What is staking and why it is critical to the crypto economy?

You have probably already heard of cryptocurrencies by now and, although the value of cryptocurrencies is highly volatile and often misunderstood by the masses, cryptocurrencies have maintained growth and interest despite volatility, which sparks interest as a strategy for generating passive income. 

While some invest in crypto mining to increase their holdings, others choose to staking cryptocurrencies and earn passive income. But unlike many stocks, not all crypto tokens pay these staking dividends that can provide stable income during periods when stock prices drop.

What is Staking?

Staking is the process of locking cryptocurrency in a digital wallet to support the security and operation of a blockchain network. In exchange for locking up their cryptocurrency, staking participants receive rewards, which are usually more cryptocurrency.

Staking is similar to cryptocurrency mining, but instead of using specialized hardware to solve mathematical problems, staking participants use their cryptocurrency to validate transactions on the blockchain.

Cryptocurrencies that can be staked are those that use a Proof-of-Stake (PoS) consensus mechanism. The most popular cryptocurrencies that can be staked are Cardano, Tezos, Ethereum 2.0, Solana, and Polkadot.

Staking is a way to generate passive income with cryptocurrencies. However, it is important to note that staking also carries risks, such as the loss of cryptocurrency if the digital wallet is compromised.

The cryptocurrency industry has created a new digital economy that provides people with a variety of completely new ways to earn passive income online. Investors who want to earn passive income through cryptocurrencies can do so through interest-bearing cryptocurrency accounts. 

Proof-of-Stake (PoS) cryptocurrencies secure their blockchains by having users store coins (locking or holding their coins in a crypto wallet) instead of contributing computing power to the network (as is the case in chains of Proof of Work such as Bitcoin). 

This participation or “stake” in cryptocurrencies is the process of “blocking” a part of your cryptocurrency to contribute to the blockchain network in the long term in exchange for a return on your investment. 

In many cases, it is not even necessary to block the crypto funds to obtain those dividends that are generated, but the proportional one can be charged only as long as the funds are kept in the account that pays the staking. 

In other cases staking is paid in very short periods, sometimes daily, every three days, or weekly, and in others it may be longer periods, such as 21 days or more, to give the system some stability. 

Essentially, users put their tokens in for a chance to add a new block to the blockchain in exchange for a reward. 

Before jumping into any of the crypto-driven passive income-generating opportunities mentioned above, it is essential to highlight that none of them are risk-free. 

Why is staking critical to the crypto economy?

Staking provides a solution that allows entrepreneurs to use their tokens as collateral, as well as a guarantee of commitment to a community. It is a way for entrepreneurs to develop a reputation and allows token holders to have more say in the growth of their projects.

Digital staking ensures that the system will be protected by multiple checks and balances so that no party can compromise the integrity of a blockchain.

Gambling is a crucial part of a decentralized economy, as it provides a way to establish consensus. When you stake your tokens, you are validating the blockchain and securing the network, which will ultimately ensure the long-term viability of the digital economy.

For the own economy of the holder of the funds, or the staker, staking allows them to moderate their exposure to risk and generate a hedge fund against losses, as well as a way to take profits within the crypto world, which makes it a tool fundamental financial. within the world of cryptocurrencies.

Staking opportunities and other passive income

For more information on staking opportunities, check out our Alpha section.

By Juan Mende.