Things to Keep In Mind While Staking

Crypto Staking Guide For Beginners — CoolWallet

Putting Your Coins at Stake

Staking refers to the process by which a token holder of an underlying asset receives income in the form of Staking rewards. If you want to receive rewards, you will have to purchase a token that supports staking. One unique trait of these staking tokens is that they utilize a consensus mechanism called Proof-of-Stake (PoS).

Proof-of-Stake (PoS) to Receive Rewards

Proof-of-Stake acts as a consensus mechanism utilized by all blockchain networks to acquire distributed consensus. Distributed consensus involves a consensus performed by an expert consensus algorithm.

The Working Mechanism of Staking

The working mechanism of staking is pretty simple. There are multiple validators involved in staking and each of the validators is responsible for the safety and maintenance of the network in a proof of stake blockchain framework. These validators must own a minimum amount of tokens and contribute to verifying transactions on the network.

What is it for?

Staking is a medium of passive income like mentioned earlier, it not only provides a financial incentive to attract other token holders but also enhances the security of the network by the number of distributed nodes. The distributed nodes are a part of a system that focuses and ensures the regularity of rules within the network. On top of this, they also help each other to run the network with transparency.

Advantages and Disadvantages of Staking Investment

Each and everything has some pros and cons. There are multiple ways in which staking is considered good and profitable while there are some other ways that consider staking as a risky thing.

Pros

Easy to Invest

When it comes to mining it is way too expensive and not everyone can afford to mine with all of these hectic fees. If we compare mining to staking, staking has a notable low entry barrier. It gives you plenty of options based on which platform you opt for.

Cost Saving

Just like we mentioned earlier, mining will cost you a lot and will not save any of your pennies. But when it comes to staking, it has a cost-saving ratio and saves a lot of money for people involved in staking their tokens.

Does Not Require Highly Specialized Knowledge or Experience

For staking, you won’t need to be an expert in this world. Just with low investment, you will be able to learn the process with time. Participants do not have to wait for a time where they reach a certain level to participate in high staking.

Regular profit

People who are involved in staking usually get their profits regularly. As the market evaluation of the coin rises, the worth of the staked coins rises along with it. This means it provides a guaranteed reward option to the participants with predictable earning on interest from time to time.

Environmental Friendliness

We all know mining made a lot of bad repute because of its not so environmental friendliness. And many blockchain networks receive the same criticism over their non-environment friendly policies and frameworks. But staking has environmental friendliness and causes no harm to resources or our surroundings.

Cons

Lockup Phase

Participants are unable to stake their own coins for-profit and moreover, there are some assets with locked periods. Participants have to lock up their assets for a time being and cannot access those until the time ends.

Risk of Fluctuation

A frequently repeated thing, but we all know that cryptocurrencies are volatile and can fluctuate at any time. These dips happen suddenly causing losses all over the world. This volatile nature of crypto adds a lot to the risks involved in staking.

Low Security

Mining and staking are the two opposites in the crypto market. But staking is relatively new to the old mining censuses mechanism which makes staking a risky game for many people. Multiple risks surround staking such as liquidity risks, theft and smart contract exploits.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store