Who does not like to have a passive stream of income? We all do, and that is what staking guarantees. Staking is one of the hottest trends in the crypto world, not just because it allows people to make some extra money but because it also comes in handy in keeping blockchains secure.
Like other investment opportunities, it is not without risks, and this post will highlight them. We will also outline the main benefits that come with crypto staking and useful tips to increase your chances of success.
How Does Cryptocurrency Staking Work?
Cryptocurrency staking is one of the common methods used for providing security and enhancing the efficiency of blockchain networks for a reward. The process is based on the proof of stake (PoS) blockchain algorithm, which means that instead of the energy being used to create new blocks as it happens in proof of work (PoW) blockchains, it is the staked coins that do the job.
The process of staking your coins involves locking them up in your wallet so that they form a node on the selected blockchain network. So, when a transaction is initiated, your node can be selected to help complete the transaction and earn a reward. The validator can be selected randomly or through being designated.
The term staking was first introduced when Peercoin was created in 2002, but its adoption started intensifying when Vitalik Buterin, the founder of Ethereum, improved it with a Slasher algorithm proposal. Now that mining with proof of work (PoW) is declining because of poor energy efficiency and low rewards, staking is on the rise and is expected to redefine new trends in the cryptocurrency world.
The Main Benefits that Come with Crypto Staking in Decentralized Finance
The benefits from crypto staking stretch to both stakers and the respective blockchain networks. Note that these benefits, especially to the staker, depend on a number of parameters, including the quantity of staked assets, staking duration, network issuance rate, and inflation rates. Here are the main advantages to expect:
- Easy to earn passive income.
- Getting started is easy, especially if you opt to use decentralized finance platforms.
- The process is secured using smart contracts.
- The rewards are higher than what you get from saving cash in banks.
- Helps to save energy during the process of validation.
- Helps to secure and advance the concept of decentralized finance.
Risks Associated with Crypto Staking
While the benefits that you can expect from crypto staking are many, way more than the list we provided above, it is not without a number of risks. Here are some of them:
- You will not be able to sell your coins during the selected staking period.
- The danger of losing your coins via a hack always looms.
- Volatility risk, which can negatively affect the reward you get from staking.
- The danger of falling into the hands of scammers.
As you can see, crypto staking comes with awesome benefits as well as risks. To reduce the risks we have listed above, it might be a good idea to consider staking only some of your coins and selecting a trusted DeFi platform, such as Mantra Dao. Finally, apply the latest security procedures to reduce the risk of attacks.