When new investors consider adding cryptocurrencies to grow their portfolios, many consider mining or buying the coins directly in the exchanges. One of the latest additions is staking. Although it might sound complex, it is one of the best options for generating passive income. Check out Polymesh staking as an example of a refined and secure staking platform. However, it is prudent to start by preparing appropriately to be sure of optimising the returns from investment.
In this post, we take a closer look at staking to answer the big question, “What do you need to adequately prepare for staking?”
Understand How Staking in Blockchains Works
Crypto staking is the locking up of your crypto coins to get interest or rewards. Cryptos are based on blockchain networks and technology where transactions are validated by nodes/computers spread in its system. Staking is a term used to describe this validation.
As an investor, staking is passive, implying that you only need to lock the coins and leave them to help with transaction validation over the selected period. The more coins you have staked, the higher the chances of getting selected to validate transactions on the network.
Note that the only coins that can be staked are those based on proof of stake (POS) consensus protocol. Good examples of these coins include Ethereum (ETH), EOS, and Tezos (XTZ). Note that Ethereum is in the process of shifting from proof of work (POW) to proof of stake (POS) consensus protocol.
Understand the Different Methods of Staking
There are two main staking methods you can use: staking on your own and using a decentralised finance (DeFi) platform. Let’s take a closer look at each.
- Staking Cryptos on Your Own
This method means that you turn your computer into a node on the selected blockchain network. The process starts by selecting the preferred coins, buying and keeping them safely in your wallet. Then, you download the client for the selected blockchain and install it on your computer. You can get a copy from the blockchain’s website.
Next, you need to lock the coins in the network, which means that you will not sell or use them during the staking period. Note that to optimise returns, your computer (node) should be kept on and online during the entire staking session.
- Using DeFi to Stake Your Coins
For most people, keeping their computers on and online for months or years is never easy. This is why they prefer to use the second method: working with a DeFi platform. Using this method, you do not have to worry about the setup because professionals are there to handle it. Indeed, the process is so simple and you can get started in only a couple of minutes because there is no need to download the blockchain client or keep your computer on for months or years.
Once you have purchased the coins, you only need to send them to the selected DeFi platform. One of the platforms that is trusted by stakers today is hi.com. In addition to staking, you can also use the platform to buy and sell your coins.
Is Crypto Staking Profitable?
This is probably the most important question that you need to answer. We must say that crypto staking can be a highly profitable venture. To get even more returns, you should consider staking more coins. Also, the platform you select can help to determine the overall returns to expect. For example, hi delivers returns of as high as 40% of the staked amount.
As you can see, crypto staking is an emerging discipline, and many investors are already taking it up. The lovely thing is that unlike other methods, such as trading, you are not selling your coins. Therefore, you are sure of getting them back at the end of the staking period plus the reward. Instead of leaving your coins to lie idle on your crypto wallet, why not stake them for some passive income?