LATOKEN experts explained why cryptocurrency staking is a more environmentally friendly and energy-efficient way to get cryptocurrencies and discussed the risks that an investor who has kept digital coins in a portfolio for a long time may face.
Staking is becoming a popular investment method not only for retail investors but also for institutional investors. For example, at the end of March this year, the Canadian public company Graph Blockchain invested $300k in Cardano. With the help of this capital, the company plans to generate additional profits through staking.
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What is cryptocurrency staking?
Crypto staking is a way of passive earnings, in which users store coins on the Proof of Stake (PoS) algorithm and ensure the blockchain remains operational. It gives them the right to make a profit. This option is only available to cryptocurrencies that run on PoS, such as Tezos, TRON, Polkadot, and Cosmos. In the future, Ethereum, the largest altcoin by capitalization, is also planning to switch to the PoS algorithm.
Staking can completely replace mining and make it possible to mine new blocks without using enormous computing power. The point of staking is to ensure all operations on the blockchain and support the network. For this, holders of digital coins receive rewards. The more tokens the holders have, the more likely they are to become the creator of a new block.
How crypto staking differs from mining
Mining is a process that ensures the performance of blockchains powered by the Proof of Work (PoW) algorithm. The first cryptocurrency, Bitcoin, works on this algorithm. With the help of computing power, miners support the operation of the network and the execution of transactions in it, and for this, they receive a reward. If mining can be called the competition of computing power, then staking is a competition between the owners of coins of a certain blockchain.
The main difference between cryptocurrency staking and mining is that staking does not require large computing power, buying video cards, or ASIC miners. Accordingly, staking is a greener and more energy-efficient way to create a new blockchain on the blockchain. Another advantage of staking is that the owner of a cryptocurrency does not need to have the technical skills necessary to run and maintain a computing engine.
Mining requires more involvement in the process, and you have to keep an ear to the ground. As for staking, the process is simplified and open to more members of the blockchain community.
In general, staking looks like a less risky way of investing. You do not need to buy physical equipment, but so far, there is not enough adequate information on crypto staking — how exactly it works, what risks, and specifically what kind of income it brings. As in mining, there is a risk of investing in equipment that can become illiquid, so in staking, there is a risk of changing the value of a coin.
How to get started and choose a coin
To start staking, you need to have free funds to buy coins and the ability to freeze them for a long time on a particular deposit smart contract. You need to understand that you might require quite significant investments.
LATOKEN experts highly recommend choosing cryptocurrencies for staking based on your budget. By the way, now you can stake Polkadot (DOT) and Tezos (XTZ) tokens on LATOKEN. To stake and get rewards, simply click here:
LATOKEN does not provide investment, tax, legal or accounting advice. This article is written for informational purposes only. Like many other assets, cryptocurrencies are subject to high market risk. Please trade with caution.