Some are just beginning their acquaintance with the cryptocurrency world and have not yet understood all the terms and principles of operation of certain algorithms. This also applies to staking. This technology is applicable to some cryptocurrencies and is used not only as a means of investment, but also as a mechanism to support the operation of the blockchain. It will be discussed in more detail in this article.
Let’s understand the principle of staking
Let’s start with the basics and understand how cryptocurrency staking works in general and what this technology is. If we translate this word from English, then stake is a share, which means that it means receiving some kind of profit. It comes from your initial investment in a specific cryptocurrency that supports the Proof-of-Stake algorithm and its variations.
The essence of this whole process is that you buy a certain token for a specific amount and every month (or other set period of time) you receive a percentage of your total capital for locking these funds in your wallet – they are used for other transactions, maintaining blockchain operation.
Yes, the funds are blocked, that is, you choose the staking period and during this time you cannot withdraw your initial savings and/or dividends. The percentage of royalties and other privileges that investors receive depend directly on the coin and the chosen platform where your funds are stored.
To summarize the above: staking is the investment of a certain amount of a token into the blockchain itself with the subsequent receipt of passive profit. Can be used as a means of investing and receiving other benefits from the creators of the coin or blockchain.
What is Proof-of-Stake
Proof-of-Stake technology is closely related to staking itself, since this type of investment is only available on those blockchains that support it. The essence of proof of ownership is that new blocks and transaction verification are carried out among computing nodes, that is, nodes. A node is a wallet on which a certain number of coins are stored. The greater the percentage of all existing coins on it, the more often the algorithm will turn to this particular wallet to carry out operations and create new blocks, and the higher the reward will be.
Staking is getting a reward for all these calculations, which are carried out using the available number of coins in your wallet, exchange or some other platform where you started your staking journey.
There are other algorithms similar to the one described, which also allow the same operations to be performed. We will not dwell on them all, since this is not related to the topic of the article.
How to start making money from staking
Let me start with the fact that there can be many ways in staking. Initially, you should pay attention to the official website of the token that you have chosen to block your funds. Perhaps the developers provide their own wallet or recommend a specific exchange where the reward for staking will be greater than on other platforms.
However, you can choose completely different centralized, decentralized exchanges and multi-currency wallets that support staking. The rules, terms and conditions of savings are different everywhere, so be sure to read the documentation and do not hesitate to ask questions to support to find out all the nuances.
Keep in mind that you will receive the reward not in fiat currencies, that is, not in rubles or dollars. You will receive interest in the same coin that you have blocked for accumulation. It may depreciate or, on the contrary, increase in price. Always remember the risks and find out information about the areas where you want to invest your money in order to receive passive income.