Staking your cryptocurrency securely in 2022
It’s 2022, and the crypto community is staking — but what is cryptocurrency staking, and how can you stake securely?
Staking is a simple way to turn your crypto into passive income, especially if the cryptocurrency offers high-interest rates. However, it’s important to understand how staking works before you start earning rewards.
Some people are reluctant to stake their crypto because they don’t know how it works. But staking is easy to do with a little know-how.
But given crypto’s volatility, you’ll need to stake your crypto securely. Otherwise, you risk losing your investment.
What is crypto staking?
Staking crypto allows you to make money by holding onto your coins. It’s a form of passive income, which means you don’t have to work to earn money. Rental yields and stock dividends are ways of making cash investments work for you.
With inflation rising, investors are looking for new ways to boost their income online.
When you stake your crypto, the blockchain network will use your holdings to create new blocks and validate them.
By permitting your crypto to become validators on its network, the blockchain will reward your staking activity with extra coins.
How do you stake your crypto?
By following a few easy steps, you can earn 5%, 10%, or more by staking your crypto.
- Choose a cryptocurrency that offers staking
Do your own research and pick one that has good business fundamentals and try not to be seduced by projects offering huge rewards.
- Buy crypto on an exchange
Each of them enables users to stake some of their PoS cryptocurrencies in just a few taps.
The more you hold, the more you can earn. It’s that simple.
- Stake your cryptocurrency securely
Remember to stake with a virtual private network (VPN). When crypto investing, it’s important you take the right security precautions because no one else will do it for you.
The responsibility for your coins falls upon you, and you alone.
Can you make money staking crypto?
Crypto staking usually earns a specified interest rate, anything from 3% to 10%, depending on how long and how much crypto you own.
If you withdraw your money early, you might face a penalty. Also, each exchange and platform will have different rules for different coins — most require a minimum staking investment to receive rewards.
Staking means you must lock-in your crypto for a specified time period, affecting your ability to sell or trade when the market dips.
Your coins are still in your possession when you stake them, however. You’re putting them to work, and you’re free to unstake them if you change your mind.
What are the risks of staking?
Crypto is a volatile trade, and prices can drop quickly. If your staked tokens suffer from a significant price drop, it could offset any interest you’ve earned on them.
Selling and holding cryptocurrency is a speculative trade and involves a substantial degree of risk.
Proof-of-work vs Proof-of-stake
You may have come across “proof-of-work” and “proof-of-stake” on crypto websites. They are two leading consensus protocols that cryptocurrencies use to verify new transactions and create new tokens.
A consensus protocol is a set of instructions that approves new transactions and records them on a blockchain network.
Proof-of-work uses mining to achieve these goals, while proof-of-stake uses staking instead.
Bitcoin uses proof-of-work, and it requires miners to solve mathematical equations to add new blocks.
Miners that update the Bitcoin blockchain first will receive rewards through newly minted coins and transaction fees. With Bitcoin, each new block has a specific “hash” (a long string of numbers and letters).
A miner needs to create a matching target hash for a new block to be accepted. The goal is to be the first miner to find the target hash.
Finding the target hash is like solving a puzzle and requires enormous computing power to succeed. PoW cryptocurrencies are popular for their security, but their environmental impact has been criticized, given their energy demands.
The proof-of-stake protocol adds new blocks to the blockchain through staking, where “validators” use your coins, selected at random to create a new block.
Users that stake larger amounts will have a greater chance of being chosen as the next block validator, encouraging you to own more.
- Validators – Validators are randomly selected to confirm transactions and create new blocks in the blockchain, rewarding you with more coins.
- Delegators – Delegating means donating coins to other validators, so your staking can be completed passively.
Protecting your crypto with a VPN
If you’re staking crypto, you’ll need to take precautions. Unlike legacy banks, you have few safeguards in place to retrieve your assets if it’s stolen, so you can potentially lose all of your crypto and receive no compensation.
Using a virtual private network (VPN) is a must when staking crypto as it forms a privacy shield over your Internet connection.
- A VPN hides your IP address preventing third parties from tracking you online ensuring your crypto staking is anonymous.
- Paid VPNs don’t store your activity logs. They also have a Kill Switch feature, which boosts your security and anonymity.
Remember, if hackers access your funds, there’s currently no regulatory body that’ll help you. So if someone manages to steal your crypto, you’ll never see it again, let alone stake it.
Staking your crypto securely
With a VPN offering an additional layer of security, you can stake your crypto securely with a centralized exchange or hot wallet.
In return for staking cryptocurrency, you can receive rewards on what you’ve staked, like earning interest in a savings account. The difference is that interest rates are low right now, while you can make up to 10% with staking.
Each PoS cryptocurrency has its staking methods, so before deciding on which coin(s) you want to stake, make sure you research its proof-of-stake protocol and protect your investment with a VPN.