Entering the crypto world, a newcomer could be forgiven for assuming that investing in crypto is limited to spot and futures trading. As a result, they can overlook alternative forms of investments for several reasons — top of that list of reasons is simply a lack of knowledge and general awareness around a subject.
Staking is a form of investment that you may have stumbled upon once or twice, and decided you’re better off without it (it’s too complicated, right?). However, whether you decide to go for it or not, it doesn’t hurt to put that knowledge in your pocket for the future, and that’s what we’ll do in this short piece.
What is Cryptocurrency Staking?
To simplify it, Staking is a way to earn passive income by locking up or committing your cryptocurrencies for a period of time and earning interest yields on them. Simply put, you will earn more crypto with your crypto just by holding, and putting your holdings towards verification methods on the Blockchain.
The digital currency you decide to lend will be used by a 3rd party to verify transactions on the Blockchain that use the proof of stake (PoS) mechanism, and as a reward you will earn high interests.
Staking vs Bank savings account.
While staking is very similar to opening a savings account at your local bank, the interests earned with cryptocurrency staking are much higher. One might even wonder why anyone would choose banks over cryptocurrency in this instance?
Well, the answer to that centers around volatility: ‘the higher the risk, the higher the reward’, so to speak. As a savings account is not subject to market’s volatility like cryptocurrency is, it can be seen as a more stable investment. But with crypto’s popularity continuing to rise, so does the uptake of Staking.
What are the risks of Staking?
The first risk is at the very core of crypto in general — price volatility. Staking investments will be under the control of the market’s prices fluctuations, to a point where if the price of your committed cryptocurrency hits a certain low point, your earned interest rewards will be less in value than your market loss, while you are safely guaranteed to get your investment plus interest rewards with banks.
In addition to that, your cryptocurrencies may become difficult to sell or convert if the market is going through volatile periods. Also, your assets are locked up for a period of time during which you may not be able to unstake or sell.
How to start cryptostaking?
First thing’s first, you can start with ZB staking, where you can find several cryptocurrencies to invest in with the list continuing to grow. In order to stake a cryptocurrency you will have to own it first, so if you are trying to stake DOT for example, your first step would be buying DOT and having it in your ZB wallet, then you view the details of its staking, put the amount you would like to commit, and just HODL…
What is a staking pool then?
To become a staker, you will need a minimum amount of the cryptocurrency you’re staking. It tends to be a bit expensive to stake solo. That’s where staking pools come into play.
A staking pool is a cheap way for you to test the waters, and decide whether this is the type of investment you want to keep going with. It allows you to share your investment with a group of likeminded investors; the catch is you will also share the interest rewards.
So should I go for staking?
If you’re looking for a long term investment, and own a strict HODL mentality, then yes, staking is the place to start — that is of course after considering the risks you will be taking. If you decide not to, there are other crypto investment opportunities waiting for you, just find the one that suits you most. And while you’re at it, you might as well take a look on ZB.com for those options.
Is staking the same as yield farming?
Gaining interest wise, yes it is the same; however, yield farming does not require a lock up period. Instead, you can provide your digital assets for loan and liquidity and you can deposit and withdraw whenever you choose. Through yield farming, you are lending your assets to projects which require large amounts of cryptocurrencies to buy, lend and borrow, to use in multiple actions on the blockchain. This kind of investment is also made through the crypto existing in your wallet.