Staking Crypto for Beginners

Staking Crypto for Beginners

Staking can mean various things, depending on how involved you are in the world of cryptocurrency. Beginners and less active investors tend to look at staking their crypto as the equivalent to placing your fiat currency into a Certificate of Deposit, or “CD” in traditional banking. Although this isn’t exactly wrong, as they are similar concepts at the surface level, there is much, much more to staking than what meets the eye of the novice investor. In this piece, we will look at what’s going on behind the scenes when you stake your crypto!

The Right Blockchain for the Job

One of the most important things to understand about staking crypto, is that not every cryptocurrency can be staked. Cryptocurrencies which need to be mined, AKA Proof of Work cryptocurrencies do not allow for staking, as of now, the only cryptocurrencies that allow staking are those that use Proof of Stake type networks. Some of the most popular staking cryptocurrencies include Cosmos (ATOM), Tezos (XTZ) and as of recently, Ethereum (ETH).

What is Happening When you Stake Crypto

Unlike Proof of Work blockchains such as Bitcoin, transactions on Proof of Stake transactions are validated only by those who are literally invested in the blockchain, instead of “mined” using large amounts of computer power. The investment which one is required to lock-up to participate as a network validator, is referred to as a “stake.” Furthermore, the amount of cryptocurrency that a validator has staked directly determines the percentage of transactions which the validator can process. Say one validator has 3 percent of the total supply of XTZ staked, then the network will allow them to validate 3 percent of the transactions occurring on the Tezos network. Keep in mind however, the exact implementations vary between the different projects.

Do You Have to be a Validator to Stake Crypto

Simply put, no. Anyone can stake their cryptocurrency and the most common way this is achieved is through what is known as a “staking pool.” Staking pools are where groups of investors can stake their crypto together on the behalf of validators. This does however come with some risk, as if the validator decides to partake in nefarious activities on the network, then the staked crypto in the pool will be used as collateral, and go back to the network itself. These types of situations are highly uncommon; however, this is still reason enough to only use trusted staking pools, if staking your crypto is something you decide to do.

Reasons to Stake Crypto

When you stake your crypto, the blockchain puts it to work, which means your assets are working for you, by earning rewards. Staking crypto is good for the ecosystem of the cryptocurrency projects that you support, because the added strength of your funds makes the blockchain more resistant to attacks, and improves its ability to process transactions.

In some cases, you can even be rewarded in other “governance tokens” for staking your crypto. These are tokens created by developers and grant the token holders the ability to help shape the future of blockchain protocols.

Conclusion Staking crypto may come with risks, however it is a fantastic way to keep your money working for you! Be sure to check out the rest of the Killer Whale Site to see what Killer Whale Signals and Strategies are right for you!