What is staking

Recently, staking has become extremely popular among the crypto community, and this lucrative strategy of making passive profits from your digital assets is causing a lot of hype. This post explains the world of cryptocurrency betting, as we need to determine what it is, how they make a profit, how it can affect the market, and what level of risk this entails.

The basics of cryptocurrency staking

Staking is a growing trend in cryptocurrency, which includes blocking digital assets in a smart contract for the Proof-of-Stake (PoS) network. The investments are then used to verify transactions and protect the blockchain protocol, for which you receive a reward in the form of passive profit from staking.

The principle of staking in cryptocurrency is that you buy coins for staking, and each PoS protocol has its requirements, such as the minimum number of staking tokens. This can be done relatively quickly, right from your wallet. The number of transactions assigned to each node for verification is determined by the number of coins delivered, and more confirmed transactions mean higher passive profit.

Advantages of staking in cryptocurrency

Cryptocurrency staking has many advantages that range from ease to potential profitability and low costs and energy inefficiency.

A simple source of passive profit

First of all, cryptocurrency staking requires minimal effort and can be quickly done in just a few mouse clicks. Many PoS-based cryptocurrencies allow you to place bets and earn interest without participating in the block verification.

Staking provides a relatively reliable source of passive income, which averages from 5 to 12% in exchange for a simple blocking of your funds.

Cryptocurrency does not require permission. Therefore, although project developers can set specific conditions for the use of their betting services, any coin holders can receive interest as a reward for allowing the use of their cryptocurrency to support the protocol.

Low cost of participation

Another advantage is that stacking is cost-effective, especially compared to passive investment strategies for traditional financial assets, which usually require significantly higher fees.

More environmentally friendly than proof of work (mining)

Proof of work (English Proof-of-work, POW, PoW) involves using specialized computers that have high financial costs and huge energy needs. The more computer power a miner has, the better the hash rate and the higher the reward. It takes a lot of energy to solve mathematical equations, verify transactions, and add blocks to the blockchain through mining. The cost of fuel has negatively affected the price of bitcoin in several cases. For example, when Elon Musk raised an environmental issue with Tesla. It is also widely believed that exceptionally high energy demand is the main factor fueling the suppression of Chinese cryptocurrency.

On the contrary, Proof-of-Stake (PoS) is an energy-efficient and inexpensive alternative. Your staked coins are used to verify transactions, and you will be paid more reward the more you have "staked" tokens, without the same impact on the environment.

Risks of cryptocurrency staking

Cryptocurrency staking assumes a relatively low-risk exposure, although, like all cryptocurrency investments, a particular risk is associated with changing market conditions.

Suppose you want to stake Ethereum, which is by far the most popular among the many available coins for gambling. To become a full-fledged validator, you need to bet 32 ETH, which is a significant amount, so if the price falls, as it has happened repeatedly in response to the tightening of the Chinese ban on cryptocurrency, your capital will also lose value.

Then, of course, there is a risk with automatic market-making protocols. If you put your tokens in the betting pool, and an evil project developer or whale immediately takes all its liquidity, the price may drop sharply since there will not be enough liquidity left for other participants to access.

A profitable alternative

Here at Intelfin, we offer fully automated hybrid and low-risk crypto-arbitrage systems capable of generating passive profits of over 100% per year.

Get more information about cryptocurrency arbitrage, hybrid algorithms, and liquidity pools, or visit the Intelfin blog to learn about all the latest trends in cryptography, as well as a wide range of topics related to blockchain, Defi, and various types of digital assets.