Cryptocurrency Staking Guide
Are you aware that you can stake cryptocurrencies? There are numerous benefits associated with cryptocurrency trading, and we shall look at the steps involved in staking cryptos. You can make good money by staking cryptocurrencies.
It is as simple as holding a variety of cryptocurrency in a secure wallet while you earn a reasonable amount of interest. You may want to consider this approach because it is a viable way of earning passive income. In this guide, you will get to identify which crypto coins are the most profitable to stake and the best strategy that may give you maximum output from your stake. We shall also explore the proof of stake blockchain model and how beneficial it is for traders in the blockchain industry.
What does it mean to stake cryptocurrency?
The first step to begin the process of crypto staking is to buy your coins. It means that you have to buy cryptos that give you the staking option. There are specific cryptos that offer an option for you to stake and earn interest. We shall identify these stories specific coins as we proceed.
After purchasing your coins, the next step is to look for viable ways to begin the staking process. To stake cryptocurrencies, you may be required to hold your coins in a secure wallet while you enable the staking option.
We have seen what it means to stake cryptocurrency, let us now delve into everything that a trader should know about cryptocurrency staking.
What should you know about proof of stake?
POS, also known as proof of stake, is a blockchain network securing mechanism that is used in validating transactions made on the blockchain model. It may not be possible for the blockchain to function effectively without proof of staking.
The staking proof is a working blockchain model that is designed to function using a particular type of algorithm, often referred to as a consensus algorithm that is different from the Bitcoin model that operates using the proof of work algorithm.
The formation of new blocks is possible via the proof of staking and is carried out through a randomized (deals with finding wallet for staking, staking size, and lowest value size) and the duration of staking.
How does crypto staking work?
Staking your coins requires you to place them inside a wallet with an unrestricted connection to the blockchain. However, there may be exceptions to this, especially during cold staking, which is gradually becoming prevalent.
The blockchain is kept secure when you stake cryptocurrencies. With the aid of POS, Cryptocurrency owners operating under the blockchain can effectively stake their coins. These coins are utilized in validating transactions and for the creation of new blocks.
Individuals who carry out staking while making us of the POS blockchain are called forgers. There is also a group that is referred to as miners whose responsibility is to ensure that the blockchain operating on a Proof of Work model is secure. The Proof of Work model is used with Bitcoins.
New blocks are created via a pseudo-random pattern under the POS model. However, this new block creation is dependent on the wealth of the user, otherwise known as stake.
Different setups for the proof of stake model
The POS blockchain model is setup In a variety of ways. For instance, there are variations with the process of forming new blocks and verifying transactions. These processes are classified into the following:
Selection based on cold-age
Cold-age selection refers to the selection made using the actual amount of coins staked as well as the number of days the coins were staked.
Random block selection
The random block selection is designed to find users who may have the lowest value of hash as well as the smallest staking size before they are selected as forgers.
The inflation amount is an additional rate model based on inflation. It has to do with the actual amount of coins that are staked (greater or lesser than 50% may be cut off the number as a result of inflation).
The masternode crypto staking addon
Masternodes is an addon to the POS and POW models. It functions as a separate user type in the proof of work blockchain. Masternodes are usually combined with the usual staking users although they function differently.
Masternodes enables users to stake their coins (that functions as collateral) without validating current transactions. Instead, Masternodes focuses on the aspect of security, which involves the rejection of new blocks.
Traditional staking may validate new blocks but at the expense of providing security to the network. However, both the conventional staking and the Masternodes staking option help users in generating passive income through crypto staking.
Between the POS and POW model, which is more secure?
The 51% attack on blockchain is part of the risk associated with the blockchain industry. The 51% attack refers to a situation whereby miners who have above 50% of the POW computational power are said to be the ones controlling the blockchain.
They are also to halt any new transactions coupled with the fact that they can also reverse transactions. These miners also have the power to double the spending of coins. Such actions do not promote unchangeable blockchain records.
The possibility of altering blockchain records is one that most promoters the blockchain industry would not love to experience. You may need to have above 50% control of the total available coins under the proof of stake model, which is almost impossible for Ethereum and other popular cryptocurrencies.
The risk centering on both models is higher for smaller and less popular cryptocurrencies. However, an attack on cryptocurrency may automatically result in the destruction of that cryptocurrency value.
There are apparent benefits of crypto staking as well as POS. The proof of stake model, which is used in maintaining the operability of the blockchain is more secure and efficient than using the POW model.
Advantages of POS over POW in staking cryptocurrencies
The advantages of POS over POW in staking cryptocurrencies are numerous, and they include the following:
Less consumption of energy
The primary issue associated with mining cryptocurrencies is that of the energy consumed in the mining process. A lot of energy is consumed while trying to keep the hardware or mining machine in this case, operational.
At the start of Bitcoin mining, the energy required to run the Bitcoin hardware was similar to the amount of energy consumed by most families in their houses. Nowadays, there are specialized mining machines that consume a far higher amount of energy to mine cryptos.
The use of POS in crypto staking consumes less amount of energy when compared to a POW model. The POS system is more environmentally friendly than POW because of the low emissions from it’s reduced energy consumption.
With the POS crypto staking model, there may not need to invest funds in purchasing costly crypto mining rigs because staking can be efficiently carried out using a less expensive Raspberry Pi, your personal computer, or mobile phone. Crypto staking can also be carried out using a different hardware wallet such as Ledger Nano, which is handy and cheap n cold staking coins.
Reduction in the 51% attack risk
The 51% risk attack is prevalent for significant cryptocurrencies such as Ethereum and Bitcoin. The idea of securing over 50% of Ethereum or Bitcoin cryptocurrencies is almost non-existent. Staking cryptos with POS does not pose this threat to traders.
Staking cryptocurrencies is much easier than mining.
It is easier for you to begin the crypto staking process than it is to start the mining of cryptocurrencies. Crypto staking may be an innovation in the blockchain industry, but several advanced and creative features are associated with the staking process.
Crypto staking is readily available at several crypto exchange companies such as KuCoin and Coinbase. Other additional features, such as cold staking, ensure that you have a simplified start-up in comparison to mining cryptocurrencies.
The necessary steps to staking cryptocurrencies
The following steps may be taken for you to begin and optimize the crypto staking process.
Decide on the cryptocurrency you intend to stake
Before you can begin the process of staking cryptocurrency, it is vital that you first decide on which crypto coin you would like to stake. There are several options you may select from. As earlier stated, it is easier for you to stake POS cryptocurrencies than POW coins. Once you have chosen the type of crypto coin you would like to stake, you may then proceed to the next step.
Look out for all the requirements
After deciding on the appropriate and best coin option you would like to stake, the next thing you should do is determine those requirements that have to be fulfilled before you can get started.
You are to have a minimum amount of coin before you can begin the staking process. There may be other requirements that may be based on the exchange company or trading platform. You may be required to complete a simple registration process or open an account on the platform.
The third step is to get a device that can allow you to stake
Trading POS coins traditionally requires that you have a computer with a connection to the blockchain, via a wallet. This connection must be permanent at all times to the blockchain.
Another means or platform that may be used in staking cryptocurrencies is a Raspberry PI, which costs around $50-70. You can make use of a web-based platform to access the blockchain. The web-based approach is convenient for different types of devices as long as it has a secure and strong internet connection. However, there are specific guidelines that may be followed when staking via the internet.
Your exchange company may provide you with the relevant information needed to begin your crypto staking process using the internet or other means.
You may consider using a VPS.
The Virtual Private Server may be a viable option if you do not have an extra computer that can be used solely for this purpose. If you have concerns about the high electrical cost of operating a VPS, then you may decide to use other private servers that can run on a cloud.
These private servers may allow you to set up your wallet on the server and ensure that it runs non-stop even without having a computer for that purpose. Achieving this may be a bit difficult, but it is possible if you follow the laid down guidelines.
Stake cryptocurrencies with ease
After you may have completed the other steps outlined above, you may now begin your crypto staking process. Proof of Authority (POA) and POS coins are staked more conveniently by holding cryptocurrencies in a wallet. It is a simple process that may be carried out with ease.
The Cold staking option
Cold staking is another new and innovative feature that is available for traders and investors in the blockchain industry. Cold staking requires you to stake cryptocurrencies using an offline wallet. There is a need to have a mobile phone, computer, or VPS operating for 24 hours every day to carry out cold staking. Such action may lead to a wastage of money and time,
An insight into some significant POS coins that you can stake
We have earlier hinted that POS coins may be quickly staked than other POW cryptocurrencies, which may require more energy consumption and risk. There are several POS coins to choose from. You can research each currency to find out which may be suitable for you.
It is also proper to find out the right type of wallet that may be used in holding these coins. One other aspect you are to consider in your coin selection is the exchange company that offers these coins to be staked.
Some exchange companies may focus more on particular cryptocurrency, thus leaving out other more viable coins that you can stake. You may even find brokers whose primary focus may be on trading POW coins rather than the more convenient POS coins.
For these reasons, getting the right exchange company is very important in ensuring that you excel in the business of crypto staking. The following are a list of crypto coins that may be staked:
NEO is one of the viable crypto coins that you can stake to generate revenue. With NEO, you may get as much as 5% ROI annually. Just like VeChain, if you stake NEO, you may be likely to receive another coin known as GAS that is utilized on the NEO blockchain. You may be able to buy NEO coins at OKEx, Binance, Bit-Z, eToro, etc.
NavCoin is a POS coin that traders and investors alike may decide to stake. NAV coin offers 2.5% as ROI every year. NAV is a coin with a good prospect when staked using a reliable wallet and exchange. You may buy your NavCoins from Binance.
VTHO and VET (VeChain)
VeChain is a proof of Authority coin that has the potential of generating an ROI between the range of 2 to 6%. When you stake VET, you may receive VTHO in return. The VTHO you receive is used in paying for transactions carried out on the VET blockchain. You may be able to buy the VET coin from places such as KuCoin, Binance, etc. you can get other useful tips regarding the staking of VeChain on the VeChain website.
PIVX offers traders between 5 to 8% ROI when staked. It is one of the crypto coins that provide a very high investment return. PIVX is also available for sale on Binance as well as Kucoin.
Other cryptocurrencies with high value, such as Ethereum, are planning to adopt the POS model instead of sticking to the proof of the work model that may be very difficult to stake.
Exchanges where you can buy cryptocurrencies
As earlier mentioned, the need to find a reliable exchange company where you can buy, and even stake cryptocurrency can not be overstated. Before you can stake cryptocurrency, you must, first of all, buy the crypto coin you intend to stake.
Crypto staking is a viable means of generating income. You may be able to increase your ROI within a short time if you understand the right strategy to employ while staking cryptocurrencies. Ensure that you stake only those crypto coins that you are sure of.
You should bear in mind that you may not be able to spend your coins while carrying out staking. Your coin value may depreciate or increase while staking. We advise that you carry out a proper evaluation of your crypto coins value before staking.
You may want to consider staking proof of stake coins rather than POW since POS crypto coins are more natural and efficient to stake. You may decide to start your crypto stake right away but do well to have a perfect understanding of how the process works.