Staking Cryptocurrency: A Beginner’s Guide for 2022
What is Crypto Staking?
Crypto staking is a process where you can earn passive income by committing certain cryptocurrencies to a blockchain network. It is only available on cryptocurrencies that use a Proof of Stake (PoS) consensus algorithm.
It is an alternative to the proof-of-work (PoW) algorithm used in Bitcoin. Transactions on the bitcoin blockchain rely on complex calculations carried out by powerful mining rigs. It is a very energy-intensive process.
Staking offers an eco-friendly, energy-efficient alternative to mining. A PoS blockchain requires volunteers to commit their crypto assets for the validation process. With the successful addition of a new block to the blockchain, validators receive new coins minted as a reward.
If you have PoS crypto assets sitting idle, staking may be an option to earn some passive income. It is somewhat akin to earning interest on a fixed deposit but with the potential for higher interest/rewards and higher risk.
How Crypto Staking Works
When staking tokens, an individual locks their tokens into their chosen PoS blockchain. Then, the blockchain uses the tokens to achieve consensus, which is necessary to keep the network secure whilst validating every new transaction on the blockchain.
By offering up their tokens, “validators” are rewarded with new coins from the network. These rewards are proportionate to the number staked; the higher the number staked, the greater the validation power.
Many Proof-of-Stake proponents believe that PoS is more secure than PoW as it requires a lot of resources to hijack the network. A hijack is only possible if 50% of the network’s validators become compromised, and purchasing tokens to stake 50% of a network is vastly more expensive than seeking control through a PoW consensus mechanism. In addition, purchasing coins will cause the price to inflate, and as such, purchasing the required amount to take over a network through staking is far more expensive than PoW, and therefore, (in theory) more secure.
Different Ways of Staking – Validator vs Delegation
There are mainly two ways in which you can participate in staking. The first one is as a validator. You run your own
staking node using advanced technical skills and always online hardware. The advantage is higher rewards and
voting/controlling rights on some blockchains.
But becoming a validator is not easy – you have to invest higher sums even to qualify. For instance, to become a
validator on the Ethereum 2.0 blockchain, you need to commit 32 ETH, roughly $150,000.
The second way is delegating, a popular option for smaller crypto investors keen on staking. Some validators run pools
that accept cryptos from other investors. You don’t have to worry about maintaining the node – pay a small commission,
and you get a share of the staking rewards.
Where Do You Stake Coins?
Fantom, Solana, Polkadot, Luna, Defichain and Ethereum are some of the popular staking options available on LLoyds technology platform. LLoyds is based in Dubai and launched in 2017. Apart from staking, LLoyds also has mining solutions.