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Investors are actively looking for ways they can hedge their investments while at the same time making passive income. Contrary to what most new investors may think, staking is not a way to protect your digital investment. Instead, it is a strategy used by players in the crypto market to make profits through passive income. There is still a risk of losing your digital assets through staking. Investors support the cryptocurrency market, and in return, they get rewarded for it. 

Crypto staking is when crypto users hold their funds in crypto wallets to maintain the operations of the market. It has a close similarity to mining, only that in this case, the users support the market in reaching consensus, and the blockchain rewards them for participating. 

Essentially, users have to engage constantly in activities in the crypto market for them to generate income. There is another way of going around this. Staking offers the users the opportunity to make passive income without participating actively, not even voting or participating in any other time-consuming activities.

What does crypto staking entail?

Remember that through staking, the users are rewarded for approving transactions. At the same time, there is a penalty for approving illegal transactions, usually losing all or part of their stake. Here is what crypto staking involves;

1. Crypto staking rewards

The rewards can be earned as a group or as individuals. When you talk of crypto staking, users are looking for rewards for approving transactions on a blockchain. A group of users can choose to pool their coins and validate transactions as a group. In such a case, the rewards are shared among the members.

Worth noting is that their contributions to the pool are factored in when distributing the rewards. Users buy and hold tokens in their wallets to strengthen the blockchain. If the value of the coins staked goes up, the rewards issued should also be more than the initial tokens. 

Users that hold their tokens longer in the blockchain also earn more passive income.

2. Proof of Stake 

Proof of stake is yet another element of crypto staking. It is a consensus mechanism whereby blockchain validators are selected in proportion to their stake in a specific blockchain. Several stages characterize proof of stake that the networks in the blockchain have to go through before arriving at a consensus. 

3. Delegated proof of stake

The delegated proof of stake algorithm is developed so that a particular blockchain is protected. This is achieved by representing transactions within the blockchain. Various parameters are put in place to select users that can validate a block. 

Delegated proof of stake is designed to bring about some element of democracy in the blockchain. That is through an election process which is done through voting. This way, the blockchain is protected from centralization and malicious usage. 

How profitable is crypto staking?

When it comes to investments, the question of profitability will always be asked. Crypto staking is profitable, and it is one of the ways crypto users can grow their assets apart from trading. 

The users are required to buy coins and hold them in their wallets. It is recommended that users hold the coins in their wallets longer for better rewards. More so, through this, they reduce the crypto market risks by avoiding sudden price shifts. 

It works the same way other long-term investments like fixed annuities work, making them low risk. The good thing about staking is that the users will get results without necessarily investing their time. They don’t have to participate in the network to be rewarded. 

All they need to do is purchase the coins and hold them in their wallets. The staking system is profitable and allows the users a flexible and sustainable way of generating income.

To maximize the profits, it is recommended that users invest in high-value coins. Note that if the coins’ value goes high, it is factored in the rewards. The value of cryptocurrencies varies, which also makes a difference in the staking rewards. Depending on your choice, you can make more profits than the coins you are holding in your wallet. 

The more profitable coins you choose, the higher the passive income you will earn.

What can you stake?

Staking has come across as a great way of earning passive income through idle crypto assets. It has become popular among many investors, creating a wide range of options for users that want to earn passive income. 

Most of the cryptos with high market cap are offering users staking rewards. Ethereum 2.0 is an example of a lucrative staking option. This is the second most popular cryptocurrency, and the profits will be substantial. To stake Ethereum, you should have a minimum of 32 coins and the Ethereum 1 main net client. 

Different blockchains have varying staking requirements. Look into the requirements and staking conditions of the blockchain you are interested in.

Where can you stake?

Crypto Exchanges

The most popular staking platform for crypto users is the exchanges. Several exchanges support cryptocurrency staking, including Binance and Coinbase. Most big crypto exchanges have activated the staking option.  

Cold wallets

Also known as offline staking, users can stake through their private wallets and earn rewards for it. Worth noting also is that the wallets are not connected to the internet. In this kind of staking, the user has to keep their stakes in the same address. Moving them could lead to them losing their rewards. 

How are staking rewards determined?

Different blockchains may have different ways to calculate their staking rewards. However, there are general factors considered when calculating. That is;

• Inflation rate

• The total number of coins staked in the network

• The duration of staking

• The number of coins staked by the user

Conclusion

Users must be particular when selecting staking platforms. Your choice of platform will determine the rewards you will get. If you choose the wrong platform, you risk losing your rewards. 

Research and see what other validators are saying about the platform; the reputation of the platform matters. Analytics will also give you valuable insights into the staking platform. 

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