How does crypto staking work?
There are many ways you can get involved with crypto stacking that are much easier than setting up as a validator yourself. These include staking on a cryptocurrency exchange or joining a staking pool.
Staking on a cryptocurrency exchange
Staking via a cryptocurrency exchange means that you make your crypto available via an exchange for use in the proof-of-stake process. In essence, it enables holders to monetize their crypto holdings that would otherwise lie idle in their crypto wallet. In this approach, the exchange does much of the administrative work for you, seeking out a node for you to join so you don’t have to do it yourself. It’s not completely risk-free, though—you do have to run the risk of entrusting your coins to the exchange and node in question.
Joining a staking pool
A staking pool enables stakers to earn block rewards by sharing their resources, similarly to a mining pool. These pools tend to follow a two-tier system, with an administrator overseeing the work of the validators and ensuring things run smoothly. When rewards are earned, they’re split between the pool operator and pool delegators , but some pools do additionally charge entry and membership fees.
What are the advantages of staking crypto?
There are all kinds of reasons to stake crypto, including:
- The potential for high returns (depending on the specific cryptocurrency you’re staking!).
- The satisfaction of playing a key role in a project you believe in—proof-of-stake currencies simply couldn’t function smoothly without their stakers.
- You don’t need any equipment for staking.
What are the risks of staking crypto?
Staking isn’t a risk-free exercise, however. You could run into some of the following risks of staking crypto:
- The value of your staked crypto isn’t constant—as crypto prices are often highly volatile, your assets could plummet in value with little warning, making it a much less profitable endeavor.
- Some proof-of-stake cryptocurrencies have lock-up periods, which means you won’t be able to access your crypto for a certain amount of time.
- Depending on the approach you take, you might need to entrust your crypto to an exchange so it can be staked, which can lead to security risks.
Continue your crypto journey with Bestforbuy
To stake or not to stake? That is the question—but while we’ve focused on looking at the question of “what is crypto staking?”, there’s much more to crypto than just staking! When it comes to understanding the nuts and bolts of cryptocurrencies in general or finding out all the details of particular cryptocurrencies, such as Bitcoin, has Bestforbuy all the information you need to progress on your crypto journey.