If you’ve been in cryptocurrencies for at least a while, you know that today’s cryptocurrency world can’t do without staking. Under the term staking, you can imagine a combination of mining and a classic bank savings account.
You can start staking cryptocurrencies at Kraken. Kraken is the safest cryptocurrency exchange, easy to use and offer the most important coins you need to have.
What does staking crypto mean? Should you start?
The essence of staking is simple. The user locks his cryptocurrency coins or tokens as a “deposit” and receives a particular reward and benefits. Rewards can reach more than 10% of the annual appreciation.
From a technical point of view, staking is part of the Proof-of-Stake mining algorithm. Users who want to participate in the mining of specific cryptocurrencies must “close” their cryptocurrency (hence the “stake” or share) in a protocol that then randomly selects one user who will have the right to validate (or “extract”) the next block.
Usually, the more significant the proportion of a particular user’s secure cryptocurrency, greater opportunity to be selected for block validation. There is a disadvantage that the user does not have his resources available. Therefore, the reward for this lock is not certain. To do this, the user must be constantly connected to the Internet and have a relatively powerful computer.
In Proof-of-Work mining (such as Bitcoin), miners have to invest heavily in mining equipment and consume vast amounts of energy. Unlike this, Proof-of-Stake mining only invests in cryptocurrency itself.
However, it is not a condition to be a miner to use staking. You can also stack your cryptocurrencies by connecting your wallet to staking pools. These gain more computing capacity for cryptocurrency mining.
Unlike Proof-of-Work mining pools, staking pools do not need a constant internet connection from their users. Mainly because the pool itself does mining. The user “only” locks his expensive cryptocurrencies into it. Then, he receives a reward either in the form of interest on the cryptocurrency itself or in the form of interest on the token. Finally, it is possible to exchange it for any other currency. For example, ETH and ETH 2.0.
Each cryptocurrency and pool has its staking conditions. This mainly concern the fees and the staking time of the staking funds, during which the cryptocurrency cannot be sent back to the main account.
These staking pools are similar to bank savings or term deposits. For example, stock exchanges (such as Binance, Kraken, Crypto.com), wallets (Exodus, Atomic Wallet, Trust Wallet) offer access to staking pools, and staking can also be used using tools provided by the Decentralized Finance industry.
We hope that now you understand what does staking crypto mean. Let’s move to start with cryptocurrency staking. But before, stay safe while being on-line with the NordVPN service. NordVPN keeps your data hidden from your internet provider and helps to secure your connection. Click here to register an account.
How to start staking cryptocurrencies?
The easiest option is to use staking directly on some cryptocurrency exchange, where you can transfer cryptocurrency to a staking account. Some exchanges offer staking cryptocurrencies and stablecoins and staking fiat currencies such as dollars or euros.
Sending a cryptocurrency or fiat currency back and forth is a matter of minutes. The figure shows an example of staking on the Binance Stock Exchange.
Staking in cryptocurrency wallets, which have established staking nodes for specific cryptocurrencies, allows users to transfer cryptocurrency to a staking address. The following image shows an example of staking in the Atomic Wallet.
The cryptocurrency can be stored in a smart contract in DeFi platforms and applications (such as Aave) to provide loans to other users. The user will also receive a reward in the form of interest.
This principle of lending is called Yield Farming and has a very similar meaning to staking. The main difference is that in the case of staking, the user deposits funds in a mining pool that participates in cryptocurrency mining. At the same time, Yield Farming is essentially a “money” cryptocurrency market tool that provides loans.
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The difference between on-chain and off-chain staking
Staking can be further divided into on-chain and off-chain staking. Each one has its specifics. On-chain staking means that staking takes place directly on the blockchain, whose mining algorithm is Proof-of-Stake or Proof-of-Work of the Ethereum Ethash type. Off-chain allows you to store resources using third-party programs and is not a native function of the cryptocurrency or blockchain.
For example, the Kraken cryptocurrency exchange has set up an internal program that allows staking for Bitcoin. However, Bitcoin has a Proof-of-Work algorithm that does not know the staking function. Here, Bitcoin staking aims to add liquidity to the market, for which the stock exchange itself is willing to pay a fee in the form of interest. The Kraken Stock Exchange also offers off-chain staking of currency currencies.
Comparison of cryptocurrencies with staking function
Firstly, what does staking crypto means? We will analyze and compare the pros and cons for cryptocurrency staking. However, it is essential to note that the stated annual remuneration depends on several factors, changing over time. For example:
The rules of the staking pool itself, including the fees set by the staking pool. Staking supply and demand mechanism. For example, with ETH 2.0, with a higher number of stakes, the annual fee decreases.
Comparison of advantages and disadvantages of cryptocurrency staking
- Thanks to staking, it is possible to regularly receive a reward in tokens. They are paid out based on the mechanism of the cryptocurrency itself.
- Staking makes sense to use when holding a cryptocurrency for a long time.
- It is not necessary to be a mineral.
- For most cryptocurrencies, more or less any number of tokens can be stored (stacked). So you are not limited by the minimum or maximum amount.
- You can choose a mining pool, and you can even do it directly in the cryptocurrency or directly on the stock exchange. So staking is very simple.
- Off-chain staking currency currencies have a higher reward than banks offer in savings accounts.
- Limited liquidity, which consists in freezing funds. If a sale is necessary, you may have to wait.
- The least liquid is ETH 2.0, for which the freezing time is not specified.
- Although the amount of cryptocurrency you stack will increase during staking, the total value may fall if the price drops.
What does staking crypto mean? Now you should know more about it. It is only up to you to start with your own staking or not. We highly recommend to follow this information for you to not have any trouble during the process.