Staking

By staking your cryptocurrency you can earn rewards. On the face of it there seems to be a lot of similarities to earning interest on your crypto utilizing an interest earning account and to the end user there are.

You provide your crypto and over a fixed period of time you earn rewards based on an agreed or flexible rate in the seed crypto or other tokens. However, rather than a crypto entity using your cryptos to lend out and therefore generate interest to share with you, crypto is used by the network to verify transactions.

This works on cryptocurrencies that use the ‘proof of stake’ model to process transactions. Bitcoin for example uses ‘proof of work’ which requires mining through high powered computers.

So by putting your coins to work within the network, it allows transactions to take place which adds new blocks to the blockchain, which in turn creates new coins that can be used as rewards to the people who stake. The lure of staking is due to the incredible returns that can be realized. In some circumstances over 100% APY is available.

It should be noted that most staking takes place through a fixed term (between 30 days and 52 weeks) and the return of your crypto regardless of the term length or whether it has a flexible term, will take a couple of additional days to unsecure it from the network pool.

There is risk as with all crypto investments. Firstly, the seed currency drops in value, mitigating any profit made. Secondly, the exchange processing the staking is hacked and the crypto is lost.

Lastly, your wallet could be hacked, so it is essential that you take all measures to ensure your wallet is secure.