Every blockchain must validate transactions to maintain its functionality and security. This gives rise to several consensus mechanisms, which are the methods for the transaction validations and data distributions within a blockchain. For example, staking is a process employed by the Proof-of-Stake consensus mechanism to maintain the operability of a blockchain.
Through staking, investors can lock up their crypto coins for a given time and receive rewards. Though most participants have used this process for earning passive income, it is gradually changing.
This article will look at how staking has changed and the role through the proof-of-stake consensus mechanism. Also, you learn how to stake rightly and the best crypto coins to stake. Keep reading!
Table of Contents
- 1 What is Staking?
- 2 The Genesis of Staking and How it works
- 3 The Proof-of-Stake (PoS) Consensus Mechanism
- 4 Proof-of-Stake Goals
- 5 How Has Staking Changed?
- 6 Benefits of Staking
- 7 Best Crypto Coins to Stake
- 8 Conclusion
What is Staking?
Staking is the process that allows investors to commit their cryptocurrency holding to transaction validation in a blockchain. This will help maintain the flow of data and the security and stability of the blockchain or network. Also, the investor will earn passive income from his staked coins.
The staking process is only possible with cryptocurrencies or blockchains that use the Proof-of-Stake consensus mechanism. As the crypto coins are locked up, they will be removed from circulation, invariably increasing the token’s value. Furthermore, the blockchain employs the coin to its governance for enhanced performance and functionality.
Staking is similar to the traditional deposit of money on banks, where the account holders will receive interest for their deposited cash. So, the higher the number of coins staked, the greater your earnings through the process.
The Genesis of Staking and How it works
Before the Proof-of-Stake (PoS) advent, the original consensus mechanism for transaction validation in blockchains was the Proof-of-Work (PoW). This is the process obtainable in Bitcoin, where mining enables the operation of the blockchain.
However, the mining process requires solving cryptographic puzzles using unique and costly equipment and software. Also, the process consumes lots of energy and poses a significant risk of environmental pollution.
Hence, the emergence of PoS as another means for transaction validation creates an option for most miners. All you have to do is lock up your crypto coins, and you could be a validator that will manage a given node within a blockchain. In return, you will get additions of more coins to your holdings.
How Crypto Staking Works?
To start staking, you will need a PoS crypto coin. Then, the staking process removes the coins from circulation and will enable the blockchain to validate transactions.
You can become a validator or just a nominator on the blockchain when you stake. The network selects some validators, and the selection is from participants with a higher number of staked coins. In some cases, validators are nominated by nominators, which are other stakers on the platform.
Validators are in charge of nodes within the blockchain. Valuing transactions will enforce the minting of new blocks and tokens added to the blockchains. These new coins are also used to incentivize the staking participants.
The Proof-of-Stake (PoS) Consensus Mechanism
Proof-of-Stake (PoS) is a consensus mechanism used for transaction validation in a blockchain. The mechanism demand that investors lock up their crypto coins for a certain period through a process known as staking.
PoS came as a handy alternative to the PoW mechanism that uses lots of energy and computational operation for validating transactions. Validators in PoW depend on enhanced equipment and computational knowledge to validate transactions. But, in PoS, validators depend on the number of staked coins they have.
So being a validator on a PoS network requires a minimum number of staked coins. For instance, Ethereum validators must stake at least 32 ETH. Furthermore, after validating a block, there must be verification and confirmation from other validators before the block is closed. This helps to eliminate fraud and will ensure the security of the blockchain.
The Proof-of-Stake mechanism has some goals that it aims to achieve through its functionality.
- It tackles the issues of scalability that are very prominent with most PoW networks. Hence, PoS blockchains like Solana, Cardano, etc., are associated with high scalability and fast execution of transactions.
- The process eliminates solving complicated mathematical puzzles for transaction validation. It uses the staking process instead of the mining process of the PoW.
- PoS is more energy-efficient and eco-friendly for the operations of blockchains.
How Has Staking Changed?
Lots of investors have the wrong ideas when it comes to staking. Though most participants in crypto staking got involved due to the concept of earning passive income, the process is beyond that.
The dynamics within the process of staking have more attached to them. Maximizing the benefits of staking demands that you learn how to stake right. So, the change in staking is more on how you stake, the means through which you stake, and the coins with which you stake.
What to Consider Before Staking
Staking is a dynamic process that comes with surprises to its participants. There are always benefits as well as risks associated with the process. No matter the flow of crypto coins, you must keep up your patience to avoid losing hope while staking.
It’s pertinent that you exercise the necessary caution while considering certain factors before staking. Therefore, you must bear the following in mind.
- Staking Rates – It’s easy to get attracted to a particular crypto coin based on its intriguing high staking APY rate. In most cases, such values are possibly traps. You should study the cryptocurrency, its price growth, performance, age, and influence in the general crypto market. These will help you ascertain if it’s a good investment con for staking.
- Use the reliable platform – Using a reliable, secured, and regulated platform is one of the surest ways of securing your crypto holding and yield while staking. So though your earnings may not appear quite huge, the security of your funds will be guaranteed.
- Use the best crypto coins – Crypto earning and participation from staking depend significantly on the type of crypto coins you use. Therefore, you should analyze the token through good informative sources such as CoinMarketCap and others.
- Understand all terms and conditions – When you plan to stake from any platform or directly on the crypto network, you must understand all the reads and conditions. There should be no room for assumptions as it could pose a risk of negligence on your crypto holdings. So, you should meticulously read through the site’s policy and make inquiries where appropriate.
Right Protocol/Platform to Stake
Your staking process, earning, and even the security of your funds depend to a greater extent on the type of cryptocurrency or the platform you are staking. Though you may get a higher staking rate from some cryptocurrencies, they could pose a risk for your holding due to the low market value of the coins.
So, it would help if you continuously researched properly on any project before using the coins for staking.
Below are different platforms to stake your crypto coins.
Staking from a Crypto Exchange
Using a crypto exchange for staking moves the responsibility of managing your coins to the platform. Moreover, there are applied fees for the service from the exchange.
Here are the steps for staking on an exchange:
- Visit the official website of the crypto exchange and sign up for an online crypto account.
- Use any of the supported payment options on the platform to buy a PoS cryptocurrency coin for staking.
- Following the staking rules on the platform and selecting the staking pool if available.
- Enter the number of crypto coins to stake and confirm your stake.
Staking from a Wallet
Through private online wallets, you can stake your crypto holding. Use the steps below to stake from your wallet.
- Use a wallet that is compatible with your crypto coins. Also, move the tokens into your wallet to get started.
- When possible, download the cryptocurrency you desire to stake the web or mobile app.
- You should link your wallet address with the staking platform if you download the app.
- Input the amount of your holding to stake and confirm the necessary parameters for your stake.
DeFi staking will allow you to lock up your crypto coins on a decentralized network or blockchain. This will enable the network to maintain its liquidity for transaction execution and its smart contract technology. You will be incentivized for your contribution. Moreover, there is less ambiguity associated with DeFi staking.
Benefits of Staking
Before now, most investors only engage in staking just for making passive income. But the tenets of staking have changed, adding more to the outflow of the process.
Understanding the benefits of staking will help you to know how staking has changed. Also, it will influence your commitment to the process.
Below are some benefits of staking.
This remains the most viable reason for most investors in staking. You will receive additions of crypto coins to your holding as rewards by staking. The value of your yield could range between 5% to 20% of the staked crypto coins.
Gain of Governance Power
Through staking, investors gain some governance power over the functionality of the blockchain or network. As a result, they can actively contribute to issues that propel the network’s high performance.
When the participants fully utilize the governance power, they could evade decisions that may negatively impact both eth image and the value of the cryptocurrency.
Most PoS protocols are notable for their high scalability and fastness in executing transactions. This is made possible through the staking process that provides the needed liquidity. So, some PoS blockchains like Solana, Cardano, and others can validate thousands of transactions per second, and they operate with low gas fees.
Staking requires little or no energy consumption, unlike the mining process. Also, there is no risk of environmental pollution with staking. Hence, it’s an eco-friendlier means for transaction validation.
No Requirement for Equipment
You have to lock up your crypto holding with staking to earn more income. It has no special equipment for calculations as obtainable with the mining process in Proof-of-Work (PoW).
Best Crypto Coins to Stake
Staking could be more profitable when using crypto coins with great performing potential.
Below are the five best crypto coins to stake.
1. StakeMoon – SMOON
StakeMoon is a PoS protocol that runs on the Binance Smart Chain (BSC). The network strives to facilitate staking and liquidity provision by incentivizing users for long-term holding of their coins.
The native token SMOON supports the operations of the network. Staking SMOON provides investors with a viable means of maximizing their holdings as the protocol offers a favorable staking rate.
The protocol can fulfill its goals through two fundamental approaches:
- First, it charges a tremendous taxation rate of 15% for transactions on the daily trading of the SMOON coins. Second, StakeMoon uses this means to discourage the short-term holding of the SMOON token just for simple buying and selling.
- The protocol’s token holders usually receive a 15% distribution while the remaining 5% goes to the network’s liquidity pool.
- Secondly, StakeMoon rewards its customers who participate in staking and encourages long-term SMOON token holdings. Also, StakeMoon gives transaction validation fees to stakers as part of their staking rewards.
2. Cardano – ADA
Cardano is a decentralized blockchain that runs with the PoS mechanism. The launch of the network is based on peer-reviewed research. This operation of Cardano facilitates the safety of several decentralized applications and systems through its pioneering technology.
The blockchain is very efficient as it depicts high scalability in its operation. This account of its ability to perform thousands of transactions per second. The smooth running of Cardano is supported by its native token, ADA.
The staking of ADA is very flexible. This is because customers can easily pull out their assets whenever they want. Hence, the crypto coin is a good staking option for beginners who may still not be grounded in the process. Also, the staking of the token earns the customers participatory rights on the network. As a result, the staking yield is up to 5% to 9%.
It’s worthy to note that ADA staking rewards reduce progressively when numerous customers use a single staking pool. Hence, diversifying your staking tokens will earn you more profit.
3. Tezos – XTZ
Tezos operates with the Liquid Proof-of-Stake (LPoS) mechanism to gradually gain attention within the industry. The network is highly energy efficient in comparison with the Bitcoin blockchain. The XTZ token that supports the network is also the governance token,
The staking of XTZ tokens has included optional delegation, which depicts flexibility in the process. The staking process, also known as baking, could either be as delegator or validator (self-baker)
Self-bakers must stake a minimum of 8,000 TXZ tokens to validate transactions within nodes on the network. Both validators and delegators are incentivized for staking their token through the dividends on the platform. You can receive up to 5% to 6% APY on staking your holdings.
4. Ethereum – ETH
Ethereum is a very popular cryptocurrency as it stands as the second global digital asset both in market cap and order of launch after Bitcoin. It started as a Proof-of-Work (PoW) network but is shifting to Proof-of-Stake (PoS) through its new launch of Ethereum 2.0 recently.
It is the key to facilitating decentralized finance (DeFi) through smart contract technology. It now has several networks and applications running on its blockchain. In addition, the native token, ETH, supports its operation and governance effectively.
Staking ETH allows users to earn more ETH coins to their holding. The blockchain uses the staked tokens to validate transactions which invariably adds more blocks. The minimum number of tokens for staking as a validator is 32 ETH.
5. Cosmos – ATOM
Cosmos is a DeFi network that operates with the Delegated Proof-of-Stake (DPoS) consensus mechanism. Its functionality inculcates customization as well as interoperability within several decentralized blockchains. Hence, it provides a platform where its customers can interact with many applications from a single point.
ATOM, the native of Cosmos, facilitates the running and governance of the network. As a result, investors can reap tremendous benefits from the networks both in coin addition and network participation by staking the coins.
Through staking, a user can be a delegator or validator. Delegators select validators and commit the management of their staked ATOM token. The validators, in turn, verify and validate transactions that result in the addition of new chains.
The Cosmos coin, ATOM, stands as an excellent staking crypto asset as the users could earn up to 8.35% in some platforms such as Coinbase, Binance, and others.
This article has the correct answers if you wonder how staking has changed. Though you will earn passive income by staking on a PoS network or blockchain, there is still more to the process.
Going through this article exposes you to the numerous changes and benefits you can get through staking. Moreover, you will know the best crypto coins that you can stake to maximize your holdings.