Staking is by no means a strange word, at least not to anyone who has been through the exciting yet sometimes disappointing streets of betting and gambling. A betting firm will for example give odds and allow you to place money so that if your guess or rather gamble is positive, you get a payout. In gambling, staking means placing a value in anticipation of getting a reward. The concept as used in cryptocurrency isn’t much different. here now, you place your crypto assets to be traded on the blockchain and then reaping interests.
If you have already read one of our articles that was dedicated to showing reasons why people engage in cryptocurrency swapping, the concept of staking is already introduced there. However, it was just but a brief look into it, but now we unpack the whole magic for you to better understand .
A snapshot into cryptocurrency staking
To better understand the seemingly easy yet complicated idea of crypto currency staking, it is best to first have a second look at how the cryptos work. The building block of any cryptocurrency is its blockchain on which every transaction verification occurs. Anyone who has a crypto holding simply has a share of that currency’s blockchain.
In everyday life of a cryptocurrency holder, returns on investment is generated through actively trading in whichever currency it is. For instance, a bitcoin holder will time when the market demand for it is high and supply low. It is at this point when the market is strapped of bitcoins that the smart seller will make sales. Conversely the intelligent pro max crypto trader will again time when the demand is low and supply high to buy the currency again.
The everyday crypto investor has to deal cleverly with the forces of supply and demand, keep monitoring the market performance curves, set and adjust stop loss features on the trading platform and such. This whole stuff can mean a hell of activity.
Maybe you decide to be that hands off crypto investor who does not necessarily want to be hyperactive in trading but only interested in making a little return from it. What do you do? You stake your cryptocurrency holdings.
Simple, straightforward and sweet, crypto staking is where you as a crypto holder simply deposits your coins for a fixed period of time and earn interest.Isn’t that just so simple? I guess it is.
If it was in the normal currency system where banks are involved, staking is like keeping money in an interest earning fixed deposit account. You don’t need to care what the bank does with it as long as over the set period, your interest should be paid your way.
How does crypto staking work?
I bet you are already getting interested in crypto staking because its already clear that all you need to do is deposit the money and earn fortunes from it. You are very much in order because nobody ever wants to take the long winding path to riches when there are shortcuts to get around.
In crypto staking, a person who already has a crypt holding in a particular blockchain allow your owning to be open for verification of new transactions. Remember, for any new crypto to come to life and be part of a block, a long process of mining has to take place.
The process of mining a virgin crypto isn’t an easy one because the energy and technology required is intense. So by letting free your crypto holdings to still be on the blockchain as if not already owned, you let new people own them. The only thing that now keeps you confident not to lose at the end of the day is “proof of stake.”
In this arrangement, you as a crypto holder agree with a crypto exchange to only reserve a stake and let the actual coins be used for further verification of new transactions. So, the process of staking is like bypassing the long and tedious process of creating a new cryptocurrency. In fact, the whole process of using existing crypto to verify new transactions on a block is called minting or forging.
Sorry, I forgot we are just introducing the bits of it. Don’t let your head spin in confusion. These terminologies are never meant to scare you as a starting investor. You know a little bit of them and is enough to stand out among many and grow in their trade. Gear up, buckle and say “Yes, yes I can! Hehe…forget it.
It may be of interest to know much more about the nitty gritty around staking and proof of stake. Just check here for more insights that will leave you more intelligent than you could ever have imagined.
A smart way of staking your crypto holdings
You have come this far because you are getting more and more interested if not already motivated to do your first staking. It is best to also know that staking a crypto holding may not guarantee you as much returns as active trading can. But holding clearly your goals for venturing into crypto, lets learn a bit how to et started with staking.
There are at least two ways for staking your cryptocurrency. Perhaps here it is good to emphasize that staking is letting your money be used by crypt minters to approve transactions for an interest. Nothing more is required on your side after staking. This is the long and short of it which should not be lost on anybody
Two ways to perform cryptocurrency staking
Assuming you are just a starter who does not want to naively dive right into the deep end already, there is an option of using crypto exchange or other available crypto platforms. In this approach, you perform almost the same activity as depositing your coins with the crypto exchange and letting them free to be traded. You remain with a guarantee of returns which is popularly called proof of stake.
When you have already learned through the ropes and feel confident enough to do a high level cryptocurrency staking, there is a second method. In this alternative method, you set up your own node and run the verification of new transaction yourself. Here, you are now the person forging/minting the crypto without letting a third party do it.
As much as you may want to try the second method, only if to challenge yourself, I promise that it is not for novices,. You need to first have to take enough time, gain the knowledge required and expertise. To do the staking by yourself, various cryptocurrencies set a minimum amount you should have to qualify for self-staking of cryptocurrency holdings.