Cryptocurrencies pay people to secure their networks. The most prominent symbol is Bitcoin (BTC), which uses a Proof of Work (POW) mining algorithm. However, mining permits downsides like high energy consumption and technological difficulty (buying and setting up ASICs demands some technical knowledge). Both of these factors can discourage would-be miners from mining crypto.
Staking is an alternative consensus mechanism (way to verify and secure transactions) that allows users to generally secure crypto networks with essential energy consumption and setup.
How CryptoCurrency Staking Works
With staking, you generally purchase a cryptocurrency in order to lock it up (stake it) in a smart contract. Once your stake is locked up, you vote to approve transactions (in many cases, you don’t actually have to “vote” - it appears automatically). The “agreement” between the individual and the blockchain network is literally pretty simple.
While the staking rules vary by network, the support are meant to provide us a general understanding of a staking agreement:
The individual agrees that they’ll only validate valid transactions on the network. I.e. they will not vote to approve double spend transactions.
In exchange for approving valid transactions, the network rewards the individual with a staking reward.
If a individual votes to approve illegal transactions, they may lose some or all of their stake.
This is much easier than mining and as a result, acts as a great “passive income” opportunity for those who want to support crypto networks while making mostly hands-off money.
However, while staking is a potential crypto development, keep in mind it hasn’t been around as long as mining, which has been around since 2009 (Bitcoin’s launch). That is to say, it’s still a pretty experimental (but promising!) technology.
Staking Rewards (Potential Returns): Is Staking Profitable?
Figuring out which coins can be profitably staked is super simple, all you require to do is review StakingRewards.com. You can find out what the staking return for a particular coin is, what percentage of coins are staked, and portions of other valuable information.
Another great resource is our article, the Best Proof of Stake Coins. Find out which coins have the highest staking reward and the simplest approach that you can stake them in order to start earning passive income.
What’s CryptoCurrency Cold Staking
Cold staking involves staking a cryptocurrency that is locked away elsewhere, offline, like a hardware wallet. So long as the individual keeps their crypto in the authorized offline wallet, they will maintain to receive the staking reward. However, if the individual moves their funds to a new address, they will cease receiving the reward.
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