Decoding the Benefits and Profitability of Cryptocurrency Staking
“Cryptocurrency staking is becoming the norm now as mining is becoming obsolete as is the Proof-of-Work. The scalability issues in the Proof-of-Work consensus mechanism have led to the adoption of a more efficient consensus mechanism Proof-of-Stake which allows staking of cryptocurrencies to obtain rewards. We shall deep dive into the concept of staking and analyse the profitability and benefits of staking”.
What is Cryptocurrency Staking
Unlike the Cryptocurrency mining in which energy was required for processing of mathematical puzzles to validate the network, staking is done by locking your cryptocurrency in a stake pool to earn rewards according to the volume of your stake. This makes staking more energy efficient and is therefore being adopted widely. Ethereum is also shifting from a Proof of Work mechanism to Proof of Stake Consensus with its Eth 2.0 upgrade.
Benefits of Staking
Eco-friendly
Staking is a more eco-friendly method for earning rewards in the crypto industry as it does not require high amounts of energy and expensive mining hardware as required for mining.
Source of Passing Income
Staking can be a source of passing income if you have a considerable amount of cryptocurrency lying in your wallet. The average staking rewards per annum is around 4-5% which can provide a good source of passive income rather than keeping your crypto funds idle.
Boost the Ecosystem
The cryptocurrency staking helps in boosting the ecosystem of the blockchain by ensuring better security as well as efficiency of the network. The more the crypto staked the better for the ecosystem. With the optimization of the ecosystem, the price of the cryptocurrency also rises thus benefiting the investors.
Prevents Monopoly
As in the case of mining, the institutions with high mining power monopolizes it and the power remains with the limited few, in staking the pool sizes are limited and the block valuators are chosen at random making it impossible for obtaining monopoly no matter how big a stake of a particular individual is.
Profitability of Staking
Staking is a profitable venture and if an individual possesses a high volume of a certain cryptocurrency, the staking rewards can be quite considerable and can provide a steady passive income.
When considering staking to the other financial instruments like savings account or fixed deposits, it provides a better rate of return and at the same time there is a huge chance of appreciation in the value of the good cryptocurrency projects as the crypto market has a huge growth potential at the moment.
Takeaways
- Crypto mining is becoming obsolete and crypto staking is taking over due to its eco-friendly nature and better efficiency.
- Crypto staking can be highly profitable as it can provide a source of passive income on the assets that would otherwise lie in the wallets of especially long term investors.
Disclaimer: The article is meant for the educational purpose only and in no way it should be considered as financial advice. Own research on the topic is advisable.
Photo by Pierre Borthiry on unsplash
