Let’s start the discussion with staking, it is the process used to validate the transaction and add the verified block to the entire blockchain. To accomplish this entire process at the end you receive the reward in return for staking. In General terms, staking is the process of locking and holding your assets to work and in return earning a reward.
Staking devices always work using the Proof of Stake (PoS) model, which is the alternative to the Proof of Work (PoW) model. These models are also called consensus algorithms. No doubt both models are used to verify the transaction and keep the entire database safe but if I talk about the difference there is a big difference between them although they perform the same task in the blockchain.
Difference between Proof of Work and Proof of Stake Consensus
PoW or Proof of Work consumes more resources and it requires unlocking high-power consumption for the mining process but still, you are not sure whether you will be able to solve the mathematical problem or not. Here are some examples of crypto that use this model, Bitcoin, Litecoin, and Dogecoin.
The PoS or Proof of Stake model requires a stake to grab the opportunity, more stakes mean more chances to hold the blockchain assets, and here stake means the number of coins. In this model, the validator will be chosen randomly on the base of the stake. An example of this model is Ethereum crypto.
Proof of Stake Validation
As we know, to play on this ground we need more stakes to grab the opportunity, more stakes mean more validation. But what if some node performs maliciously in the entire chain, it would be slashed from the network.
Slashing means if a node behaves maliciously and tries to break the rules, it would lose its whole stake, but another face of slashing is when you are performing any transaction but the transaction stops due to any kind of interruption, in this scenario, your stake can also be lost.
How to Earn Stake Profit
Have you ever heard about the gas fee? The gas fee is the amount paid by transaction holders to the transaction validator, also called the staking reward.
The node with the most stake validates the transactions in the entire network and then adds it to the network after validation it would be updated over the entire distributed ledger on the peer-to-peer network.
Validating each transaction takes power consumption and requires high-performance devices, in return, you earn a staking reward and this is a lavish way to earn a profit.
How to Stake Crypto
Do you want to stake crypto but are still confused about where and how to start? No doubt it is confusing for most of investors, but trust me it’s quite simple, here are some key points to stake crypto:
Step 1: Buy a Cryptocurrency That Uses Proof of Staking
In the market, there are different crypto working, although these are all kinds of digital currencies in the backend, it works on different consensus algorithms. Some of them are working on proof of authority like bitcoin and some are working on the proof of stake like Ethereum.
To stake crypto, your targeted crypto will always be a currency that uses proof of stake, here are some of the few famous cryptos currencies use to stake crypto:
- Ethereum - CRYPTO: ETH
- Polkadot - CRYPTO: DOT
- Cardano - CRYPTO: ADA
You may buy these crypto using cryptocurrency apps and crypto exchanges.
Step 2: Transfer your Crypto to the Wallet
After purchasing crypto, the second step would be to transfer it to a secure shell. By default, your coins are stored on the exchanger, which could be very easily hacked by a third person.
The best approach I always suggest in all my articles is using a crypto wallet to store cryptocurrency. It comes in both software and hardware forms. You can easily buy them and can securely store cryptocurrency in them.
Step 3: Join a Staking Pool
To maximize the opportunity stake holders, work in the form of a pool, what does this mean? A stake pool means multiple stakeholders work collaboratively and become a single entity having a lot of coins. It gives them more than more chances to play on the ground, as well as more stake means high authentication of the node.
Risks of Staking
- Least Consumer Protection: Cryptocurrencies always works in decentralized environments, this market is highly unregulated so that's why there are a lot of chances to be done scams and malicious programs.
- Technical Analysis: It may risky for beginners due to lag knowledge of technical analysis, this loophole can lead them to lose.
- Marketing of Resources: To grab the opportunity most stakeholders put a large value on their tokens. But you can never find whether this project gives you profit or loss.
- Price Volatility: Due to fluctuation in the value of the token, due to this insatiable approach most of the time investors have to face loss.
To stake crypto, you must have a stake in your wallet, you are insufficient to stake crypto in case of less stake. More stake means more opportunities to play on the ground; to become a strong entity most of the stake work collaboratively by sharing their resource, in that way they have more and more chances to grab the opportunity. 3 steps to stake crypto buy cryptocurrency, transfer your crypto to the wallet and join a staking pool.