In order to understand cryptocurrency Staking, you need to understand Proof of Stake (PoS), compared to the Bitcoin PoW mining mechanism which is an energy-intensive operation, a new BTC coin is generated through the process of solving a mathematical puzzle, PoS requires significantly less energy, in this mechanism the correctness of transaction is determined by the stakeholders of particular blockchain who lockup certain amount in order to verify the transaction and earn a certain reward.
By locking up the cryptocurrency and participate in activities like voting and verification for the blocks of PoS tokens, users earn rewards that are the same as the traditional Bitcoin mining process but compare to Bitcoin mining reward which is fundamentally inflation of the token, the rate of return in staking method based on the factors of the inflation rate, mortgage rate, and price changes. It is a new type of business model in which stakeholders generate income through pledging the crypto assets, participate in voting and delegation and the rate of return is depending on the type of coin and the exchange you are using.
Bitcoin, the big pie in cryptocurrencies has been almost 10 years old, stable and secure due to POW consensus, but this method recently criticized by the outside world due to a large number of hash operations, the energy consumption is exceeded against many developed countries, instead, PoS consensus solved the extreme energy consumption, the new arrivals of PoS projects in blockchain world are not only just using PoS consensus but they are trying to improve this method, the blockchain like Cosmos, Polkadot, Algorand and Ethereum 2.0. adopted the PoS consensus.
The current global market value of encrypted assets is 250 billion U.S. dollars and continuously increasing, the arrival of new PoS projects fuels encrypted assets market value therefore many crypto capital institutions, crypto exchanges, and crypto mining pools introduced many staking products to users. Among all of the staking products the users are most familiar with the exchange-based staking method, there are many PoS service providers offering higher yields but for users perspective security of crypto assets are more important for example Coinbase guarantees its customers that all of their tokens will be stored on cold storage (offline wallets)
The advantages for exchange-based are following
- Custody of wallets always in user’s hands
- Crypto assets always available for online trading
- Wider wealth management methods
- You can get the high APY for certain coins
Crypto exchanges around the globe offer easy steps to get involved in staking, convenient to participate and eliminate the cumbersome procedures, users will obtain substantial mining income through pledging of an asset.
The disadvantages of exchange-based methods are following
- The user’s assets vulnerable to exploits and hacks
- The restriction of certain thresholds for participation
- Time limit on the release of the pledged asset.
- The high learning curve.
https://www.bitcoinsuisse.com/fundamentals/what-is-staking
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Source: https://medium.com/cryptocurrencies-ups-and-down/cryptocurrency-staking-another-passive-income-a3a22374fae2?source=rss——-8—————–cryptocurrency
