Would you like to earn cryptocurrency with little effort? Passive income is quite possible, does not require special knowledge, and sometimes brings tangible income. We continue to reveal the meaning of terms related to cryptocurrencies, and today we will tell you what staking is, how to make money on staking, and what points you need to consider when choosing this method of generating passive income.

What is staking

The term is based on the name of one of the mining algorithms, Proof of Stake (PoS). The principle on which the PoS algorithm is built is to receive coins, not due to the possession of computing power (mining) but to deposit a certain amount of coins into the crypto wallet, and then store them.

It is alternative mining, without material costs for expensive equipment, its debugging and prevention. The coins are stored in your wallet, allowing you to earn passive income. The only thing you have to spend money on is buying coins.

What else you need to know about cryptocurrency staking:

• The amount of earnings on PoS mining is small, so it is important to keep a larger volume of virtual coins on the account to increase profits.
• There is no need to buy expensive equipment to generate income: an ordinary PC or laptop is enough. The system is concerned with the balance of the user’s wallet, not the computing power of his hardware.
• Many systems have a limit on the number of coins in the wallet.
• A member’s earnings depend on the age of the cryptocurrency. This term characterizes the period during which the coin is in the storage of the crypto network participant. As a rule, the coin must be kept in the wallet account for a month.
• A bonus is paid for each new block, subject to validation confirmation.
• The commission payment is fixed in most cases.

These features favorably distinguish cryptocurrency staking and make it a more attractive direction than PoW mining. It is due to the savings in equipment purchases. The saved money can always be used to replenish the wallet and purchase coins.

How to make money on cryptocurrency staking?

First, let’s see what types of staking exist.

There are two types of cryptocurrency staking

Solo

A member of the crypto network relies only on his strength and savings. He works alone.

In the pool

Several participants pool their capital to receive a reward. In the future, the prize is divided, taking into account the number of coins on the wallet of each of the participants. This method is suitable for beginners who have a small number of coins on their account (less than the established limit).

There are two strategies for making money on PoS mining:

Simple

The bottom line is buying a virtual coin on PoS (hybrid PoS-PoW options are allowed), storing the cryptocurrency in the wallet, and receiving new coins for mined blocks. The main condition is the presence of the selected coins in the listing of the exchange floor. The miner’s additional earnings consist of the sale of virtual money at a better price (after the value growth).

Complex 

A crypto network participant buys a cryptocurrency at PoS, which has not yet been listed on the exchange floor. The task is to purchase the maximum number of coins at the lowest cost in the hope of future growth in the rate. The disadvantage of this method is obvious – the chosen project may turn out to be a failure. The cryptocurrency will never rise in price and will collapse altogether. As a result, the investor loses his savings. This strategy is dangerous. It requires understanding the market and analyzing a new coin before buying.

The algorithm for making money on staking is as follows:

1. Choosing a PoS cryptocurrency for mining.
2. Installing a wallet for storing virtual coins.
3. We are waiting for the blocks to appear (it takes about a day).
4. We put the software client on the PC.
5. We launch the wallet.

These steps are enough to start PoS mining. The amount of earnings depends on several components – the exchange rate of the virtual coin and the current income. To increase profits, you can simultaneously buy several virtual coins on PoS.

Advantages and Disadvantages of Staking Cryptocurrencies

Knowing what cryptocurrency staking is, and understanding the essence and strategies of earning money, you can count on passive income without investing in the purchase of special equipment. Before making a final decision, it is important to weigh the pros and cons and to study the advantages and disadvantages of such earnings.

Pros

• High level of security. A PoS cryptocurrency is more resistant to 51% attacks because such actions do not make sense for an attacker. A person will suffer from his actions no less than other users.

• There is no need to build expensive GPU farms or purchase ASIK miners. The total cost of purchasing equipment for mining cryptocurrency on PoW can reach 7-8 thousand dollars. In the case of staking, this money can be used to purchase coins. We are talking about direct investment.

• Cryptocurrency staking is available to any user. You need to start a cryptocurrency wallet and buy coins. The specific skills required for PoW mining are not needed here.

• To generate income, you need to keep a virtual coin in your wallet for a certain time. Other actions may be required depending on the cryptocurrency.

Cons

• Many cryptocurrencies have restrictions on the number of coins in the wallet. In such cases, users are forced to join in pools with the subsequent division of earnings.

• There is a risk of centralization. It means a concentration of the bulk of virtual coins in the hands of large investors. This is especially true for cryptocurrencies that have recently emerged with a low price tag.

• The turnover of cryptocurrency on PoS decreases because users strive to keep coins in their accounts as long as possible in order to get the greatest profit.