The Ultimate Guide to Staking Crypto

What is crypto staking? 

Crypto staking refers to committing some of your cryptocurrency to the blockchain network for a period of time in exchange for a chance at rewards. While the crypto is staked, it is unusable, but the rewards can include interest, tokens, and voting power. 

Staking can only be done on Proof of Stake models, as opposed to Proof of Work ones. Staking crypto also presents various use cases such as validating the blockchain, participating in crowd loans and Initial DEX offerings. 

Proof of Stake Versus Proof of Work 

At the heart of every cryptocurrency lies a network of computers that helps secure the software from attackers and regulates the supply of its units. This system is called a consensus mechanism. Consensus mechanisms are used to determine the one true record of data history. The two most widely used consensus mechanisms are Proof of Work (PoW) and Proof of Stake (PoS). 

To begin, a blockchain is a mechanism that consists of a string of blocks. These blocks are groups of transactions aligned chronologically based on the order in which they occurred. The first block in the blockchain is hardcoded, but each subsequent block contains a copy of the entire updated ledger. Each block also refers back to the previous block, forming a chain. Hence, blockchain. 

Proof of Work algorithms determine who can adjust the ledger through a competitive race in which certain participants, called miners, are encouraged to expend computational energy to propose valid blocks that meet the rules of the network. 

Proof of Stake is a variation of PoW introduced to solve it’s dependency on computing power and energy consumption. Rather than relying on computers racing to generate the answer to a complex mathematical problem, the idea behind a PoS protocol is that participation is determined by ownership of the coin supply. 

In short, in the Proof of Work models, miners expend energy in electricity to mine blocks into existence. In Proof of Stake models, validators commit stake to propose or attest blocks into existence. 

How Does Crypto Staking Work? 

The Proof of Stake algorithm pseudo-randomly elects a validator to propose the following block to the blockchain. Validators are the participants on the network who run nodes. They become validators by staking their crypto on the network and making themselves available to be randomly selected to propose a block. 

When a node gets elected, its role is to verify that the transactions within the block are valid, sign it, and propose the block to the network for validation. Validators who aren't chosen to propose a new block are instead given the role of attesting - confirming that another validator's proposal looks as it should. After a sufficient number of these confirmations have been collected, the block is added to the blockchain. 

For their work, validators receive rewards for both successfully proposing blocks and for making attestations about blocks that they have seen. 

The incentives behind the PoS system are based on rewarding proper behaviour and punishing malicious behaviour. This is enforced economically, as validators are required to stake their crypto - effectively their own money - on the network. ## Is 

Crypto Staking Safe?

Advantages to Crypto Staking 

The main advantages of crypto staking are the generation of passive income and low barriers to entry. It is also considerably more energy-efficient than mining and generally less risky than trading. Long term, it will also lead to stronger immunity to centralization, as PoS leads to more nodes in the network. Because of these reasons, some have come to view staking as an easier and safer way to invest cryptocurrency - especially for beginners, as it requires only a few clicks to set up. 

Risks of Crypto Staking 

As with any investment, staking has its risks. One of the primary considerations people should make before investing through crypto is that it's considered a volatile investment, so price swings are common. There's also the fact that, while staked, the crypto cannot be accessed or utilized. As there are generally lock-up periods that apply, investors need to be comfortable with the amount of crypto they are staking and the duration it will be staked. If you stake through an exchange, expect to pay fees. These fees vary by exchange, but are typically a percentage of the staker's rewards. If you choose to stake outside of an exchange by setting up and configuring your own node, penalties can be incurred as a result of any mistakes made. Therefore, this method should only be implemented by those who are highly technically proficient and knowledgeable about the process. 

Is Crypto Staking Profitable? 

Your chance of finding a new block is proportional to the amount you stake, so the more you stake, the more you'll be rewarded. However, most chains require a minimum amount when staking, and while assets are staked, they cannot be accessed or sold — so investors should be sure they are comfortable with at least the minimum deposit amount becoming temporarily unavailable. In saying this, staking can be a very profitable form of passive investing, especially compared to the average interest-bearing savings account. However, this largely depends on how much you're staking and the length it's being staked. Crypto is permissionless, so while the project developers may place certain conditions on the use of their staking services, any coin holders can earn interest as a reward for allowing their crypto to be used to support the protocol. 

How Do I Start Staking? 

1. Learn about cryptos that offer staking As only Proof of Stake cryptocurrencies can be staked, the first and most important step in staking is ensuring the crypto you want offers it.
2. Buy the cryptocurrency you want After you've learned about different PoS cryptocurrencies, the next step is to purchase it. The simplest option is to choose a cryptocurrency exchange with a built-in staking feature and you can transfer your crypto elsewhere. A lot of cryptocurrency platforms don't let you stake crypto, so picking an exchange that gives you full control of your crypto is important.
3. Stake your crypto through an exchange or pool There are two ways you can stake crypto: through an exchange and a staking pool. Staking through an exchange will require you to find and follow that specific exchange's instructions. Staking through a pool will require an additional step, but typically offers greater rewards. To stake through a pool, you will need to transfer your crypto to a crypto wallet first. An example of a wallet that lets users buy, store, send, and swap crypto is MetaMask. From there, you can choose a staking pool you like and send the crypto directly to them through your wallet. 

Is Staking Worth It? 

Staking is a form of investing that allows crypto holders to earn interest, rewards, and other benefits. It is similar to owning a stock and earning dividends or putting money in a bank and getting interest. There are few barriers to entry, and it's generally considered a hands-off investment. However, like all investments, it does carry some risks. Before staking your crypto, it's important to do your research and determine whether it's right for you and your risk profile.