A beginner’s guide to staking cryptocurrencies


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The continued volatility in the broader cryptocurrency market after a blockbuster 2021 has given many investors and fans time to reflect.

This may be a good time to look beyond the hitherto repeated features of cryptocurrency history: strong momentum, institutional carespectacular profits, rapid technological innovation, celebrity greetingssocial media promotion and low stakes high win meme coin game.

Drowned out by all the noise is one aspect of cryptocurrency ownership that deserves more attention: crypto bet. Despite all the trendy cryptocurrency headlines, staking remains a relatively unexplored area of ​​the digital asset domain.

So what’s the deal with staking? Simply put, it’s a way to earn passive income while you wait. cryptocurrency assets to increase in value. Investors can now earn high returns, or interest returns, by lending their cryptocurrency holdings, a process called staking.

If you are thinking of investing in cryptocurrencies, you may want to earn additional profits through participation.

Here is a guide to help you navigate cryptocurrencies to get the most return on your investment.

What is cryptocurrency staking?

Fundamentally, staked coins are similar to savings accounts or interest-bearing bonds, as they all provide interest income on your initial investment.

As part of staking, the cryptocurrency holder locks or commits their holdings in exchange for rewards or interest, paid in the form of additional coins. It is a way to make more crypto with your crypto.

In addition to staking, you can also earn interest and fees by lending your cryptocurrency through a process known as yield farming. This does not require long blocking periods. With yield farming, investors can provide their cryptocurrency for loans or liquidity and can deposit or withdraw assets from yield farms whenever they want.

Cryptocurrency staking and yield farming are fast-growing areas of the larger decentralized finance (DeFi) system. With both, you get the benefit of holding your cryptocurrency and also earning income from it.

In order to gamble, investors must own a cryptocurrency that uses the proof-of-stake (PoS) model. Ethereal 2.0, Solarium, Cardano and Avalanche are the top five bettable assets by total value wagered, according to the betting rewards website.

You can buy these assets on a reputable cryptocurrency trading platform like BinanceCoinbase and Crypto.com, among others.

Once you have these assets, you can choose the amount you want to stake on a PoS-based blockchain.

By depositing cryptocurrencies in participation, a holder becomes a validator whose role is to approve valid transactions on the blockchain. In exchange for this service to the network, the staker receives additional tokens as a reward for their efforts.

look before you jump

Many users may simply compare the highest returns offered by various staking pools, but there are other important factors to consider. So says David Malka, the founder of YieldFarming.com, which teaches investors how to earn income from their cryptocurrency.

“Many coins require a minimum lock-in period that prevents you from withdrawing assets for a set period of time and there may be different waiting periods for withdrawing assets on different blockchains,” he says.

A lock-up period, which can range from weeks to months, takes staked crypto assets out of circulation. At the end of the stake duration, you earn returns in addition to regaining access to your crypto holdings.

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Be careful though, as you cannot make any transactions with your staked assets and if you decide to stop participating before the lock-in period is over, you will lose any interest you have earned, which will be deducted from your principal.

You also have to consider the minimum investment amount. While some projects, such as Cardano (ADA) and Cosmos (ATOM), have a low or zero threshold for staking, others like Ethereum require a minimum of 32 ETH coins, which could be a prohibitively large investment for some given the high Ether price. , the native currency of the Ethereum blockchain.

How to bet cryptocurrencies?

First, you need to purchase and store the relevant tokens in your digital wallet. For example, if you want to bet on Cardano, you will need to have the Cardano ADA token in your wallet.

Many popular cryptocurrency exchanges offer users the ability to stake crypto directly on their platform. There are also dedicated staking platforms like Everstake, Blockdaemon, and others. These allow you to easily compare a variety of betting opportunities and betting assets by connecting your cryptocurrency wallet.

The process to get started in yield farming is similar, but it is done through decentralized exchanges like Uniswap and PancakeSwap or decentralized apps like Aave or Curve Finance.

Staking could be an attractive way for investors to put their assets to work rather than keeping them in a cryptocurrency wallet, the digital equivalent of stashing money under the mattress.

Go alone or to the pool?

While the biggest rewards come from becoming a full validator, it also requires a hefty minimum investment. For some investors, therefore, going solo may not be a more practical option. A simpler and cheaper way to dip your toe into staking could be in staking pools.

A staking pool is where coin holders can form a pool by combining their resources, which is known as a pool. By consolidating your assets, you can improve your chances of validating blocks and earning rewards in return.

However, relative to individual staking, a staking pool offers a lower return because each validation reward is divided among the participants who staked their assets.

It is important to note that the stake pool option is only available on blockchains that adopt the Proof-of-Stake (PoS) consensus mechanism.

A staking pool is usually managed by a pool operator or staking service. To join the pool, participants must lock their coins in a specific blockchain address or wallet.

What are the risks?

Like any investment in cryptocurrencies, staking carries risks. To begin with, betting does not insulate investors from the price volatility of the underlying asset. Frequent and extreme price fluctuations can be particularly painful for new investors who are not interested in the long term.

During the lock-up period, the value of assets may decline rapidly, sometimes by a significant amount, and you may not be able to withdraw or sell your holdings. In such a situation, investors could suffer a loss greater than the gains made from gambling.

“In general, I usually recommend staking as a long-term investment strategy for investors who plan to own a specific asset, regardless of market fluctuations,” says Mr. Malka.

Staking also requires you to lock down your properties for a certain amount of time. During that period, you can’t do anything with your staked assets, so you have to consider the opportunity cost.

There are other risks related to possible hacks or exploits. Any technical weakness or vulnerability in the protocol design could result in cyber theft and loss of funds.

While this risk is low, it exists. It is important to recognize that this technology is still in its infancy and that there are problems to be solved.

The bet does not insulate investors from the price volatility of the underlying asset.  Extreme price swings can be painful for new investors.  Reuters

What does staking hold for us in 2022?

Until 2021, only a few digital currencies used staking as a validation method. However, as a growing number of leading layer-one blockchains such as Ethereum and Cardano implement staking, “staking and yield farming are becoming popular ways to profit on crypto without trading.” coins,” says Mr. Malka.

According to the Staking Rewards website, the total amount of cryptocurrency staked as of April 2022 was $280 billion.

“This number will continue to grow significantly because there is a lot of interest from both retail cryptocurrency holders and traditional financial institutions to get involved in DeFi,” adds Malka.

Bottom line

If you plan to hold your crypto assets for the longer term, putting them to work by staking is an attractive option for generating passive interest income.

However, keep in mind that cryptocurrencies are inherently risky assets prone to extreme volatility. All investments in cryptocurrencies, including gambling, should be done strategically and within your individual risk capacity.

“It’s important to do your own research to identify the best opportunities to reach your goals,” says Mr. Malka.

And remember the cardinal rule of cryptocurrencies: never invest anything you can’t afford to lose.

DisclaimerNote: The author does not own any of the cryptocurrencies mentioned in the article or have any affiliation with the exchanges or apps listed in this document.

Updated: May 13, 2022, 5:54 am