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There are many different ways to increase one’s cryptocurrency holdings. Some do it by buying more coins, while others try to mine altcoins with a GPU or ASIC. Another option worth looking into is known as cryptocurrency staking. While not all cryptocurrencies support it, it is a very powerful protocol to earn some passive revenue along the way.

As the name somewhat suggests, coin staking revolves around users locking up a specific amount of a supported currency in the hopes of staking it for additional network rewards. This process is very similar to how bank accounts operate and reward users with interest over time. Contrary to how a bank operates, however, coin staking cannot yield a negative interest, nor are there any surcharges for exploring this option.

To properly stake one’s coins, users will not have to undertake too much action. As long as their favorite cryptocurrency supports proof-of-stake and their wallet is connected to the network and running, they will be eligible for staking rewards sooner or later. That is one downside to this system, as users’ wallets needs to be online at all times in order to receive the stake rewards.

Staking is another mechanism for validating blocks, and Cryptocurrencies that support staking are also called Proof of Stake (PoS) coins. Proof of Stake is an alternative to Proof of Work, and doesn’t use nearly as much electricity as Proof of Work mining does. With Staking, the amount of coins you can mine depends on the amount of coins you stake. For example, if you own 5% of a coin’s supply you can essentially only “mine” 5% of the blocks. This makes Proof of Stake a much more environment friendly consensus algorithm compared to its predecessor PoW.

The good news is, in order to stake cryptocurrencies you don’t have to understand the details of how PoS works exactly. Similar to how if you want to mine Bitcoins you don’t need to understand the thousands of lines of Bitcoin proof of work code, you simply fire up a program and start mining.

To earn staking rewards, interested users need to pay close attention to the coin’s specifications. More specifically, they need to know the “coin age” statistic. A coin age indicates how long one’s coins have been in the wallet without being moved. This means if a user has outgoing transactions, there is a chance the coin age will reset for a portion of their balance and staking rewards will take longer to arrive.

To engage in cryptocurrency staking, users often send a small balance to a separate wallet address, which is only used for the staking purpose. This ensures the funds cannot be moved by accident, and it does not interfere with day-to-day wallet operations. Creating a completely separate wallet and installation for staking coins is also an option, but that might be a bit too confusing for novice users.

While the concept of receiving cryptocurrency staking rewards is appealing, users will not get rich by doing so. In most cases, the stake rewards are smaller than regular block rewards issued by the network. They are also distributed among everyone who stakes coins at any given time, which means some users might not see rewards for several hours, if not days.

Depending on the price of the cryptocurrency in question, staking rewards can still bring in a substantial passive income. Every dollar earned from doing nothing special is easy money, especially in the cryptocurrency world. Over time, users usually earn a few percents of their staking balance back over the course of a full year. It is more lucrative than an interest savings account, but given the volatile nature of cryptocurrencies, the rewards will vary in value.

In theory, it is rather common for users to earn cryptocurrency staking rewards by using a wallet on their computer. However, keeping a computer online on a 24/7 basis is a daunting challenge. As such, users often try to explore other options. Taking the necessary security precautions into account is an absolute must when trying to look beyond more traditional solutions.

One common option is to install a cryptocurrency wallet on a server or Raspberry Pi. These solutions can often run on a continual basis without any real problems, and they require little to no maintenance. The downside is how users will need to set up proper wallet protection at all times. If a hacker were to gain access to their server or Pi, they could simply steal the funds if no security countermeasures are present.

Another option is using online staking services. Some cryptocurrency projects have their own online staking platform, which is usually operated by a community member or a core developer. Such options can yield completely passive staking rewards as well. It is possible such a service comes with its own fee, but that is only to be expected.

Yet another option involved staking cryptocurrency via an app on your phone. Electroneum for example, has an iPhone app that allows “cloud mining” aka staking $ETN simply by running the app and extending the staking time once every 7 days.

The final option comes in the form of staking pools. This concept works similar to mining pools, yet users will bundle as many coins as possible to earn more stake rewards. These rewards are then distributed among all participants based on their individual amount of coins. Not all cryptocurrencies provide such functionality at this time, but the concept is gaining more popularity as time progresses.

In theory, it is always better to stake as many coins as you can rather than small amounts. The Proof-of-stake protocol often takes one network’s weight into consideration. This means wallets with more coins being staked will have a higher chance of receiving rewards more quickly. Other currencies simply enforce a fixed number of confirmations for stake rewards to level the playing field. This is up to individual projects and how the coin in question is developed.

When users protect their wallet accordingly, staking a cryptocurrency carries no significant risk. The biggest risk comes in the form of price volatility, which will always wreak havoc upon one’s portfolio if the momentum sours. For those who rely on third-party services, there will always be a trust factor in play. When it comes to trusting unknown individuals on the internet, the risk is always greater compared to handling everything oneself.

Some of the most popular cryptocurrencies to stake right now include: PIVX, DASH, NEO, Cosmos, BNB and Stellar. All of the cryptocurrencies mentioned above are extremely popular for staking. Some pay out more than others and some have a slightly different mechanism of staking. However, at its core staking for all the above cryptos is all the same and essentially allows you to earn extra coins for doing basically nothing.

Got any more questions about staking? Leave them in the comment section below!

Image(s): Shutterstock.com

The post What Is Cryptocurrency Staking? appeared first on NullTX.

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