There are many crypto Staking Misconceptions by many people who perhaps do not know what staking is in crypto, crypto staking risks and rewards, the best crypto staking coins, many other pertinent information about crypto staking.
Crypto staking is one of the recent introductions in blockchain technology which allows the participants to stake or fix their coins and earn passive income while waiting for the appreciation in the price of that particular crypto asset.
If you’re new to the cryptocurrency and the blockchain space, you may not be conversant with what is crypto staking and the risks and rewards that come with it which we’ll be dymistifying in this article.
In this article, we’d exhaustively discuss the common crypto staking misconceptions, what is staking in crypto, crypto staking risks and rewards, some of the best crypto staking coins, safest crypto staking exchanges, and many more.
What Is Staking In Crypto?
Bringing it back home, crypto staking is synonymous with having to put your money in a “Fixed Deposit Bank Account”.
Conventionally, the word “Staking” can be likened to placing a bet with a certain amount of money for an expected outcome.
However, in the blockchain ecosystem, crypto staking is simply a process that entails hodlers of a particular native asset or token to lock up their assets or coins in the network’s native smart contract for a fixed period of time who inturn get returns for their stake while waiting for the appreciation in the price of that particular asset, token, or coin.
More often than not, there’s a stipulated number of coins you’re required to have before you’re eligible to participate in staking that particular token, coin or asset.
To participate in staking, a hodler of that particular coin needs to hold coins in a decentralized wallet before entering them into the staking contract for a fixed period of his or her choice.
Those who participate in crypto staking are rewarded with a certain amount of that particular coin that they staked throughout the period of their contract.
Hence, crypto staking rewards present a win-win situation for the stakers of a particular coin as they earn passive income while waiting for the appreciation in the price of their asset.
However, there’re numerous crypto staking advantages and disadvantages due to the volatile nature of the cryptocurrency market.
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Common Crypto Staking Misconceptions
Here’re the most common crypto staking misconceptions by most people who’re not properly enlightened about how cryptocurrency staking works and the entire blockchain ecosystem.
- You Cannot Lose Money In Crypto Staking
- Crypto Staking Is The Only Way To Get Liquidity
- Different Uses, Same Name
- Staking rewards are certain.
- More funds are needed to stake.
- Staking is not environmentally friendly.
Misconception 1: You Cannot Lose Money In Crypto Staking
This is the genesis of cryptocurrency misconceptions that many people are guilty of.
Many people, especially those new to the blockchain and cryptocurrency ecosystem, think cryptocurrency staking is a safe haven against losing money in cryptocurrency.
Unarguably, many people still have the crude mentality that even when the value of the coin they’re holding is depreciating that they wouldn’t lose money so far as they have staked their assets forgetting the highly volatile nature of cryptocurrencies which means that you can loose always money irrespective of how safe you try to play.
Although, you would always be paid your reward for staking your coin throughout the period of your staking contract even if the price of the coin has depreciated but that doesn’t negate the fact that you will not lose money in staking.
There’re many ways through which you can lose money in staking such as by slashing a certain percentage of your stake if a validator fails to maintain network security or behaves dishonestly.
Secondly, cryptocurrency prices experience high volatility, and most proof-of-stake protocols do not allow immediate unstaking during this period.
Also, most cryptocurrencies crash in the long run if there’s no solid project and team backing the coin| token| asset, and in this situation, you would risk losing your entire portfolio including the coins you might have staked on that particular coin.
Misconception 2: Crypto Staking Is The Only Way To Get Liquidity
Crypto staking is not the only way for the token or coin to get liquidity.
Does staked crypto still increase in value? This is a common question among many people.
Cryptocurrency staking helps Poof-of-Stake networks to acquire staked capital which secures the network, but it’s not only limited to that.
Furthermore, crypto staking is also a way to get composability because you can use your derivative in various places, which isn’t obtainable with exchanges.
The synthetic derivatives that are issued as part of liquid staking and used in supported DeFi protocols for generating more yield actually help in constructing monetary building blocks in that crypto ecosystem entirely.
Misconception 3: Different Uses, Same Name
Over recent time, the term crypto staking has had different meanings.
For instance, you could stake DOGECOIN to earn rewards on Binance, stake BTC to become a validator on the Bitcoin network, and so on.
However, the major difference between the different types of staking depends on the nature of each protocol.
It is important to note that blockchain networks give rewards to its users to stake in order to secure the network and validate transactions and also at the same time issue rewards to those who help to validate news blocks.
On the flip side, DeFi protocols do not need to validate blocks but strive for liquidity and total-value-locked (TVL), so they encourage and reward liquidity staking.
Furthermore, centralized exchanges like Binance are profit-oriented and they achieve their aim through trading commissions and fees.
Misconception 4: All PoS Crypto Staking Are Equal
There’re disparities among the different PoS protocols.
Some protocols offer soft staking, where users do not necessarily need to lock their coins just to earn rewards.
Instead, the protocol distributes rewards to its active stakers in tandem with an estimated annual percentage yield.
On the other hand, some blockchain networks that use a Point-of-Staking protocol allow her validators to actively participate in the decision-making that helps to foster progress in the entire ecosystem.
Advantages Of Crypto Staking
Most people who are new to the cryptocurrency and blockchain ecosystem are eager to know how profitable crypto staking is.
Unarguably, the benefits and rewards of staking cryptocurrencies abound although that doesn’t guarantee that crypto staking is safe.
Below are some of the advantages of crypto staking.
a. Rewards
Those who stake their coins are rewarded throughout the period of their staking contract according to the quantity of the coin they staked irrespective of whether the value of the coin is appreciating or depreciating.
Furthermore, some staking programs reward their users with coins or tokens which they can use to unlock their staked principal or use in the DeFi ecosystem of that particular blockchain.
b. Governance
Most crypto staking programs allow their users to have a say in the decision-making of the project which is geared towards fostering the progress and massive adoption of the project and the entire ecosystem.
C. It’s A Good Way To Accumulate A Coin
Crypto staking is a good way to freely accumulate a coin hands-free which would in turn gradually boost your portfolio as you earn more rewards.
Disadvantages Of Crypto Staking
There’s always a downside to everything, especially in all leverage markets and cryptocurrency is not an exemption.
As we’ve discussed earlier, irrespective of how safe crypto staking looks, there’re still risks attached to it.
Here are some crypto-staking risks:
- High Volatility: The cryptocurrency market is highly volatile which results in the extreme fluctuation of the prices of these cryptocurrencies. This volatility hence poses a serious risk to crypto staking as the users stand a very high possibility of a potential drastic reduction in the value of their portfolio during the downside of the market irrespective of their earned rewards.
- In cases of delegated PoS systems, crypto stakers stand the risk of losing a portion of their tokens to slashing if their designated validator misbehaves.
- Staking and unstaking periods have the capacity to can cause liquidity problems for some users.
- In the case of centralized staking, not holding control over one’s coins.
- Users stand the risk of experiencing glitches which might result in the hacking of the exchange thus resulting in the total loss of their coins.
Summary
Some of the crypto staking misconceptions discussed above are common among those who are new to the cryptocurrency and blockchain space.
However, there’s no safest crypto staking platform as all platforms stand the risk of being hacked.
Crypto staking is safe is Binance, Okex, Bitget, or on any centralized or decentralized exchange of your choice so far as you understand the risks attached to crypto staking.
Also, there’re many advantages| rewards, and disadvantages| risks of cryptocurrency staking which we’ve discussed above.