Monday, March 20, 2023

Staking Crypto Currency: How Does This Method Work?

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Do you plan to try mining? If yes, we recommend you read our guide first. Although a few years ago this activity used to bring huge incomes, as of now, its profitability is doubtful, due to the high price of equipment. Thus, most investors search for other solutions that would be more cost-efficient.

Since, these days, most blockchain systems are switching to Proof-of-Stake algorithms, it would be smart to familiarize yourself with this method. In general terms, staking is the process of holding crypto coins on a wallet or an account on the online exchange so that the system can utilize them to support other users’ transfers.

Let us explain how that works step by step:

  1. You buy a certain sum of crypto, for example, Binance Coin, Cardano, or Polkadot.
  2. Then, it is blocked on your account or wallet for the period agreed.
  3. When this period is over and the crypto is unblocked, you use it for free plus receive a reward.

Compared to mining, staking is easier to access:

  •         No large investments are needed. The requirements differ depending on the coin, but, as a rule, you can freely start from only $50 or less.
  •         No equipment is required. Again, it usually takes at least 6 months to make back the funds spent on ASIC miners. And, in the case of staking, one often starts getting profits after the first month of investing.
  •         No additional expenses, like huge electricity bills.
  •         The size of income is announced beforehand. An investor knows in advance how much he will get at the end of a month.
  •         No technical risks. You do not have to worry that your equipment will stop functioning, or the electricity supply will be shut down.

Also Read: Forex Trading Canada: Major Aspects in Short

If you are just a private trader and keep the coins on an online wallet or account, there is only one limitation for you. You will not be able to withdraw your crypto before the agreed maturity date. Or, in some cases, you will be allowed to withdraw after paying penalties only. Hence, if the situation on the market changes rapidly, and the coin drops in price, you will face losses.

On the other hand, if you decide to become a validator (i.e. take the responsibility to validate new blocks) and store the crypto on your computer, you will be demanded to keep it online all the time.

In sum, as the crypto world is gradually abandoning PoW algorithms and implementing PoS ones, mining coins is losing its financial appeal. So, we recommend you make a try at staking instead.

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