about crypto staking, so consider the following:
What is a Staking Crypto?
The process of staking cryptocurrencies involves purchasing and setting aside some tokens that will ultimately become an acute validating node for the crypto network.
All one has to do is simply hold these coins, and they will become a crucial piece of the infrastructure of the crypto. Moreover, the holder of these crypto tokens will be compensated according to their investment.
The staking income will be paid to the holder in the form of interest. Additionally, the rates may vary from network to network, including various factors such as supply and demand. These networks continue to grow, and new alternatives continue to emerge all the time.
Practices such as cold staking, staking pools, and staking providers are becoming trendy within this practice.
How Crypto Staking Works
Are you ready to start staking? If so, the first step is to buy a given number of tokens in this network. You will always have to stake in a network that supports the PoS protocol.
After the user completes the purchase, the next step would be to lock the holdings by utilizing the procedure that is listed within the given network.
Don’t panic if this seems new to you: usually, this procedure can be done in as little as a few minutes simply by following the instructions from your wallet.
On the other hand, there are plenty of cryptocurrency exchanges that will facilitate this process. They normally will do so by providing features to the investor called staking pools. In this manner the compensation can often be increased; it will increase the number of coins that can be staked at a given time.
One of the main reasons why staking pools are so popular is because it can dramatically increase the return on investment.
There are also options known as flexible and fixed staking as well.
Benefits and Risks of Staking Crypto
One of the main reasons why staking in crypto has grown in popularity is because it can offer the holder higher interest rates and attractive rewards.
The interest rates usually start out at 6% per year (networks such as ethereum and Cardano) to as high as 100% on networks such as Kava (KAVA) and PancakeSwap (CAKE). However, there are some risks to this practice.
First of all, there is always the possibility that a breach in cybersecurity could occur which would cause you to lose your tokens.
There are several crypto investors who have attempted to eliminate this form of “online bank robbery” by simply doing what is called “cold staking”, where your securities are stored on a piece of hardware, such as a hard drive. Of course, there is always the potential that you could lose or damage your hardware as well.
You also should be aware that this staking process works by locking your coins, meaning that if the market goes sideways while you are in the staking period, you will not be able to unload your coins.
Finally, do keep in mind that the uptime of the node you are using plays a role as well. If there is any disruption in the node, it could cause your asset to have a diminished staking income.
Best Staking Coins 2021
Of course, it always pays to do your research when it comes to picking the best coins. At the end of the day, when it comes to trading coins, you have to determine just what it is that you truly want.
Do you want a higher potential reward? If so, you probably should go with a lower capped token. However, these might be more difficult to sell. Generally, if you are looking to earn an APR from 6% to 20% you should go with networks such as Cardano (ADA), Ethereum (ETH), or Polkadot (DOT).
If you want higher returns, you should consider tokens such as polygon, solana, kusama, or algorand. One added benefit is that their trading volume is high enough that you can sell your coins without any issues.
Trading crypto is one fascinating way to get an incredible return on your investment. If you are not averse to some risk, this just might be the investment practice for you.