What is Staking in Crypto? – Process, Benefits & Risks
Tags: cryptocurrency, web3, blockchain, learning
Published: 2024-07-03 09:51:50

Staking is a popular phenomenon in the crypto space. It allows crypto developers to secure their networks while rewarding participants who stake their tokens. Crypto staking has lately emerged as a favored way for crypto enthusiasts and investors to make a side income from their crypto portfolio. It involves staking your crypto assets in a PoS blockchain network to earn a passive income in the form of additional tokens paid at regular intervals. Here’s all you need to know about crypto staking, including how it works, the benefits, and the risks involved.

<h2>What is Crypto Staking?</h2>

Staking works similarly to a savings account that pays regular interest. You deposit your money (crypto tokens) in an account (blockchain network) and earn interest on the amount deposited.

Staking involves depositing (locking) your crypto assets on a staking platform for a fixed period. During this time, your deposits will earn regular interest, but you cannot withdraw them until the deadline ends.

Staking is primarily employed by blockchains using the proof of stake consensus mechanism. It requires participants to stake a minimum amount of tokens to participate in the block generation process. Instead of mining cryptocurrency the traditional way, PoS involves staking tokens to generate new tokens. Staking helps strengthen and secure the network and rewards participants for their contributions.

<b>Some popular blockchains that use staking include Ethereum, Solana, Cardano, and Polygon.</b>

<h2>Proof of Stake (PoS) Consensus</h2>

Staking is primarily employed by blockchain networks that are based on a proof of stake consensus. Staking is how these networks maintain a legitimate and strong ecosystem free of bugs.

In a proof-of-stake consensus network, participants are required to stake their digital assets to participate in the consensus process. The more amount they stake, the more opportunities they get to validate transactions, add new blocks, and earn new tokens.

A staking pool refers to a pool of funds contributed by multiple participants, who all earn staking rewards in proportion to their staked tokens without the need to individually validate and add new blocks.

<h2>How Staking Works</h2>

To participate in crypto staking, you need to have a cryptocurrency for a blockchain network that uses the PoS consensus mechanism. Some examples include ETH, NOMOX, SOL, and ADA.

After selecting and buying the cryptocurrency you want to stake, find a staking platform where you can earn good returns for less work. Check out www.nomoex.org

Now comes the best part. After joining the staking platform, all you need to do is stake (lock) your cryptocurrency for your preferred period. It can be a day, a week, a month, or even a year. The more tokens you invest for a longer period, the more rewards you’ll earn.

Reward tokens are automatically deposited to your wallet, which you can withdraw or transfer. However, you cannot withdraw your staked tokens before the staking period ends.

Some staking platforms even allow you to stake not just one but a range of tokens and digital assets. Nomoex, a fast-emerging crypto exchange, for instance, allows its users to stake a wide range of cryptocurrencies, including the native Nomoex token, allowing them to diversify their portfolio across multiple digital assets to reduce risks and increase potential returns.

<b>Factors to consider when choosing a staking platform:</b>

- Minimum staking amount
- Types of tokens supported
- Annual percentage yield (APY)
- Rewards schedule

<h2>Benefits of Staking Crypto</h2>

Earn Rewards: Stakers earn regular rewards on their deposits based on the type and amount of token staked and the staking period.

Easy to Do: Staking is easier than mining, trading, and other ways to make money with crypto. All you need to do is deposit your tokens.

Diversification: Platforms like Nomoex allow you to stake multiple tokens to diversify your folio and reduce risk.

Passive Income: For crypto investors looking to earn passive income (like interest or dividends) without selling their cryptocurrency, this is the best option.

<h2>The Risks of Staking Crypto</h2>

There are some risks involved in this type of investment. For one, your staked tokens are locked into the contract and cannot be withdrawn or traded during the staking period.

Also, there is high risk with crypto investments due to the volatile nature of these assets. When investing in crypto, you should be ready for unexpected price swings and volatility in the market. Since you cannot sell your staked tokens, you won’t be able to leverage market upturns or sell when the price of your tokens increases.

It is crucial to choose your validator carefully. Staking through a fraud or inexperienced validator can result in the loss of your tokens.

<h2>How to stake crypto?</h2>

We have already explained the process of crypto staking above. If you are looking to earn a passive income by staking your cryptocurrency, visit www.nomoex.com to get started.