What is staking crypto and why engage in that?

From a purely theoretical point of view, cryptocurrencies were meant to liberate the world from central regulating bodies in finance. Decentralized peer-to-peer interactions that are carried out automatically without unnecessary bureaucracy and power abuse benefit each of the users personally.

The benevolent intent behind the creation of crypto soon began to reveal its drawbacks: a fair, transparent, fully decentralized, and safe network turned out extremely power hungry. We mean electricity, of course.

Redundancy in data storage and power consumption has made developers seek more optimal solutions, and the proof-of-stake consensus turned out to be the good option so far.

What is staking crypto: simple definition

Proof-of-stake (PoS) allows you to stake crypto instead of mining it. You could still compare mining to staking, but while proof-of-work (PoW) mining is mostly a process of calculating SHA hashes over and over, PoS counts in the amount of crypto you own as a merit.

Why do you mine? To win the right to add a block of data to blockchain and get a sought-after miner’s reward. We won’t dive into the specifics of mining because we’ve done it already; the key point is that owning more PoS-based crypto gives a possibility to check more transactions and, consequently, gather more block rewards and tips from the network users.

What is staking crypto: possible development perspectives

As you can imagine, while dealing with one problem (energy consumption), PoS does not effectively solve the other ones. For example, centralization over time. It is more or less evident in every PoS cryptocurrency.

Developers still look for the best of the two worlds and devise hybrid PoW/PoS solutions or altogether new ones: those that play around with coin age, burning mechanics, introducing multiple utility tokens, and so on.

What is crypto staking in a pragmatic sense

In fact, staking is deemed less profitable than mining. Although the risks in case with mining are higher, the reward is higher as well.

What is crypto staking worth as a way to earn

The traditional way of staking (just owning tokens and doing nothing else) could bring an annual yield of 3-6% depending on the platform, which is nothing special. For example, HIVE tokens passively earn 5% a year. Each account is meant to be a tiny emission center but not to an extent at which the emission deflates the value of tokens.

Some innovative ways to stake, that can be rather seen as an investment: WAVES offer to buy and stake Neutrino tokens for 7% of annual interest and more. Investments into algorithmic trading are also available.

However, if you run a verification node, the profits will rise. The funds other users delegated to you will influence the maximum number of transactions you’ll be allowed to process.

So, the keys to proper staking are: earn or buy your stake, run a verification node, become popular, and gather even more delegated funds to process more transactions.

What is crypto staking effort-wise

The question, however, is: how do you become popular to amass a significant following? The usual way is to develop an app for a given blockchain.

Some platforms allow you to issue your own token. Awarding the users who delegated their funds to you with your custom tokens (in addition to the main blockchain tokens) you could offer them to spend the custom tokens in your app.

Ultimately, it is up to you to decide, which way of mining is less of a hustle: PoS or PoW. Purchasing GPUs or ASICs and setting up a mining rig is neither cheap nor simple either.

What is staking in crypto as an influence tool

Rather than looking for profits on blockchain, you might look for fame and power. Such a goal fits experienced developers and entrepreneurs: owning a large enough stake gives them more space to shape the network however they see fit.

What is staking in crypto as an opportunity

We didn’t yet mention that early investment presents a chance to reap back more than tenfold the initial investment in a short time. It happened so with the Mina Protocol, for example. Holding such tokens for years might bring even higher ROI repeating the success of Bitcoin to a certain extent.

What is staking in crypto downsides

During the Initial Coin Offering stage, a certain share of coins is left on the accounts of developers while a larger share of the coins is available for purchase. If a project is worthy of attention, institutional investors won’t lose their opportunity to buy their share. You see, the temptation to own a disproportionately large share of certain coins is very intense.

  • it gives some governance privileges and influence within the blockchain in question;
  • it grants the right to process more transactions and therefore to get even more rewards as soon as a node is set up;
  • the more coins sit on a handful of accounts, the less of them are in circulation: it causes the coin to rise in price with the rising demand.

Rarely is a network designed in such a way that holding huge stakes is strongly discouraged right from the inception of a project.

How to stake crypto for community’s benefit

It is important to keep in mind that some developers do not focus on the profitability of their project. Instead, they aim to bring the most value to the community, strongly believing that blockchain is a game-changer that brings in faster, safer, and freer finance worldwide.

How to stake crypto for fun

Knowing that your stake in a particular technology contributes to its development and towards a healthier world in general gives a special kind of contentment. Supporting a project that has a powerful idea that appeals to you behind it is a valuable emotional reward. Will you care too much if the profits from staking don’t go through the roof?

If only all of us could afford to be idealists and follow exclusively the projects that promote charity and good humor… well, the world would be a happier place.

How to stake crypto to change the world for good

Greater good and personal benefit go hand in hand. Supporting a project that helps you achieve your goals is therefore a good deed; in other words, personal growth is a necessary condition for the positive change in the world at large. Be daring!

Download Trustee - single multi-currency wallet for crypto
Share

Leave a Reply

Your email address will not be published. Required fields are marked *