In this guest post, Ankush Gupta, a growth entrepreneur and blockchain enthusiast, reasons why cryptocurrency staking can serve as a better alternative to cryptocurrency mining.
When cryptocurrency mining became the talk of the crypto sphere, a lot of holders went into it without having to think about the cost of setting up the expensive equipment required to mine coins. Not only was the equipment for mining expensive, but it also generated a lot of heat whilst consuming large amounts of energy. The coins were mined when transactions were verified in the network, and the process of verification is referred to as Cryptocurrency mining. The consensus algorithm used for the verification process is Proof of Work (PoW).
An alternative to Proof of Work was introduced and this system is called Proof of Stake (PoS). Rather than verify transactions using the expensive mining equipment, PoS allows nodes (Wallets) generate new coins using already owned coins. Using your holdings stored on a wallet (official wallet of the cryptocurrency), you can stake your coins and get rewarded for it (the percentage of return vary from cryptocurrency to cryptocurrency).
For some coins, the more you stake, the more rewards you get. Because of the many advantages of staking coins, crypto staking is a reliable way of generating passive income. Crypto staking involves holding digital currencies in your wallet for a fixed duration while continuously generating profit from it. The duration with which you hold your coins in your wallet determines your end profit.
How Does the Process of Staking Work?
Usually, in order to add new blocks to the blockchain, transactions are processed and verified with a mining node. However, in Proof of Stake algorithm, stakers are chosen randomly. There is a pool of holders of a particular coin and a user can be added to it by staking some coins to their wallet. The node stakes the coins in the attached wallet and then create a block. A block, in this case, is formed in accordance with the number of coins staked.
The Proof of Stake consensus algorithm generally works by way of ensuring that all holders of coins with coins stored in a fixed wallet are given some amount of coins as rewards for their holdings during a period of time.
Reasons Why Cryptocurrency Staking is an Alternative to Cryptocurrency Mining
Although there are many avenues of cryptocurrency you can generate income from, cryptocurrency staking will always remain one of the most effective and easiest ways of making money through blockchain. This is because the trend of trading is gradually experiencing some setbacks due to the current volatility of the market. The volatility downturn associated with trading and investment of cryptocurrencies has made investors look for alternative ways to rip more profits.
With PoS there is no need for mining machines. The main and only requirement to staking coins is to own an official wallet of the coin, sync the wallet to the blockchain, wait for the coins to mature according to a period as required by the coins, and start staking coins. Once staking begins, with the coins in the wallet, the value begins to grow. This makes it a simple method of getting rewards for owning coins.
Proof of stake does not require that a user have the technical know-how. Setting up of mining equipment requires that the user knows how to set up the equipment. PoS does not also require that a user have extensive knowledge of trading. It is also not mandatory to understand the complexities of the market structure, graphs, patterns in order for a user to get proceeds and profits. All you have to do is to ensure that you follow every instruction as required by the coin such as making sure your wallet stays connected to the internet.
With PoS there is always a guarantee of getting your rewards. Crypto staking can be compared to having some money in a fixed deposit account in a bank. In a fixed deposit account, it is expected that a client keeps their money in an account for a period until the time elapses. At the end of the period of investment, the account would have generated some interest. Also, the more an investor keeps their money in the account, the more interest they acquire. This also applies to the staking of coins, the more an investor stakes your coins, the more reward their holdings generate.
Staking does no harm to our environment. Mining equipment asides from been expensive generate a high rate of heat while consuming huge amounts of electricity. Staking requires little amounts of resources in comparison to mining or PoW. This means less electricity consumption and no machines. Staking is, therefore, an alternative to the usual energy-consuming mining.
In PoS, the value of an investors’ holdings in their wallet does not depreciate with time rather it increases in value as long as the coins are stored for the required duration. In mining, the value of the coins depreciates due to the use of the mining hardware and ASIC. The value of the holdings can only fluctuate as the price fluctuates.
In order to make maximum profits, crypto staking requires that the device where your wallet is (a Computer or mobile device) is always connected to the internet. This is because the more you stake your coins, the more profits you rip through the consensus process.
In conclusion, Proof of Stake is a reliable way of generating income without having to make use of complex machines or equipment. Investors also get to save the money they would have spent on the purchase of mining hardware or buying coins from an exchange platform with the thought of trading or holding.
Also, note that crypto staking gives investors power over the network and this enables them to earn a regular income. Because of this, many new cryptocurrencies have adopted the use of the algorithm. It is also vital that you conduct your personal and sufficient research before you decide on which coins you want to stake on.
Ankush Gupta (AG) is a growth entrepreneur and known for growth hacking, blockchain research and fundraising. He is well conserved in fintech and blockchain space.