Staking – Understanding More than the Basics

Like everything with crypto, staking seems like a rather complex subject. However, it can be somewhat simple once you understand the basics. For starters, think of staking as an ideal way of earning rewards on your crypto.

Today, we take a detailed look at what is staking and how it works. After all, you can’t start earning passive income from something you don’t understand. Read on to ensure you unlock the full potential of holding certain cryptocurrencies.

What is Staking?

In simple words, staking is an investment strategy of purchasing and holding crypto to earn interest. It is achieved through the use of designated wallets on specific networks that leverage the Proof of Stake consensus algorithm. Unlike mining, staking doesn’t need a hefty investment or a powerful machine to be competitive.

You can stake a portion of your holdings if you own a cryptocurrency that allows staking your crypto. On blockbank you can stake your Ethereum, Bitcoin, Orion, Tether and more. Therefore, think of staking as an interest-earning savings account.

The blockchain puts your cryptocurrency to work, thus ensuring you earn rewards. Your crypto becomes part of the operation should you decide to stake it. Equally, all transactions are secured and verified without using a payment processor or bank as the middle ground.

The Benefits of Staking Your Crypto

The number one benefit of staking your crypto is getting the rewards. Investors get to have a steady and reliable income source – even with a small amount of cryptocurrency. Nothing beats earning a few extra dollars without breaking a sweat.

Secondly, there are no barriers to market entry. Any person with crypto that allows for staking can invest. You also don’t have to worry about acquiring an expensive or special type of equipment to start staking your crypto. Therefore, staking offers a level playing field where everyone can invest and make passive income.

Staked coins also offer higher interest rates than those in financial savings accounts. For instance, it is almost impossible to find an annual interest rate of between 5% – 20% in the local banking institutions. However, staking coins can get you such high returns on your investment. You can stake your $BBANK and earn up to 20% on it! Learn more about our tier system here!

Finally, staking coins allows you to contribute to the network’s security and trust. You get to increase blockchain efficiency by contributing towards a staking pool or becoming a validator. It is an incredible way of supporting the cryptocurrency market you believe in. 

Risks that Come with Staking

Although staking does come with numerous advantages, there are a few risks involved. Before you start staking your crypto it is vital to be aware of these unique risks. Below is a comprehensive look at each of them to ensure you make informed crypto decisions:

Cyber Attacks

You cannot dismiss the fact that hackers will always try to attack your crypto wallet or exchange whenever you stake assets. Scammers have also been known to target individuals and trick them into revealing private keys. Therefore, ensure your crypto security is of the highest priority and only stake on reputable platforms.

Liquidity

Many altcoins will lure you in with staking protocols that promise very high returns. However, most of these altcoins have relatively low liquidity. It will, therefore, be quite challenging to sell your crypto or exchange them for more stable coins.

 Lock-up Periods

Most staking crypto will include a mandatory lock-up period. It is a specific time frame in which you cannot access any of your staked assets. Therefore, you risk making significant losses should there be huge price drops within this period.

Price Fluctuations

Cryptocurrency can be a highly volatile industry. Sometimes, prices take a nosedive and leave you hanging dry. It will help to keep this in mind when you decide to invest in crypt staking. 

What is Proof of Stake (POS)?

Proof of Stake is a fairly new consensus mechanism that has gained traction over the past few years. It started with the thought of lowering fees while increasing efficiency and speed. Proof of Stake does this by not requiring miners to solve math problems. Instead, every transaction gets validated by blockchain investors via staking. 

Stacking and mining serve a singular purpose. With staking, the process allows participants to add blockchain transactions and earn crypto in exchange. 

Although the implementation will vary depending on different projects, investors risk their tokens for an opportunity to add new blockchain blocks and get rewards. The staked crypto acts as a legitimacy guarantee for all new transactions that are added to that particular blockchain.

The size of the stake each person investors helps the machine pick validators. The duration of time you hold onto the stake will also help you become a validator. Therefore, people who are most invested usually get higher rewards. Transactions within a blockchain that becomes invalid, put users at risk of getting burned by the network – something commonly referred to as a slashing event.

What is a Delegator?

In staking, you either get to be a validator or a delegator. The latter are crypto holders who aren’t ready to run a validator node. Instead, they delegate part of their crypto to validators and expect a reward in return.

A delegator gets to choose someone they trust to ensure they earn rewards. For starters, understand that they share the same risks as their validators. Each delegator gets a portion of their delegated stake slashes should their validators misbehave.

Therefore, all delegators have the responsibility to perform due diligence on every validated candidate before making a decision. You also have to carefully consider the structure and infrastructure of your staking provider. Doing this allows you to earn more rewards both in the short term and long term.

Start Earning Rewards Today

Staking is a safe and simple way to earn passive income and diversify your investment portfolio. We ensure you that you can confidently buy, trade, and earn your assets the way you want. The power to let your ideal digital assets do the work for you is in your hands. Download today to start earning yields on your investments.