Staking is one way to get passive income from crypto assets. Passive income is income that doesn’t make you directly involved.
For example, income from things like rental property, partnerships, or investing in assets such as crypto assets.
Crypto Asset Staking
It is the process of actively participating in the validation of transactions (similar to mining) on a blockchain with a Proof of Stake (PoS) mechanism.
On this blockchain, anyone with the minimum balance required for staking a particular cryptocurrency can participate in validating transactions on the blockchain and get rewarded for this process.
Your assets will be stored in a system that allows the staking process for a certain period of time and during the storage process, you can get profits for a certain period of time.
The process of staking coins or literally means betting and giving you rewards, because you have bet a number of assets in the network and play a role in network resilience.
The ease of staking is almost similar to a deposit, where you only need to deposit a nominal amount of money, ask the bank to manage it and get the interest.
The locked crypto assets or currency will contribute to harmonizing all the wishes of the stakeholders.
In short, if enough entities have digital assets at stake in a network, they all have a vested interest in keeping the network running and growing.
However, if there are not too many entities, this process can be detrimental because the network does not develop.
Therefore, for this process, it’s a good idea to invest in tokens or coins that have a reputation and a quality network.
Proof of Stake (PoS)
In Proof of Stake or PoS, the main idea of this algorithm is primarily that participants can lock coins and at certain intervals, the protocol randomly grants one of them the right to validate the next block.
The more coins at stake, the more chances to become a validator.
In this way, determining which participant creates a block is not based on their ability to solve the hash challenge as is the case with Proof of Work. Rather, it is determined by how many coins they hold.
How Staking Works
The Proof of Work blockchain relies on mining to add new blocks to the blockchain. In contrast, the Proof of Stake chain generates and validates new blocks through this process.
Staking involves validators locking their coins so that they can be randomly selected by the protocol at certain intervals to create blocks.
Usually, the participant who stakes the bigger amount has a higher chance of being selected as the validator of the next block.
This allows blocks to be produced without relying on specialized mining hardware, such as ASICs.
While ASIC mining requires a significant investment in hardware, staking requires direct investment in the cryptocurrency itself.
So, instead of competing for the next block with computation work, PoS validators are selected based on the number of coins they are betting on.
The “stake” is what incentivizes the validator to keep the network secure. If they fail to do that, their entire Stake might be at risk
Platform for Staking
In this process, you can do solo staking, using a staking pool or via an exchange.
In solo means, you have to provide a wallet that matches the conditions of the crypto asset you want to bet on, then you have to have the minimum amount of crypto required for betting.
Some coins have a minimum number of coins required to bet. Dash takes 1000 DASH while Ether is 32 ETH.
Then, you have to have hardware that must be connected to the network 24/7, so you need a fairly stable device and a smooth internet connection.
You can also take advantage of a virtual private server (VPS). Running in the cloud adds a lot of convenience to the staker as it minimizes maintenance hassle.
Once the wallet is set up, you can start the staking process. Make sure to be connected to the internet at all times, unless you are using a VPS.
At this point, you can just check your nodes or nodes every now and then to make sure everything is running smoothly.
This solo staking process is quite complicated for beginners, so for beginners who want to try this crypto asset bet more easily. You can choose staking pool or staking through the services provided by the exchange.
Choice of Staking Points
A staking pool is a group of coin holders who pool their resources to increase the chances of validating blocks and receiving prizes or rewards.
They combine strengths and share the prize in proportion to their contribution to the pool. Setting up and maintaining a staking pool often requires a lot of time and expertise.
Staking pools tend to be most effective on networks where technical bottlenecks are relatively high. As such, many pool providers charge additional fees that result from rewarding this process.
This means that if you participate in the prize pool you will not get as much if you do solo.
This is because you have to share profits with other people who are members of the pool.
However, using this pool has the advantage of being much more consistent, requires a low minimum balance, and is easier for beginners to use.
Furthermore locking the asset on the exchange, this is the easiest way to stake. However, not many exchanges provide this service.
Exchanges that already provide include Binance, Kraken, OKEx, Bithumb and others.
In this exchange you only need to deposit a number of coins that you want to stake. The process on this exchange will run automatically, and users only need to check at least once a week to find out how much interest is being generated.
- Generate passive income without the need to mine or trade crypto assets which tend to be more risky for those of you who don’t understand how they work.
- The capital is lower and everyone can participate for staking if they have the required coins.
- If you use a staking pool or exchange the process is easier
- Save energy because you don’t need to provide devices with high electrical power such as for Bitcoin mining.
This process is considered a cheaper and less risky way of taking part in the blockchain network validation process.
In addition, it is an energy efficient and environmentally friendly way that has the potential to generate additional income in the digital asset market.