Cryptocurrency has taken the world by storm so there are a lot of tactics pitched out there. This makes it increasingly important for cryptocurrency holders and investors to adopt the right strategies and tactics to maximize their gains. Here, we explore what is crypto staking and how it can be used as a strategy to confirm transactions and generate interest.
What is Crypto Staking?
Crypto staking, also known as staking coins, involves locking up crypto assets/holdings to support a blockchain network and confirm transactions. It allows individuals to obtain certain rewards and even earn an interest.
In order to understand crypto staking better, it may be easier to think of it as similar to depositing cash in a savings account. Like gaining an interest for owning a savings account, you can earn between 5-20% per annum on the number of cryptos you stake.
How does it work?
When an investor decides to stake their holdings, the network uses that holding to form new blocks on the blockchain. Once data gets written into these new blocks, the holdings of the investor will be used as validators.
They then use a consensus mechanism called “proof-of-stake” or “proof-of-work” to ensure crypto networks are in agreement and all transactions are verified. Whilst this process occurs, your staked crypto becomes part of this consensus-checking process. In other words, stakers essentially approve and verify transactions on the blockchain. As of now, cryptocurrencies such as Solana, Ether, Polkadot and Cardano allow staking.
Risks involved with Crypto Staking
Keeping in mind the volatility of cryptocurrency, there might be a possibility of the value of the coin dropping. This could impact the amount of interest you earn from staking.
Though this may not be a risk, one needs to be careful when dealing with assets online as scams run wild over the internet. To find out how to protect yourself from scams related to cryptocurrency see here.
