Is staking your crypto worth it?

Is staking your crypto worth it?

How-can-you-stake-crypto-coins-at-Bitvavo

When users stake crypto, they effectively commit their funds to the respective blockchain network, which chooses validators based on the amount of funds that are pledged. The more funds that are pledged, the higher the chance that the participant will be selected as the validator. Validators help record and validate transactions on the blockchain, while ensuring the security and integrity of all recorded data on the blockchain.

When you stake your crypto on a platform, the platform can pool your funds together with others into large blocks to prove their stake in the blockchain and validate transactions.

Doing so allows the platform to earn additional rewards from the blockchain network, which are then passed on to users (typically in the form of interest, calculated in terms of annual percentage yield [APY] on the total amount you’ve staked).

Some staking platforms offer both flexible and locked staking products. With flexible staking, there is no lock-up period other than the time it takes to “unstake” the staked funds.

Locked staking typically comes in many different durations, from a few days to a seven- or 30-day lockup period — or longer.

Staking is only available for tokens that use the proof-of-stake model of payment processing rather than the proof-of-work model.

The Proof-of-Work Model

The proof-of-work model (PoW) was the original verification method pioneered by the Bitcoin blockchain.

Under this model, users validated transactions by solving complex cryptographic problems and adding blocks to the chain. Those who did so were rewarded for their work with coins of the blockchain on which they were working. This became known as mining.

In the first few years of the blockchain, users only needed a basic home computer to get involved in the PoW model. But as mining competition increased for the world’s most popular PoW cryptocurrencies, the process required more computing power to mine a single token.

To mine major cryptocurrencies these days, you need an extremely powerful, customized computer that might cost thousands or even hundreds of thousands of dollars to build and operate.

The Proof-of-Stake Model

Like the proof-of-work model, proof of stake (PoS) is a consensus mechanism — a way for a blockchain to validate transactions and verify that a user owns the coins or tokens they claim.

In the proof-of-stake model, users who are invested in the blockchain validate the transactions. Your staked tokens act as a guarantee of the legitimacy of any new transactions you add to the blockchain.

When you stake your crypto on a platform, the platform can then pool your funds together with others into large blocks to prove their stake in the blockchain and validate trading transactions.

Doing so allows the platform to earn additional rewards from the blockchain network, which are then passed on to users (typically in the form of interest, calculated in terms of annual percentage yield [APY] on the total amount you’ve staked).

These rewards would have been out of reach if you tried to validate the transactions on your own, due to either the technical requirements, time, or costs involved.

It’s important to understand that not all platforms will offer staking for all proof-of-stake cryptos. That’s why it’s essential to do your research before choosing the platform you’re going to use.