Is crypto staking safe?
Crypto staking is a good and often seen as a safe way to earn extra crypto with your crypto bags when you’re in the investment for the long run. Staking is often more preferred to mining when you consider the nature of the two systems which we will explore together. There are some factors which you should know about when deciding if staking is right for you. In this blog post, we will delve and find out if crypto is safe and hopefully then you will be able to decide if this is what you want to do.
What is staking?
Staking is the term used for the process of validating transactions on the blockchain for cryptos that use a proof of stake system. This is seen as the better alternative to mining crypto because it requires less investment to achieve decent returns. The issue with mining nowadays is that for you to profit significantly it requires a large investment into hardware upfront and then over time, the hardware will return a profit.
For you to start staking you must own the coin for it to be locked up as collateral. Based on a few factors you will be chosen as the miner of the block in the blockchain where you will be required to mine it to validate all transactions on the block, if you do a good job you will earn more of the crypto as a reward for good work. If you do not validate the block correctly you will lose some of the staked coins as punishment for bad work.
While your crypto is in a stake you are not able to use it, you essentially lock it into the system for a set period. This is how it works for most proof of stake cryptos but not all. Some cryptos allow you to withdraw your stake whenever you want but you lose a percentage of your stake, usually a small amount but still should be noted. One of these cryptos is Bancor’s BNT.
Depending on what method you used to stake your crypto it is often safe, but that depends on how and where you’re staking, some methods are less safe than others.
What factors decide if I’m the miner?
There are a few factors that decide if you’re the miner. The first factor is how much of the crypto you have staked. This reflects how much you have at stake when validating the blocks, the more you have the bigger amount of skin you have in the game so you have more to lose hence you will often have priority. Another factor is how long you have been staking for, the longer you have been able to do your job without mistakes the more credibility your stake generates which results in you receiving more work over time. The last factor is random number generation, to combat “whales” (people with large wallets) the systems often have a randomness factor so that even if you haven’t been staking for a while or have a big stake you will still be able to get work.
So for you to get blocks to solve for when staking you have to essentially have a decent amount of skin in the game and be doing it for long periods without mistakes. If you’re able to satisfy both of those conditions you will be able to generate passive income just by holding a coin.
How do I stake?
So there are a few types of staking out there. Let’s explore all of the kinds of staking possible and afterward we will give our pick on what we consider to be the safest way to stake your crypto.
First off there are staking specific coins, we will use Ethereum for example, there are others but since ETH’s recent shift to proof of stake, it’s the biggest name in staking. To stake ETH you will need to set up a “Node”, this is a very expensive process requiring a minimum of 32 ETH to start the process, there are cheaper alternatives but Nodes are the most direct way to stake. If you wish to find out more about setting up your node you can visit this link to the official Ethereum website and find out more.
If you find setting up a node is not something you’re confident in doing you’re also able to stake on exchanges. The exchanges did all the work for you and will collect a percentage of profits at the same time some exchanges can guarantee a profit percentage in terms of how many coins you will gain. One of these exchanges is Binance which we’ve staked on before and have had no problems when doing so. This is probably one of the safer methods when staking crypto because it’s harder to mess up.
Another way to stake is to provide liquidity or lending. Lending is where you stake your crypto on a DEFI (Decentralized Finance) platform and people can borrow the currency, and you’re passively given a percentage of your staked currency over time, essentially following the same concept of staking but different usage. Providing liquidity is pretty much the same but instead of people borrowing your money the decentralized exchange instead benefits by having liquidity on their exchange which allows their users to trade, you’re also given a percentage of your stake.
What’s the best way to stake?
If you’re interested in staking and don’t know what option to go with we recommend you give staking on Binance a try. It is probably the best middle-ground with good returns. Another benefit to staking on Binance is that you’re able to stake “stable coins” one of those coins is USDT, essentially the price of the coin is always worth one dollar. By staking it you get more US dollars while not having any volatility of crypto. You’re being rewarded for just having that dollar in their system for a set period.
Staking your crypto on Binance is probably one of the safest options out there. Staking as a node might be super daunting and dangerous in the sense that all of the responsibility is on you, if you mess up your entire stake is gone. Meanwhile staking on DEFIs/DEXs has similar threats. At the end of the day if you trust yourself and you’re knowledgeable enough maybe those are the correct options for you.
Wan to know more about crypto investing? We have an article where we compare crypto vs stocks. Check it out!