Sirwin
Sirwin

Major hack for passive income! STAKING: Your solution to produce passive income.

By elena_did | DEFI guide | 26 Dec 2022


 

The crypto space  has been growing so much lately that more and more investors are showing a high interest in the amazing technology behind this industry.

 

This technology called blockchain, although at its core it has a complex structure, it has managed to bring in the present extraordinary investment opportunities for all people who only need to have access to the Internet, without limitations imposed by the Government or banks.

 

One such application of blockchain is staking, which in addition to personal financial benefits, holds a much more important role.  Staking is the key to all operations that happen in the entire crypto space and the only one meant to survive.

 

Why?

 Let's find out now.

 

  1. What is staking?

 

To better understand what staking is, pay attention to the following easy comparison. You have some funds that you want to invest. You are looking for a profitable, simple and low-risk investment, what could it be? Surely you have thought about opening a savings account with the bank, meaning you deposit your fiat money in a specific bank account, in exchange for a small interest rate. The bad part though is giving the bank full control over the deposit of your funds.

 

Imagine that instead of fiat money  there are cryptocurrencies, and instead of banks sunt DEXs (decentralized exchanges) or CEXs (centralized exchanges), which through blockchain stores your cryptocurrencies in a vault, created with the help of cryptography. The good part is that your returns are higher semnificativlly and you control your funds thanks to the amazing blockchain technology. Now you know what staking is!

 

To do staking, just connect your crypto wallet to DEX/CEX and select your  desired cryptocurrency from the section dedicated to staking.  Also, thanks to the advance of crypto technology, there is the possibility of staking  directly in  your hardware crypto wallet (cold wallet). Thus,  your cryptocurrencies are in maximum safety, simultaneously producing your passive income.

But why would you choose staking?

 

 

  1. Advantages of staking

 

  • Interest rate

The biggest advantage is the reward you receive. The interest rate for low-risk staking of most cryptocurrencies exceeds, on average, 7.65%, sometimes reaching over 18% or more depending on the level of risk you can manage when choosing a particular cryptocurrency, compared to an interest rate below 2.6% received from banks.

        

  • Protection from inflation

Cryptocurrencies are stored on the blockchain, which means that if a limited number of coins were created by code and cryptography, it can no longer be modified.  Each cryptocurrency has a vesting program, that is, a certain percentage of the total number of cryptocurrencies enter into circulation periodically, causing their price to rise.  This is where the character of cryptocurrencies to be deflation comes from.  However, fiat money  is subject to inflation, which means that over time it loses its value. In this case, you as an investor, will end up having an  increasingly lower interest rate of your investment, although it apparently has the same value.

 

  • Accessibility 

Saving of course involves opening an account with the bank and certain criteria met and verified.   However, if you choose staking on DEXes or CEXes, you  only need internet access, no matter where you are located. There is  generally no  limit to the volume invested or an administrator  in control of your  funds.  The staking  process is automated and secure by computer and code, free of  natural and frequent  human error.

 

 

  1. Staking functionalities

 

Staking has 2 great functionalities.  The first, the one previously debated, is to generate interst on a certain number of cryptocurrencies. The  higher your  investment, the  more satisfying the reward.  Doing staking, you still own the cryptocoins, except that they are blocked and cannot be used in certain actions (e.g. selling or lending) until  you decide  to end the action. At the end  of the staking period, you will get your cryptocurrencies back, plus the interest produced during that time.

The second functionality of staking, and of course the one that has revolutionized the entire industry at  its emergence, is to  ensure the  stability of the  network of the blockchain.

 

What does this mean? Do not  worry, although it is an important and complex concept,  you will understand it in a few lines, below.

 

Staking corresponds to  Proof-of-Stake protocols.  Blockchain networks that use this method are secured and kept in operation by so-called validators, who are rewarded with cryptocurrencies for their work.   However, validators must meet clear requirements.  

They need the appropriate hardware and software  equipment  to connect  to the desired blockchain  network. Fortunately, they are  quite affordable for any individual eager to become validator.  The more complicated  part, however, is the one in which  the staking intervenes.   To complete the process of becoming a validator, a certain amount of cryptocurrencies must  be put to staking.  Cryptocurrencies will be the native tokens of the chosen blockchain.

With the increase in popularity and  price of cryptocurrencies,  the quantity has become increasing or increasingly  expensive. For this reason,  the process of becoming a validator is not  an easy one.  However, this  is a  positive thing, because those who are really confident in that blockchain  network and who are of high interest for him,  they will become validators.  Their aim will be  to improve and protect both the  blockchain and consumers,  which demonstrates the  sustainability of the PoS type.

 

 

  1. Risks in staking

 

  • Smart contracts risk

 Because any blockchain  application is built with  the help of  code, more precisely smart contracts,  there  will always be the  possibility of  a problem in the  code. But,  the strongest  blockchain networks have  already proven their strength, and this risk is specific, more often, to  new projects.

 

  • Take-over possibility

The  entire  crypto  domain and implicitly blockchain were created with  the main purpose of  eliminating the middleman in activities and transactions, focusing on creating a decentralized system.  Since staking involves owning a large amount  of cryptocurrencies  to become  a validator,  it is obvious that those with  more resources, can end up  taking control  on the blockchain  network,  thus endangering   the safety of users and  their funds.

 

  • Centralizing

 Some of the protocols impose a  limited number of validators, which  poses a risk to the safety of the blockchain and brings to the fore  the issue of centralization.

 

 

Staking has a double role, solving 2 problems simultaneously.

On the  one hand, it helps to strengthen the crypto  system by offering sustainability to anyone who runs the network blockchain based on a Proof-of-Stake protocol. A PoS  protocol  uses a  small amount of energy to function,  which perfectly  aligns with the need to  protect the environment and its resources .

 

On the other hand,  the financial benefits are satisfactory for users, who do not need to conform with absurd conditions.  Authority is in code, not in the  hands of  the people who are subject to the manifold.

 

The most well-known blockchains based on a PoS protocol are Ethereum, Cosmos, Tezos, Cardano.

 

Staking is therefore the best investment method for beginners, as stakers and for specialists or hobbyists, as validators to produce passive income.

 

 

 

 

 

Disclaimer: This is not financial advice! Just educational and informative purpose only!

If you want to find more about crypto, follow me on twitter: (4) Elena⚡️ (@CatalinaDidita) / Twitter

 

 

 

 

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elena_did
elena_did

Crypto & NFT enthusiast who loves economy


DEFI guide
DEFI guide

Crypto Space has so much to offer. But what was it invented in the first place? Well, to make Decentralized Finance possible! This blog is dedicated to explain notions in DeFi (+ dapps) that you may struggle to understand. Sorry if I am not only writing at a beginner level, but I know here are experienced readers who would love a challenge to discover new DeFi inventions and terminology! Do not leave! Beginner level explanations will also be there! I will try to keep it 50/50. Enjoy!

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