Understanding Crypto Staking Concept
As an investor in crypto, you will mostly hear about the concept of crypto staking. Staking is the process of making sure that a transaction has taken place in cryptocurrency in a way that a participant who holds it will earn a reward for holding it. If you are interested in bitcoin trading, visit immediate connect
What is Staking?
In staking you commit your holdings for a particular interval of time which will support the blockchain network and hence verify the transactions. You can only do staking in cryptocurrencies that involve proof of stake models for processing their payments. Also, this model is considered as sustainable as it is an energy-saver. Apart from the proof of work model which requires electronic computers to solve mathematical problems that have to be solved for the transaction to take place. Working of Crypto Staking
Making use of the proof of stake model in cryptocurrency staking will allow it to add new transactions in a blockchain.
- First of all, you commit your coins to a protocol, now the protocol selects a few validators that will confirm the transaction’s block from the participants that participate in staking. The probability of choosing you as a validator will increase with an increase in the number of coins you commit.
- As a new block is added to the system to the blockchain, a new coin of cryptocurrency will be generated and it will be given to the validator of the block. Usually, a reward will be the same cryptocurrency coins. Exceptionally, you will get some other cryptocurrency as rewards in some blockchains.
- For a cryptocurrency to be staked by you it should be that the cryptocurrency should follow the proof of stake model. After this, you decide the number of coins you wish. It can be done by various cryptocurrency exchanges.
- The coins you stake are still yours, the only difference is that the coins you stake are on work, and you have to unstack them to do trading with them. The unstacking will depend on cryptocurrency. It can be immediate or will take some time.
- It should be kept in mind that staking is only possible with cryptocurrencies that use a proof-of-stake(POS) model.
Why Specific Cryptocurrencies For Staking?
- First of all, you should know that the POS model is a recent model. And in the past when cryptocurrency originated there was no existence of such a model and the only that was is proof of work. Moreover, bitcoin which is said to be the first coin that revolutionised the crypto field and made cryptocurrency popular uses the proof of work(POW) model.
- Also, there are a lot of contradictions when we say that the POS model has to be adopted because the POW model is considered more secure as it is almost impossible to be cracked by any hacker.
- So some cryptocurrencies use the POW model instead of POS.
- So we can only say that using POS or POW depends on the authorities of cryptocurrencies and they choose it according to their convenience.
If you do crypto staking or not it depends on how much amount and for how long you invest in crypto staking. I mean the more you invest, the higher will be your chances of success but you should keep in mind that investing more makes your position riskier too. It can be concluded that in order to manage or control the risk, we have to keep an eye on the time and invest as per the timing. In order to generate maximum profit and reduce the chances of losing the crypto game.