What Is Staking?
What is staking crypto? What does staking crypto mean? Staking in crypto or crypto staking is locking a given cryptocurrency to earn rewards or participate in the network’s governance as a transaction validator. It is one bit of the proof-of-stake (PoS) consensus mechanism. PoS entails adding blocks of transactions to the blockchain in an irreversible string of blocks by operators who hold a stake in the native currency of the underlying blockchain.
The process works similarly to mining, where blocks are added to a blockchain via the proof-of-work (PoW) consensus mechanism. However, there exists a difference. The process is known as forging or minting in proof-of-stake mechanisms. Besides, people who verify transactions are called validators instead of miners, and the process of minting is energy-efficient.
How Staking Works
Staking is part of the PoS mechanism. With staking, the validator buys and locks away a set amount of tokens, making it unattractive to act dishonestly. If the blockchain were corrupted, the native token would plummet in prime, meaning validators would lose money.
The staked tokens show that the validator is interested in the network’s success, which means they will act honestly. In exchange, validators are given rewards in the native token. The more they stake, the more rewards they will get.
To ensure success, most validators will join a staking pool. Through this pool, participants will raise funds from token holders via delegation, lowering the barrier to entry for being a validator. Anyone can take part in staking by delegating coins to a stake pool operator, who will do all the heavy lifting to verify blockchain transactions.
To ensure validators remain honest, they can be penalized if they commit breaches, such as going offline for long periods. They can even be suspended from validating transactions. This is called slashing and is quite rare.
Each blockchain has specific rules for validators. For instance, the Terra network had a maximum cap on validators set at 130. On Ethereum 2.0, each validator has to stake at least 32 ETH.
How to Start Staking
To start staking, you will first need to buy the digital assets to be staked. If you do, you can move them to an account that allows staking. Most leading crypto exchanges, such as Binance, Coinbase, and others, support digital asset staking straight on their platforms, slashing the work needed by clients.
You can also stake your coins via a mobile wallet. Place your coins in a mobile wallet, such as Trust Wallet or TronLink Pro, and press the stake button.
How To Start Staking Crypto
Crypto staking is pretty simple as long as you know your way around it. Let’s dive into the simple steps on how to stake in crypto.
- Get an online crypto exchange or staking platform and signup.
- Check out different crypto (APY, minimum stakes, lockup period), and look into whichever one you’d like to stake
- Deposit the required amount of the crypto token
- Enter the amount you’d like to stake
- Add crypto to the staking pool by clicking *Confirm*
Risks of Staking
Sometimes, the crypto you are staking can drop in price below any rewards you might earn. Staking is only suitable for those planning to hold their assets for a long time, regardless of how prices change. It is also worth noting that most coins have a minimum lock-up period. During that time, if the price of the tokens rises or drops drastically, you cannot sell the tokens to take advantage of price changes. Additionally, there is a risk of missing rewards if the validator to whom you delegated the tokens does not do their work properly.