Crypto staking can be simply defined as a process in which you lock crypto assets to participate in blockchain operations to earn more cryptocurrency as a reward. The crypto industry is moving towards a more energy-efficient proof-of-stake (PoS) mechanism which encourages network participants to validate transactions on the blockchain for which they have to pledge a certain amount of crypto assets. The locked crypto assets of network participants work as a guarantee and if they try to validate any fraudulent transaction, they might lose a part or their entire stake as a penalty. This ensures transparency while validating transactions and creates an environment of trust within the crypto ecosystem.
The most important point to note here is that you don’t lose the pledged crypto assets and your chances to get selected as a validator of any transaction are directly proportional to the number of assets pledged. The pledged assets are locked for a specific time duration, also known as the vesting period.
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Here are some benefits of crypto staking:
Passive income
The primary objective of any investment avenue is to create wealth for investors and staking is no different. The investors who chose to participate as validators in a blockchain by pledging their crypto assets, earn more crypto as a fee for validating transactions called block rewards.
Security and efficiency
As the validator of transactions on the blockchain, you are actively making the network more secure and immune to cyber-attacks. As the number of participants’ increases, the network’s ability to handle a large number of transactions also gets a boost.
Governance tokens
Staking projects also issue governance tokens to those who pledge their assets. The governance tokens are like having voting rights when it comes to making any changes to the protocol or the projects which are being staked.
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Fixed returns
Numerous crypto platforms offer annual percentage yields ranging from 35 percent to 400 percent. The high returns are offered by more evolved platforms where several projects come together to create a reward pool and users can stake one token to earn multiple tokens through the pool. You can think of it like an FD where banks promise you a fixed interest rate which is a portion of the interest earned by the bank by lending that money to borrowers.
Fully digital onboarding
Investors don’t have to step out of the comfort of their homes to start their crypto-staking journey. The digital KYC and video verification have made the onboarding process very quick and hassle-free. The rewards from staking are credited directly to your wallet and you are the sole owner and decision-maker of the earned block rewards.
While crypto staking offers lucrative returns, it is very important to choose the right platform for staking. Some platforms do not offer security of the principal invested and there is a risk of losing your staked crypto assets. It is advised to go through the terms and conditions of the platform thoroughly before you lock your valuable crypto assets. Crypto assets are now mainstream and offer much-needed diversification to the portfolio of investors. The low transaction cost and decentralised nature of crypto assets offer absolute financial freedom to their users.
(The author is the COO and co-founder of UniFarm, a group staking platform.)
Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.