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What is staking?


Staking is an alternative to mining and is considered one of the best investments in the cryptocurrency market. Let’s take a closer look at what staking is, how you can make money on it, and what risks an investor may face.

What is staking crypto?


Staking is the process of locking a certain number of digital coins in a cryptocurrency wallet in order to ensure the operation of the blockchain in exchange for receiving a reward.

In many cases, this process depends on the users who take part in the transactions on the blockchain using a personal cryptocurrency wallet. The staking process uses the Proof of Stake (PoS) algorithm – proof of ownership. This method of confirming transactions is used in various blockchains running on PoS or one of its variants.

The main feature of staking is that it is considered a complete replacement for mining. Staking allows investors to earn on cryptocurrency without the need to purchase specialized equipment.

Staking vs. mining


Mining is the process of processing transactions on a blockchain using the Proof of Work (PoW) algorithm, designed to keep the network running. In turn, the miners are participants in this process. They generate the blocks needed to store account and transaction data. In order to get a new block, the user needs to perform certain calculations and find a secret combination of symbols. Let’s see what is the difference between staking and mining.

Staking

Mining

Transaction processing is carried out using Proof of Stake.

Transaction processing is carried out using Proof of Work.

To mine blocks, investors need to buy and hold tokens.

Mining blocks requires powerful equipment.

An eco-friendly way to create a chain of blocks in the blockchain that does not require additional costs.

It requires a lot of energy and is harmful to the environment.

The staking process is simplified and considered more open to members of the blockchain community.

Mining requires more involvement in the process.

It does not require technical knowledge and skills.

To make money on mining, you need to be well versed in technology.

Types of staking

The principle of operation of staking is similar to a bank deposit – the user transfers funds to the account, stores them, and receives passive income for this. The more funds are deposited into the account, the more income the user will receive.

In addition to the basic principle of how staking works, each individual blockchain system may have its own terms and conditions: https://cryptorobotics.co/staking-what-is-it-and-how-does-it-work/

Today there are three types of staking: locked, flexible, and DeFi staking. Let’s take a closer look at each of them.

Locked Staking

Locked staking is for users who want to make big profits. It specifies in advance how long the funds will be frozen. That is, investors themselves can choose the period of storage of their tokens.

It can be a week, a month, or a year. Please note that funds will not be available for trading or withdrawal during the selected time. Naturally, the investor can buy them back without waiting for the end of the period, but in this case, he will be able to return only his invested funds, without additional interest. It is also worth noting that the percentage of income for fixed contracts is higher than for other types of staking.

Flexible Staking

Unlike locked staking, flexible staking does not have an end date for storing coins and the investor can stop participating in the validation process at will. As a rule, interest begins to accrue within 24 hours after the funds are deposited, and rewards are paid every 30 days. It should be noted that interest will be accrued until the user withdraws the coins.

Flexible staking is suitable for those who are not ready to freeze their funds for a long time. Coins are stored in a spot wallet, where investors are rewarded for holding their funds.

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