What is Staking
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So let’s jump into today’s show and go over what is staking. So what exactly is staking and cryptocurrency?
It sounds like a foreign term or word if you’re not familiar with crypto staking is available for cryptocurrency investors, and it’s a way of earning rewards for holding specific cryptocurrencies. So let me unpack this just a little bit more certain cryptocurrencies offer staking, you can stake some or all of your holdings and earn a reward over time many people do staking by using the staking pool.
One way to think of staking and earning over time is it’s kind of similar to an interest bearing savings account. It’s also been mentioned that it’s similar to how a bond or a high dividend stock would work. So the reason you can earn rewards over time is because the blockchain puts to work your crypto, cryptocurrencies that allow staking use a consensus mechanism called proof of stake, which is the way they ensure that all transactions are verified and secured and done with no one in the middle of the transaction.
No bank, no middle intermediary company networks like Bitcoin, for example, doesn’t use proof of stake. So therefore, there currently isn’t staking on the Bitcoin network. So staking cryptocurrency involves acquiring and setting aside a certain number of tokens that will be used to validate the transactions made through the blockchain. Block chains like Ethereum have adopted proof of stake protocols, so staking can be accomplished.
In essence, staking income is offered in the form of interest paid to the holder, the holder usually receives more of the same tokens or pieces of tokens as a reward. Sometimes they receive more of the same tokens and other types of tokens as a reward. For example, if you’re staking a token, and that token has other projects, other tokens in the ecosystem, sometimes stakers will receive tokens for new projects in the same ecosystem.
I have a friend who is a big real estate investor. However, this year, he has branched out into expanding his portfolio into crypto, so he’s more of a longer term holder of crypto. So staking works for him because he can set aside a certain amount of coins or tokens exclusively for staking. He then earns rewards in the form of tokens for the staking, so I should note that staking is not available for every single cryptocurrency. It can only be done if a token or crypto project is on a network that supports a proof of stake protocol.
Actually, staking crypto only takes a few minutes when you physically go to do the staking. You just need your cryptocurrency wallet to do this. There are these things called staking pools and in most cases, the higher number of stake tokens gives the largest number of tokens as a reward. The higher the number of stake coins the higher number of transactions, a given node will be assigned to validate nodes that are ranked in most cases based on a number of tokens they hold. As a result, the nodes that hold the largest number of tokens will often receive more rewards. Some of the benefits of staking In crypto are, you can create passive income, there’s low entry fees, it’s also considered more efficient than mining.
So you would ask yourself, what are some of the potential risks of staking? It could be if the market downturns and the price of crypto that you’re staking goes down in price. Also, some staking rewards require you to lock up your tokens for a certain amount of time force for those staking rewards could be six months, three months, etc. So what are some of the most popular networks that people can use for staking in 2021? Let me break down in the list some of the most popular networks for staking Ethereum, Polkadot, Cardano, Algorand, Polygon, Kusama, and Solana.
On our site for today’s episode, I share links where you can get more information about staking, and about these popular networks that people are using for staking. So this concludes today’s episode. Today was just a quick dive into what is staking. We’ll see you tomorrow. Until then, make it a great day.
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