Cryptocurrency staking: what is it, what are they for and why invest?

Cryptocurrency Staking: Complete Guide

Can you imagine making money with cryptocurrencies without having to trade or keep an eye on the market all the time? That’s exactly what staking allows! If you have some cryptos sitting in your wallet, they can start earning automatically, as if they were working for you. 

As well as generating passive income, staking helps strengthen the security of blockchain networks. Want to understand more about how it works and why so many people are investing in it? Come with me and I’ll explain everything in a simple and straightforward way!

What is cryptocurrency staking?

Imagine that you have some cryptocurrencies stored away and you want to do more than just leave them idle in your digital wallet. 

That’s where staking comes in! Basically, staking is the process of “locking” your cryptocurrencies in a blockchain network to help validate transactions and, in return, receive rewards. It’s as if you lent your coins to the network and, as a thank you, earned more coins. Cool, right?

How does staking work?

To understand staking, we need to talk about the consensus mechanism called “Proof of Stake” (PoS). 

Unlike “Proof of Work”, which requires a lot of energy and computing power (as in Bitcoin mining), PoS selects validators based on the amount of cryptocurrencies they have in staking. 

In other words, the more coins you “lock up”, the greater your chances of being chosen to validate transactions and earn rewards.

And don’t worry, you don’t need to be a technology expert to take part. Many exchanges, such as Coinbase, offer staking services where they do all the heavy lifting for you. All you have to do is choose the coin you want to stake and off you go!

Why invest in staking?

Who doesn’t like earning a little extra money without much effort? With staking, your cryptocurrencies work for you, generating income while you relax.

PoS is known for being more energy-efficient and, in many cases, safer than Proof of Work. In addition, by participating in staking, you contribute to the security and stability of the network.

As mentioned before, platforms like Coinbase make the staking process super simple, even for beginners. You don’t need to set up complicated hardware or spend a fortune on electricity.

Which cryptocurrencies can I stake?

Not all cryptocurrencies support staking. After the upgrade to Ethereum 2.0, ETH adopted PoS, enabling staking.

Known for its focus on security and scalability. It also focuses on interoperability between different blockchains. It stands out for its high transaction speeds.

Before investing, it is important to research and understand the requirements and rewards of each currency.

Risks of staking

Like any investment, staking is not without its risks. The value of cryptocurrencies can vary greatly. Even if you are earning rewards, if the value of the coin falls, your total investment could decrease.

Some currencies require your cryptos to be “locked” for a specific period. During this time, you won’t be able to move or sell them.

If you choose to stake on your own, there are risks associated with configuration errors or hardware failures. For this reason, many prefer to use staking services offered by reliable exchanges.

Final considerations

Cryptocurrency staking is an interesting way to generate passive income and contribute to the security of blockchain networks. However, it is essential to do your homework: research the currency, understand the risks and choose reliable platforms for staking.

Remember, the world of cryptocurrencies is exciting, but it can also be volatile. Invest wisely and never put in more than you are willing to lose. So, are you ready to let your cryptos work for you?

Written by

Juliana Raquel