One of the newer offerings popping up on crypto platforms is the ability to engage in staking. Here we explore what staking is, how you can participate in it, and how it can impact both your crypto portfolio and financial future.
What is Staking?
In a nutshell, staking is the process of using cryptocurrency assets to confirm blockchain transactions. By offering up your cryptocurrency assets as part of the tools for the crypto transaction confirmation process, you’ll be able to earn rewards, high interest, or other forms of passive income in exchange for allowing your cryptocurrency assets to be used as part of the proof-of-stake payment transaction process. The process requires mining devices that use computers for the purposes of solving complex mathematical equations that end up powering the blockchain cryptocurrency transactions and adding them to the blockchain ledger.
How Staking Works
The first step in the staking process is for crypto holders to “pledge” their coins to the crypto protocol for a specific cryptocurrency that offers staking. From the pool of protocol participants, the protocol chooses holders to act as the validators of crypto transaction blocks. The more coins pledged into the protocol, the greater the chance of being selected as a validator. Every time a block of transactions is added to the block chain, new cryptocurrency is minted and distributed back to the validator of the specific block. It’s that simple.
Proof of Staking
To stake crypto, you’ll need to own cryptocurrency that utilizes the proof-of-stake model. Keep in mind, if you’re staking a certain number of coins, those coins will be unavailable for trading until you un-stake them. The following steps detail how you can stake your coins:
- Purchase cryptocurrency—such as ETH, ADA, SOL—that validate transactions using proof-of-stake. Not all cryptocurrency utilizes proof-of-stake.
- Access your exchange’s staking program option and stake your crypto directly on the exchange. If there’s no staking program, you’ll need to transfer your coins to a blockchain wallet.
- You can then either choose to stake your crypto by yourself or join a staking pool to increase your chances of being chosen as a validator. If you’re in a pool, you’ll also be splitting the profit and rewards with others, whereas, you will be splitting profits with anyone if you’re staking by yourself.
The future of Staking
Staking is another way of saying “earning interest” on your crypto holdings. Because it’s easy to get involved in and is more environmentally friendly than traditional crypto mining, staking appears to be a forward-thinking element to the entire cryptocurrency ecosystem. As we move forward in the crypto economy, we should see a rise in staking as more and more cryptocurrencies adopt their own staking programs and more and more exchanges offer ways for holders to stake their coins.
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