In 2021, if you haven’t started seeing profits from cryptocurrencies, it’s not too late… Consider staking crypto! Keep reading this guide to find out what you need, and how to start today.
It’s Not Too Late To Make Passive Income With Crypto!
We all know of someone who attained massive fortunes from holding onto cryptocurrencies through the recent bull markets. For the rest of us, we’re sitting here wondering how life would have been if we were wise to have invested early as well. In more famous cases, one person even amassed a sum of the equivalent to $6.5 billion USD! Life would be a lot different to a lot of us if we could even see 1% of that in our own portfolios.
It’s completely uncertain whether the future of cryptocurrencies would see another gigantic boom as it has shown in recent years. So buying a small amount of a coin at this point may or may not result in billions in gains. However, we’re here to introduce to you a surefire way to make passive income – crypto staking!
What Is Staking Crypto?
To understand the concept of staking crypto, think about Bitcoin. Bitcoin is basically a cryptocurrency network, which is backed by mining. Mining is a way in which Bitcoins are verified by the network. For newer coins, the equivalent is its proof of stake.
Proof of stake is when users within the network pledge their own assets, so the blockchain can verify and validate transactions. Think of it as a way to peer review transactions, ensuring legitimacy.
To participate in doing this (staking), the user is then rewarded with interest in that particular coin.
Simply put, staking is a simple way for regular people to hold cryptocurrencies and also get rewards from it. Similar to how dividends are rewarded for holding various stocks.
How Does Crypto Staking Work?
Certain cryptocurrencies allow its investors to own staking options. With these cryptocurrencies which do, the user can put their coins into a “staking pool”. In such pools, the users’ coins are then put to work by the block chain, generating rewards similar to how an interest-bearing savings account would award its holders.
Not every cryptocurrency allows staking. Here are some of the current popular coins which do allow staking:
- Ethereum 2.0
Essentially, users of these types of currencies would participate in staking by pledging their own coins into the staking pool, thus contributing to the Proof Of Stake of the coin.
What Is Proof Of Stake?
If you’re having troubles following at this point, don’t worry. This is normal! It took our team over 3 years of research to gain the basic knowledge of these concepts. Luckily for our readers (like yourself), we took the time to prepare this easy-to-digest guide on crypto staking.
So what is Proof Of Stake? Why do cryptocurrencies incentivize its users with rewards, just to contribute to the Proof Of Stake?
To answer these questions, just apply our concept of fiat currencies and its legitimacy. To our minds, a fiat currency (e.g. the US Dollar) is only legitimate if it’s recognized by another party.
If we have a $50 USD bill in our hands, and someone else recognizes it by offering to trade you something for it, this $50 USD becomes legitimized.
On the other hand, imagine if you’re on a tiny island with only 10 other people and we’re living off the land. Suppose you’re the only person to have any money on hand and it is a $50 USD bill. You approach your 10 neighbours and offer to trade your $50 for the food they’ve produced and the shelter they’ve built. How many people would opt to trade with you, understanding there’s no “need” for money in this situation?
The answer is (likely) that no one would trade with you. It’s because your $50 USD bill, within context, would be irrelevant, unrecognized, and ineffective.
Similarly, for a cryptocurrency to be legitimized, it does so through its Proof Of Stake. In summary, if you participate in the staking pool of the cryptocurrency(s) which you hold, you are contributing to the process of legitimizing the currency. For this reason, the efforts of staking crypto will be rewarded to participants.
Here’s Coinbase’s definition of Proof Of Stake:
“Cryptocurrencies that allow staking use a “consensus mechanism” called Proof of Stake, which is the way they ensure that all transactions are verified and secured without a bank or payment processor in the middle”
Proof Of Work Or Proof Of Stake?
You’ve probably already done some research on the world of staking. Perhaps you’ve come across the term Proof Of Work and find it confusing to differentiate the two.
We thought the same. However, with thorough research, we succinctly describe the difference as such; Proof Of Stake is the evolution of Proof Of Work. Proof Of Stake is the legitimization of a cryptocurrency, through decentralized efforts, in which holders of these coins (which allow staking) contribute to.
Proof Of Work is the technology in which Bitcoin and Ethereum 1.0 use to legitimize their transactions. This is done through the process of mining – something that’s not typically accessible to the general public.
Proof Of Stake is the alternative in which transactions are legitimized by users of the block chain, in a peer-to-peer environment. This creates a faster, more sustainable and energy-efficient system.
So for our purposes to make money staking in crypto in 2021, let’s just worry about Proof Of Stake.
Pros Of Staking Crypto
- More energy efficient system in legitimizing transactions
- Provides coin holders rewards (passive income) in continuing to hold the coin
- Provides more stability in the coin
Cons Of Staking Crypto
- If you participate, your coins could be tied up in a “vesting” period in which you cannot access your coins for immediate trading
- Lowers the liquidity of the asset
How To Start Crypto Staking Today?
So you’ve read our article and you agree that staking crypto is a great way to put your assets to work today.
Now understand that to become a full validator of a coin, it requires some resources (e.g. a dedicated powerful computer, hefty 6 figure investment, etc.). So this may not be accessible to everyone.
So to start staking today, we recommend participating through cryptocurrencies exchanges!
Our favorite exchange to stake crypto in 2021 is Coinbase.
Best of luck with staking crypto to make money in 2021.