What is staking: how to make money on cryptocurrency without mining and trading on the stock exchange
To quickly mine cryptocurrency, you will have to buy video cards for 5-10 thousand dollars and build a farm. For trading, you need to know the rules of technical analysis and constantly monitor the course charts. Staking is profitable just for keeping crypto in your wallet. And often on someone else's...
Staking is a way to confirm transactions in blockchain systems based on the Proof-of-Stake algorithm. The user does not need to know what staking is. You just need to understand that coins are not awarded to participants for calculating hashes. It is necessary to block coins in the system. The more of them, the more income the owner will receive.
What is staking in simple words
Before we figure out what staking is, let’s define mining. The classical distributed network works using the PoW algorithm. This acronym stands for “proof of work”. Network members – miners – receive income for solving complex mathematical problems. The reward is taken only by the one who first makes the necessary calculations. Therefore, miners use complex and expensive computer equipment. It consumes a huge amount of energy and generates a lot of heat. Therefore, the “miners” resort to various tricks up to the use of volcanic energy .
Staking is an easier and more environmentally friendly way to make money. To receive coins, you need to maintain the operation of the node and place the tokens in your wallet. You can’t use them at this time. You don’t need to set up your computer in any special way. And you don’t need to buy a powerful PC with multiple graphics cards.
To earn money, it is important to choose only a crypt that works on the Proof-of-Stake consensus. For example, Cardano, Tezos, Solana.
The peculiarity is that earnings depend on the number of “blocked” coins. That is, they participate in the verification and confirmation of transactions. For example, in the new Ethereum algorithm (version 2.0), the minimum amount is 32 Ether. Therefore, at the current rate, at least $120,000 will be needed.
But you can also find cheaper options. For example, in the Cardano blockchain. In it, staking is available with 1 token. But, firstly, the accruals in this case will be minimal. Secondly, users with larger amounts will be more likely to make a profit.
How to earn collectively and with a minimum investment
Cryptocurrency enthusiasts have found a way to make money for people without big capital in crypto. So, services for staking have been launched on the Internet. They can be used as an investment option. The scheme is as follows:
- users “throw off” their coins;
- the service places them on its wallet;
- the income received is divided among the participants in proportion to the contribution.
This method is called Delegated PoS. In other words, the owners of the coins block the tokens on the wallet and request the services of validators. The latter use coins on wallets to confirm transactions. And then users are given a share of the commission.
Thanks to this approach, you can make a profit with a minimum of coins. But the tokens themselves remain on the wallet, so the whole process is absolutely safe. There is no need to transfer them “to the bank for a deposit” and fear the ruin of the service.
What types of staking are there
There are two ways to earn money by storing on your wallet:
- urgent storage;
- permanent storage.
The first option involves blocking for a certain time. It is specified in the description of the blockchain protocol. During this period, the user is prohibited from using coins and withdrawing them from the wallet. That is, it turns out some analogue of a term deposit.
Since the coins remain the property of the owner, he can use them. But if the transfer is made before the end of the term, then no interest is charged. Due to such inconvenience, the participant is credited with a larger profit.
Persistent storage does not require locking. The user can withdraw coins at any time and in any quantity. But there are nuances. Firstly, the amount of the reward depends on the number of coins in the wallet. Secondly, the profit will vary depending on the storage time.
Note. Perpetual staking is better to choose if the coins are used for other types of earnings. For example, when a user needs a large amount to participate in trading on the stock exchange.
How much can you earn
When it comes to deposits, investors are interested in bank interest. For example, if bank A gives 20% per annum, and bank B – 18%, you should contact the first. But in the case of cryptocurrencies and staking, this principle does not apply. It is important to take into account the volatility of the coin. Otherwise, the reward received may be less than the loss in value due to the depreciation.
Therefore, when calculating, you need to take into account the coefficient. It can be more or less than 1. For example, if a price increase of 30% is expected in the near future, then the coefficient will be equal to 1.3.
Obviously, it is impossible to predict price behavior with high accuracy. Therefore, you need to pay attention to the value of the coin and fundamental indicators. They guarantee a price increase. The most reliable will be the purchase of currencies for staking from the TOP-20 by total market capitalization.
So you can get double income. First, profit from staking. Secondly, the difference in price between buying and selling.
How to start earning on cryptocurrency
Staking is one of the safest ways to make money. The blockchain user does not transfer his coins anywhere. They remain in his wallet. To confirm transactions, only his right to a share in the common “chain”, that is, a stake, is used.
You can start earning at any time. For this you need:
- first buy a coin working on PoS consensus;
- then download the required software (it depends on the blockchain);
- after that you can earn income.
Please note that in order to earn money, you need to constantly keep your wallet connected to the Internet . Staking can also be done on exchanges. In this case, the user gets the opportunity to purchase several currencies and diversify the risk. As many as 11 investment options are available on Binance alone.
What is the result
Staking is a simple and reliable way to make money on cryptocurrency. But don’t just focus on it. The topic of blockchain is so broad that it offers almost unlimited opportunities for generating income. For example, there is an opinion that the peak of crypto growth has already passed and it will not work to make money on virtual coins. Such skeptics are advised to better understand the question of whether it is worth investing in bitcoin now.