Earning passive income has been one of the main goals that many individuals have had at some point in their lives.
The prospect of just having something that you have done in the past or in the present earn you money going forward without much active effort from your end is always a solid idea.
However, not many people have yet discovered how to truly gain access to a revenue stream that can be passively generated.
With the introduction of blockchain technology, we saw what was capable of digital currencies.
However, with the evolution of blockchain networks and the introduction of the Proof-of-Stake (PoS) consensus mechanism, we were introduced to a whole new realm of finance.
This is what we now know today as Decentralized Finance (DeFi), which has paved the way for many new ways through which users can get access to passive income.
As such, today, we will be going over just about everything you need to know surrounding cryptocurrency staking and how all of it works.
What is Proof-of-Stake (PoS)?
Proof-of-Stake (PoS) is essentially a consensus mechanism that gets used today by a variety of different blockchain networks as a means of validating the transactions that take place on top of the network.
Any blockchain requires a system through which it can verify the account balance of each individual user and their wallet and aims to prevent double-spending. When PoS is used across a blockchain network, users have an additional level of functionality, however, such as staking their coins. This gives them the ability to check the new blocks of transactions, verify them, and upon verification, add them to the blockchain network in question.
PoS is just a method through which owners of cryptocurrencies on top of a specific blockchain can verify the block transactions, where their chances of getting picked as a validator are weighted based on the number of coins they have staked.
What is Cryptocurrency Staking, and How Does Cryptocurrency Staking Work?
We first need to truly understand what cryptocurrency is and how it works prior to jumping into it, so let’s go over everything you need to know.
The procedure involved with cryptocurrency staking is essentially a reference to locking up cryptocurrencies within a specific blockchain as a means of assisting it with validating transactions. This is essentially the fuel that allows for the proper operation of the network.
Those that end up staking their cryptocurrencies are incentivized to do so due to the fact that they can receive rewards. There is a regular payment that comes in the form of a reward that is given to each user who stakes cryptocurrencies on top of the network, which is referred to in the crypto space as a staker.
Note that within the DeFi space, there are numerous forms of staking that can be implemented as well that slightly differ from this one. However, when we look at the raw Proof-of-Stake (PoS) consensus mechanism and its overall functionality, through the process of committing tokens to staked, the staked tokens can then be used to ensure that transactions are valid.
This is a requirement due to the fact that blockchains are decentralized, and as such, there needs to be a way through which the network can confirm each transaction. With no centralized authority controlling things, there needs to be a decentralized way through which the validity of each transaction can be checked. This is where the consensus mechanism enters the big picture.
PoS allows validation based on staking tokens. The responsibility of the validator gets randomly assigned among validators that have staked tokens. The size of the staked assets can influence the overall chance for that specific validator to get chosen.
After the transactions and the overall activity gets reviewed, verified, and the block then gets recorded on top of the blockchain, a reward gets paid to the validators in the form of the network’s native cryptocurrency token.
Investors are also provided with the opportunity to create a group where they can pool their tokens to participate, and these are known as staking pools. Here, each member receives a specific percentage of rewards based on how much they have staked in the pool percentage-wise.
Pros and Cons of Cryptocurrency Staking
- Holders of a specific cryptocurrency can put it to use as a means of generating passive income by getting involved in the staking process.
- There are multiple ways through which users can begin staking, such as having an individual staking process or joining a pool.
- There is a potential for high returns associated with both the returns from staking as well as the volatility of the crypto space.
- Those that want to participate do not need specialized or expensive equipment in order to get started.
- Stakers contribute to the overall security as well as the participation involved with the blockchain network.
- Specific platforms can include lockup periods which means that the staked cryptocurrencies might be inaccessible to the stakers for a pre-defined period of time.
- When joining skating pools, users have to split the rewards as well as the fees.
- There is a high learning process associated with mastering the staking procedure for beginners.
What are Some of the Most Popular Blockchains That Enable Staking Functionality?
Now that we have gone over what cryptocurrency staking is and how it works, before moving forward with how you can get started, we will first go over some of the most popular blockchain networks that allow users to stake their cryptocurrencies.
You can stake the following cryptocurrencies:
- Cardano (ADA)
- Ethereum (ETH)
- Solana (SOL)
- Algorand (ALGO)
- Tezos (XTZ)
- Polkadot (DOT)
- Tron (TRX)
- Avalanche (AVAX)
- Cosmos (ATOM)
Note that there are hundreds of other projects that provide users with the opportunity to essentially stake their cryptocurrencies, so keep that in mind.
How To Get Started with Crypto Staking With Cardano (ADA)?
In order to get started with the process of cryptocurrency staking, you will need to go over which blockchain network you want to stake in first. Each blockchain will feature its own native cryptocurrency that can be staked, and by doing so, you are supporting the network. Make sure to do research and decide which token backs a project that you are most interested in and that can provide you with the most solid returns.
Today, we will be using Cardano (ADA) as an example, as it is one of the most regularly developed projects in regard to its codebase. This means that you will need to first buy ADA cryptocurrencies and then find a platform through which you can stake the tokens.
You can find the best ADA Pool with ease. In order to begin using the 1BEST pool, you will need to essentially Delegate cryptocurrencies first and then select a pool.
Simply navigate to the portion of the website, after which you will need to connect a Cardano-supported cryptocurrency wallet. The recommended wallet is Typhon. However, there are numerous other wallet options available. Other supported ADA wallets for staking include GeroWallet and Flint Wallet.
- Download a cryptocurrency wallet. Look up any of the aforementioned wallets, after which you will need to install it as a browser extension.
- Buy the ADA cryptocurrency. You can do so on a lot of cryptocurrency exchanges where you can buy Cardano (ADA), and some of the most popular options include Binance, Coinbase, Kraken, Bitfinex, and Gemini. It's up to you. If you already have another cryptocurrency, you can also utilize a decentralized exchange (DEX) in order to buy the coin.
- Pick the best Cardano pool that fits your specific expectations. Staking pools are run by a staking pool operator, and you can see how good they are by including numerous types of information in your research, such as the Annual Percentage Yield (APY), the costs, the pool size, the pool saturation, how many blocks have a specified ADA staking pool minted, and pledge, which is a representation of how much of their own money a pool operator is taking.
- Begin earning rewards. The rewards within the Cardano ecosystem are distributed at the end of what is known as "epochs." These are periods of 432,000 slots, where each slot represents one second and results in a total of 5 days, after which the ecosystem calculates pool participant rewards.
If you want to securely store your newly-earned cryptocurrencies, you can also utilize the Coin.Space wallet, called Coin Wallet, which is a non-custodial wallet that does not store any user's private keys or passphrases.
Moving Forward with Crypto Staking
We have gone over everything you need to know surrounding what cryptocurrency staking is and how it works. Make sure that you take the time to truly find the best staking method that works for you, and go over any other pool on any other blockchain network that you are interested in.
There are numerous ways through which you can begin cryptocurrency staking; however, doing so within a pool is one of the simplest, most straightforward processes through which you can begin earning passive income. Instead of just letting your cryptocurrencies sit on top of your cryptocurrency wallet, you can put them to good use and make them do the work for you. You will be securing the network and supporting the project and will be rewarded for doing so.