Cryptocurrencies pay individuals to achieve their networks. The most prominent example is Bitcoin (BTC), which operates a Proof of Work (POW) mining algorithm. However, mining has downsides like high-energy consumption and technical difficulty (buying and setting up ASICs requires some technological knowledge). Both of these factors can dissuade would-be miners from mining crypto.
Staking is an alternative consensus mechanism (way to verify and secure transactions) that provides users to generally secure crypto networks with minimal energy utilization and setup
How Do Staking Works
With staking, you generally buy 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 happens automatically). The “agreement” between the staker and the blockchain network is indeed pretty simple.
While the staking rules vary by network, the support are meant to provide us a general understanding of a staking agreement:
The staker 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 establishing valid transactions, the network rewards the staker with a staking reward.
If a staker votes to approve illegal transactions, they may surrender some or all of their stake.
This is much easier than mining and as a result, develops as an excellent “passive income” opportunity for those who want to support crypto networks while making mostly hands-off money.
However, while staking is a promising 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 check 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 easiest way that you can stake them in order to start earning passive income.
What is Staking Ethereum?
Currently, Ethereum (ETH) uses a Proof of Work consensus mechanism. However, Ethereum plans to transition to Proof of Stake. When that appears, it will allow Ethereum investors to stake their ETH and obtain a passive income.
If you demand to run your own staking node, you’ll need 32 Ethereum. However, services like staking pools might emerge which allow you to stake smaller amounts of ETH.
What is Cold Staking Cryptocurrency?
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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