Investing in cryptocurrencies has increased rapidly since Bitcoin first appeared in 2009. Now, there are several different cryptos available to buy and sell.
However, individuals who are getting started with this endeavor may not realize another way to make gains. Utilizing crypto staking is a method that can be used to generate even more profits.
What Is Crypto Staking?
Typically, an investor in crypto is looking for a rise in its price to increase value. While this is an excellent way to boost the bottom line, there’s also another way to increase income. Crypto staking allows the owner of a digital asset to receive rewards by locking up their coin or token for a specified period. The concept is similar to having fiat cash in the bank account and gaining interest with it.
How Does It Work and Is It Worth Doing?
If a person already purchases and holds a cryptocurrency, it may be worth doing since they already have exposure to the underlying asset. Unless they are actively trading and selling all of their coins at once and then buying them back, it’s an excellent way to make extra income.
According to the experts at SoFi Invest, “it helps to consider the block rewards associated with staking coins you hold, as well as to recognize the volatility of cryptocurrency in general—if the value of the coin drops.”
Typically, a specific number of coins will need to be staked to receive rewards. A good example of this is Ethereum. Holding a minimum of 32 coins must be completed if a person wants to stake ETH. Offering rewards to individuals who own and stake 32 coins provides more stability for the blockchain. This process is a win-win situation as the holder makes a small profit for doing so.
Benefits and Risks
There are some significant benefits a person can take advantage of if they decide to stake cryptocurrencies. One of the biggest advantages is the passive income that can be generated. Another advantage is the non-need to purchase expensive mining equipment. A proof of work system, like the one Ethereum is using first, secures the blockchain by playing rewards to miners.
This endeavor is technical and challenging to scale, unlike the proof of stake system that only requires a person to purchase 32 more ETH.
Having to stake a large number of coins or tokens can make it risky to get involved. Choosing a reputable project is best to avoid getting caught in a scam or a cryptocurrency with poor coding. As the experts at SoFi Invest indicate, “there are numerous platforms that allow users to start staking coins, and quickly.” However, this doesn’t imply a person shouldn’t do their due diligence first.
Owning a cryptocurrency that can be staked is another way to increase profits. Taking the time to research each option and look into the coin being staked can help reduce risk and match the appropriate risk tolerance with the investment decision being made. Once done, it’s one more way to grow wealth over the long term.