Staking Crypto and Earning Rewards

What is crypto staking?

Crypto staking is the process of holding onto or “staking” a certain amount of cryptocurrency in order to participate in transaction validation. This occurs on a Proof-of-Stake (PoS) blockchain network, often considered a less resource-intensive alternative to mining in proof-of-work networks. By staking, individuals can earn rewards in the form of newly minted coins in exchange for validating transactions and keeping the network secure. The key and simple takeaway for crypto users is that staking is a means of earning rewards for holding onto cryptocurrencies.

What is Proof-of-Stake?

Proof-of-Stake (PoS) is a consensus algorithm used in some blockchain networks to validate transactions and secure the network. It replaces the traditional Proof-of-Work (PoW) algorithm used by many cryptocurrencies like Bitcoin, which requires miners to solve complex mathematical problems to validate transactions.

In a PoS network, validators are selected to validate transactions and create new blocks based on the size of their stake or the amount of cryptocurrency they hold and lock in the network as collateral. These validators earn rewards for their work in the form of transaction fees and block rewards.

PoS is considered more energy-efficient than PoW, as it does not require intensive computational power to validate transactions. It is seen as a more environmentally-friendly solution for blockchain networks. PoS systems offer greater scalability and faster block creation times, making them a popular choice for new blockchain projects. Proof-of-stake has gained significant traction over the past several years, with some of the largest emerging projects operating under the newer, more efficient protocol. Some of the most popular proof-of-stake blockchains that enable staking their coins include Ethereum, Cardano, and Solana.

How does crypto staking work?

When users participate in staking, they are essentially locking up their cryptocurrency for a specific period of time, usually in a digital wallet designed for staking. By doing this, they become a validator on the network and help to verify transactions. In return, the network pays them staking rewards, usually in the form of new tokens, interest payments or a combination of both.

Staking rewards are a way for the network to incentivize participants to help secure the blockchain. The reward value depends on the number of coins staked and the network’s overall health. The more coins staked, the greater the chances of being selected as a validator and the higher the potential rewards.

Simply put, staking is a way to earn passive income from cryptocurrency holdings by putting them to work to help secure a blockchain network.

What are staking rewards?

Staking rewards are incentives paid to validators for participating in a blockchain network’s proof-of-stake consensus mechanism. They are a reward for helping to secure the network and validate transactions by locking up their coins as a stake in the network.

The rewards received are often proportional to the number of coins staked, with larger stakes earning a greater share of rewards. Staking rewards can come in the form of the blockchain’s native currency, sometimes a separate token. They are typically distributed on a regular basis, such as daily, weekly, or monthly.

How do I stake with Netcoins?

Staking with Netcoins is available exclusively on the mobile app.

Staking can be complicated for users to do on their own. There are many factors to consider such as expertise and knowledge required to select and set up validator nodes to the ongoing management and performance of the validators. Additionally, certain networks impose minimum amounts required to set up a validator, Ethereum for example requires a minimum of 32 ETH. This requirement itself may make staking ETH inaccessible to the average user.

But, there’s a simpler way to participate! At Netcoins, we make staking simple, secure and accessible for our users. We allow you to stake your assets directly from your Netocins account with just a few simple steps. This way you can stake any amount you wish, without needing to purchase or operate expensive validator hardware. Your assets are held securely in custodial cold wallets, you can monitor the status of your staked assets and track rewards as they are earned and you can request to unstake at any time.

Here’s how it works:

1. You can navigate to the staking section from the bottom of your Netcoins app dashboard and select the cryptocurrency and amount you wish to stake. Learn more here.
2. Netcoins actions your staking request (along with staking requests of other users) with our approved staking service provider.
3. You can track the progress of your staking request directly in the mobile app. Once your staking request has completed the bonding period, you will start earning rewards.
4. Rewards are distributed to your account on a frequency aligned with the network and its reward procedures. Each reward period where rewards are earned, you will receive rewards proportional to your total active staked crypto during that reward period. More details on fees, reward cycles and lock up periods can be found here.
5. You may unstake your actively staked crypto at any time, you will be able to sell or withdraw your assets after completion of the unbonding period.

*Netcoins provides a staking service to its users with the help of third parties such as BitGo and Figment. Users should always do their own research and make an informed decision before participating in staking.

Who usually chooses to stake?

Staking is an option to anyone who holds cryptocurrency in a network operating on a proof-of-stake consensus mechanism. Individuals, crypto exchanges, businesses, and organizations can all participate in staking. In general, people who choose to stake are looking to earn passive income from their cryptocurrency holdings and support the network by validating transactions. The most apparent candidate that fits this category is a long-term investor interested in investing in a project for the long haul. By staking crypto, one can remain exposed to its price action but simultaneously earn rewards that can add up from a long-term horizon.

Many participants choose to stake their holdings to align their interests with the network’s long-term success. By staking, they show their support for the project and help secure the network, and in return, they receive rewards for their efforts. These rewards serve as an incentive for participants to hold and support the network over the long term.

What are the advantages of staking?

Staking has several advantages compared to other forms of participating in cryptocurrency markets. Some of the key benefits of staking include:

Passive income: Users can earn rewards for simply staking their cryptocurrency on a proof-of-stake network, this generates a passive income stream for the user.

Increased network security: By having a larger number of validators participating in the consensus process, the network becomes more secure and resistant to attack.

Increased exposure to cryptocurrency markets: Staking provides a way for users to increase their exposure to the cryptocurrency markets without purchasing additional crypto assets

Support for blockchain projects: By participating in staking, users can support the growth and development of their preferred blockchain projects.

More energy efficient than proof-of-work: The proof-of-stake consensus mechanism uses far less energy than proof-of-work, making it more environmentally friendly and cost-effective.

Glossary:

Bonding Period – Bonding refers to the process of activating your cryptocurrency for staking. During the bonding period newly staked crypto  are locked up and cannot be withdrawn or transferred. This period is usually a requirement for users who participate in staking activities in proof-of-stake networks.

Unbonding Period – Unbonding refers to the process of withdrawing your staked cryptocurrency from the network. When you initiate an unstaking request, it goes through an exit process on-chain on the network which is referred to as unbonding. The unbonding time is variable and may take hours, days or weeks depending on the congestion in the network. You will only get full access to your crypto once this unbonding period is complete.

Unstaking – refers to the process of removing your cryptocurrency from the network and ending your participation in the network’s consensus mechanism. When you unstake your cryptocurrency, you stop earning rewards and lose your ability to participate in network governance.

Staking – refers to the process of holding and locking up a certain amount of cryptocurrency as collateral to support the network’s operations and earn rewards.

Slashing – ​​refers to a penalty mechanism that occurs when a validator or staker on the network behaves maliciously or violates the protocol’s rules. In such cases, a portion of the validator’s staked cryptocurrency is “slashed” or confiscated as a punishment.