Guide to Crypto Staking
Learn more about staking and how it works, and get started with this popular investment strategy in the crypto realm.
Like other ideas in the crypto world, staking can be a simple or difficult notion depending on one’s understanding of blockchain technology and its principles. Staking is another option to gain money with cryptocurrency, and thus learning more about it can put investors and traders one step ahead of others.
When staking, you can receive rewards by supporting a token as you lock yourself out of selling it for some time. We’ll walk you through the entire procedure, explain a crypto staking strategy, and show you how to execute it in this article. Join us!
How Does Crypto Staking Work?
Crypto staking consists of locking up some coins for a while to earn interest over time. Over the last few years, it has been one of the most popular types of crypto investment, particularly for beginner investors who need to start with less sophisticated investments.
To better understand how staking functions, let’s look at its technical structure.
Staking crypto signification
There are no intermediaries or institutions to analyze and validate new activity throughout the chain in blockchains due to their decentralization. Some networks use an unchangeable historical record of blocks of recent transactions to prevent fraud and errors, and this mechanism is called Proof of Stake.
The Proof of Stake algorithm explanation
The Proof of Stake algorithm originated as an option for the energy-intensive Proof of Work consensus protocol, which requires users to solve cryptographic puzzles and contribute with computer power. PoS has proven to be more energy-efficient to all networks implementing this new method.
To construct a new block or vote to approve one offered, investors must stake some of their assets. Then the stakers will receive percentage-rated interest through transaction fees over time if their proposed block is accepted. The more assets the investors put at risk, the greater the likelihood of getting a large payout.
Nonetheless, not all cryptocurrencies allow staking as some networks, like Bitcoin, still employ PoW as their consensus method and are not stakeable. Before acquiring a coin for staking purposes, make sure it actually is fit for this type of investment.
Why is it that only some cryptocurrencies allow staking?
Here it gets more technical. Bitcoin, for example, does not allow staking. You need to know the basics.
Mining vs Staking:
Many cryptocurrencies, including BTC, and Ethereum 1.0, use Proof of Work as a consensus mechanism. Proof of Work allows the network to use a large amount of processing power to solve problems such as validating transactions between strangers and making sure that no one is spending the same money twice. The process also involves “miners” from all over the globe competing to solve a cryptographic problem. The winner gets the right to add the most recent “block” of verified transactions onto blockchain and also receives some crypto.
Decentralization and crypto staking
Cryptocurrencies are often decentralized. This means that there is no central authority overseeing them. How does a network of computers decentralized from a central authority arrive at the right answer? They use a consensus mechanism.
Decentralized Finance (DeFi), or staking, is a method by which a user locks his funds in a cryptocurrency wallet in order to take part in the operation of a Proof-of-Stake (PoS-based) blockchain system.
Pros and cons of crypto staking
Staking can provide passive income while also contributing to a network’s security, making it more resistant to attacks.
Compared to a typical savings account, staking provides a more significant yearly percentage interest while also posing a lower risk than other crypto investment methods. It does not demand advanced computing equipment on the part of the investor, and it has a minor environmental footprint than the PoW mining procedure.
Staking, like any other sort of investment, comes with cons. One important question is can you lose money staking crypto? Since this method is subject to market fluctuations, which means that even if the APY is high, the investor will lose money if the staked bitcoin loses value over the course of the year.
There’s also the issue of lockup and reward period. Staking frequently demands a lockup period during which investors are unable to move their coins. For example, if the coin’s value rises but it is staked, the investor will be unable to trade it. At the same time, staking benefits take a long time to be allocated as some staking pools do not deliver rewards on a regular basis. Learn more about risks and fraud in crypto market.
Getting started with crypto staking
You now understand what staking is, its benefits, and its drawbacks. Now is the time to learn how do you start with coin staking. Here’s how to stake your coins on the GamesPad platform, step by step:
1. Buy GMPD tokens
You can buy GMPD on supported centralized and decentralized exchanges, such as PancakeSwap, and transfer them to your crypto wallet. We highly recommend the MetaMask wallet.
2. Log into your GamesPad account
You can log in and go to the Pools > Staking Pools page if you have previously registered on the GamesPad platform. If you haven’t already done so, you’ll need to register and go through the Know Your Customer process.
3. Pick a staking pool
You can see all of the available pools on the Staking Pools page. Select a pool and then click Deposit to enter the amount of tokens you want to stake. Approve and confirm the transaction, then click Deposit and confirm it again.
Congrats! You’ve staked your coins with GamesPad. Now you can always check your investment on the Your Stake dashboard.
Is crypto staking safe?
Crypto staking, like any other crypto-related service, is just as safe as the exchange or stake pool you use to complete your staking. Some platforms, for example, penalize validator nodes if they don’t maintain 100% uptime or include bogus transactions in the blockchain. Select a venue with precise security features.
Is it possible for me to lose money by staking cryptocurrency?
There’s a chance that the asset’s value will plummet quickly, affecting the interest gained by staking in the same currency. As a result, before staking a crypto coin, you should research its volatility.
What’s the difference between crypto staking and farming?
Both investing approaches necessitate holding coins for a period of time to collect some profit. Staking requires investors to lock up their crypto assets, making them less risky and providing a more consistent return rate. Farming, on the other hand, demands the deposit of crypto in early-stage liquidity pools, which is riskier but offers more significant short-term profits.
What is NFT staking?
NFT staking works in the same way as crypto staking. You must lock up NFTs in order to generate revenue based on an annual percentage yield while maintaining ownership. However, not all NFTs can be staked. Thus, investors should ensure that staking is one of the asset’s features before purchasing it.
Would you like to start investing in the most impactful crypto gaming, NFT and metaverse projects with GamesPad? Learn how in this comprehensive tutorial!
Disclaimer. This material should not be construed as a basis for making investment decisions or as a recommendation to participate in investment transactions. Trading digital assets may involve significant risks and can result in the loss of invested capital. Therefore, you must ensure that you fully understand the risk involved, consider your level of experience, investment objectives, and seek independent financial advice if necessary.