By Michael Harding
Every week Blockchain Sensei will be walking you through the basics of blockchain technology. Consider this your crash course in all things web3!
When you put your money in a bank account, the bank puts that money to work – and gives you miniscule fractions of the rewards earned. In this article we’re going to show you how you can utilise your crypto assets to earn passive income in a low risk manner, keep 100% of the profits, all while being a positive contributor to the blockchain ecosystem.
In the world of cryptocurrencies, there are different ways to secure blockchain networks and process transactions. One popular method is called Proof of Stake (PoS). In a PoS system, people can “stake” their coins by locking them up to support the network. In return, they earn rewards for helping to keep things running smoothly.
How Does Staking Work?
When you stake your coins, you’re essentially putting them up as collateral to vouch for the integrity of the blockchain. The more coins you stake, the more likely you are to be chosen to validate new transactions and add them to the blockchain. If you do your job honestly, you’ll earn rewards in the form of newly created coins or a share of transaction fees. However, if you try to cheat the system, you could lose some or all of your staked coins as a penalty.
The Benefits of Staking for Network Security
Staking helps create a global network of computers (called nodes) that work together to secure the blockchain. By requiring stakers to put up collateral, PoS systems encourage participants to act in the best interest of the network. This helps maintain the integrity and security of the blockchain, making it harder for attackers to disrupt things.
How to Get Involved in Staking
If you want to start staking your coins, there are a few things to keep in mind:
- Minimum Requirements: Each blockchain has its own minimum amount of coins you need to stake in order to participate.
- Rewards: The more coins you stake, the higher your potential rewards. However, the exact amount can vary.
- Lockup Periods: When you stake your coins, you usually can’t trade or sell them for a certain period of time. This lockup period can vary from blockchain to blockchain.
- Responsibilities: As a staker, you may have additional responsibilities, such as helping to validate transactions and maintain the blockchain.
Why Staking Matters for Cryptocurrency Investors
If you’re interested in cryptocurrencies, staking can be a great way to earn passive income while supporting the networks you believe in. By staking your coins, you can:
- Earn Rewards: Staking can provide a relatively low-risk way to grow your cryptocurrency holdings over time.
- Support Security: By participating in staking, you’re helping to secure the blockchain and maintain its integrity.
- Participate in Governance: Some PoS networks let stakers vote on important decisions, giving you a say in the future of the project.
- Stay Informed: As more cryptocurrencies adopt PoS models, understanding staking can help you make informed decisions about which projects to support.
Proof of Stake and staking are becoming increasingly popular in the cryptocurrency world, offering an alternative passive income to traditional assets such as bond yields, dividends or rental incomes. Moreover, in relation to previous articles on Real World Assets (RWA) and Convergence, we now even see staking yield rewards from blockchain projects in the property and private equity sector. The future of staking looks promising as investors are always looking for sustainable yield with the lowest risk option in a diversified portfolio.
