Staking is one of the leading methods of earning passive income from cryptocurrencies. Investors often choose it due to its high level of investment safety and predetermined rate of return (APR). The Proof of Stake (PoS) consensus also benefits the network, increasing the degree of scalability and the number of transactions per second. From the article, you will learn what PoS is, its benefits, and how to start earning passive income with staking!
Discover Proof of Stake
It’s a consensus mechanism that involves depositing your funds for a certain period. The protocol randomly selects users to assign the next block in the chain. The user solves complex mathematical puzzles to produce and attach a new block. The probability of selection depends on the number of coins staked. Some cryptocurrencies require a minimum amount of stake, like Ethereum, where you must have a minimum of 32 ETH to stake. If you don’t have that much, then a good option is to join a staking pool, where blockchain users join together to solve mathematical riddles. This is especially beneficial for crypto beginners, where the barrier to entry for solo staking is too high. However, it is essential to note that the reward is then divided among all the people who have placed funds in the pool.
Learn about APR
We will look at how exactly the Annual Percentage Rate (APR) is calculated in another article from the technical side. However, to explain how staking works, you should know that it is a percentage reward for participating in staking for a particular time.
What is cold staking?
Standard staking is done online via a hot wallet connected to a particular platform. Some blockchains allow so-called cold staking, which is done through a wallet that is not connected to the Internet or has a so-called air gap. Then staking is much safer and uses less energy. Examples of coins that can be staked this way are Avalanche (AVAX), Fuse (FUSE), Dock (DOCK), Cartesi (CTSI), or Decimal (DEL).
What is Delegated Proof of Stake?
DPoS is a variation of staking that treats coin balances as votes, which are then used to elect delegates who manage the blockchain on behalf of their recipients. These delegates are rewarded for validating transactions and then distribute the reward to their constituents in proportion to the contributions. The advantage of this solution is that consensus can be achieved with fewer validating nodes, but due to the small group of nodes, decentralization can be negatively affected.
Hybrid Proof of Stake/Proof of Work
There is also a consensus algorithm that combines Proof of Work (a solution in which miners use high-powered computing devices to solve puzzles and attach new blocks) with Proof of Stake. Its operation is complex and therefore requires some explanation. In the Decred cryptocurrency, for example, the Hybrid Pos/Pow mechanism works on the principle that miners first create new blocks, and then PoS users decide whether to approve them. They buy votes on which the decision depends. However, it is Pos/Pow that randomly selects 5 of them, and if 3 out of 5 votes are affirmative, then the new block is added to the blockchain.
How to start your skating adventure?
To begin with, you need to choose the coin you would like to skate, e.g., Ethereum, Cardano, Solana, Polkadot, etc. Coinpaprika will provide you with information on cryptocurrencies. You will find there 45000 assets from 350 exchanges. Then you need to check if the asset is based on proof of stake. If so, then find out what the minimum requirements are for the amount of the asset you own, or join the staking pool described earlier. Then download a wallet that will handle the coin in question, and you can start your staking adventure. Usually, the projects have a specific website where you log in with your wallet address, or you can do it through leading exchanges.
Summary – what are the advantages of staking?
Staking is an easy way to earn passive income from cryptocurrencies. Often the APRs can be very high (keep in mind, however, that if they are very high, it’s worth digging deeper into the topic to ensure the project you choose is not an algorithmic pyramid scheme). Besides, by staking, you contribute to maintaining blockchain performance in an environmentally friendly way that does not require specialized hardware. It is worth keeping an eye on emerging projects, which at the beginning, often offer the highest APR. The Coinpaprika API can help you find them. Check it out! – https://coinpaprika.com/api/