Earn money by placing crypto tokens on a proof-of-stake blockchain

Staking crypto tokens provides one such opportunity to earn additional income and is available on blockchains that adopt a Proof-of-Stake (PoS) consensus model. While there are a number of crypto tokens that can be staked, other platforms such as Binance, Kraken, and Coinbase are the best starting points for investors looking to staking.

What is Blockchain?

In simple words, a blockchain is a decentralized digital ledger system involving multiple computers or nodes to record transactions, thereby establishing a peer-to-peer rather than a centralized network.

All transactions are maintained with full confidence as ‘blocks’ of data, which cannot be changed by any node in the network or the developers of the blockchain itself.

In this way, trust is maintained between all parties without dependence on a central authority or any other third party and the transactional ledger is distributed across the entire network of nodes.

For a proof-of-work blockchain like bitcoin, nodes need to put effort into solving complex mathematical puzzles to mine crypto tokens and validate transactions.

However, for proof-of-stake (PoS) blockchains, nodes act as validators based on the number of native tokens they hold or lock with the blockchain.

Verifiers earn crypto tokens as a reward for their token contributions and since they often require a large number of tokens to be eligible, they resort to opening staking pools and inviting retail investors to contribute.

What is Staking?

As seen above, it is not possible for retail crypto investors to become validators on the PoS blockchain due to the need for a large number of tokens.

A staking pool acts as a tool that allows holders of multiple crypto tokens to contribute their tokens to the pool ‘operator’, who in turn is recognized by validator status on the underlying blockchain.

Available on many crypto platforms today, most crypto investors are suffering from a lack of awareness about the benefits offered by staking and its ability to earn income through passive investing.

Since the blockchain offers tokens to the pool operator in exchange for the total tokens lent, investors are eligible to earn rewards in proportion to their token contribution.

How to earn income by staking and avoiding common mistakes?

According to Staking Rewards, the leading data provider for staking and crypto-growth tools, today there are 205 yield-bearing digital assets with 232 trusted providers.

Investors would do well to choose notable crypto exchanges over private staking pools, even if the latter offers higher APY. Since staked tokens act as a guarantee for the blockchain, blocks formed from invalid or fraudulent transactions can result in the blockchain burning some or all of the staked tokens.

These risks morphed brutally with the Pancake Swap (Cake) token, which has lost over 90% of its value from its ATH in May 2021.

Offering users the option to stake CAKE on its platform, those who had invested their tokens in PancakeSwap’s staking or liquidity pool, their total invested capital would have decreased significantly over this period.

Once you decide to join a staking pool, the stacked crypto tokens are locked into a specific blockchain address belonging to the operator, resulting in the loss of direct control over the staked tokens.

It is recommended to opt for a staking pool that allows investors to maintain their holdings on a hardware wallet for greater security.

Given that validator rewards are distributed to investors after the platform fee is deducted, it is important for all such fees to arrive at the actual return that the token may generate.

Investors should opt for staking pools that are highly ranked and which provide regular updates about performance while maintaining transparency of operations.

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