Passive income, staking and the hope to moon. How staking crypto could help you get past the bear.
Smart investors are always looking for ways to mitigate the risks of their investments, and crypto is a high-risk market that seems to take a tumble every other week. After the violent price swings of the last few years, what’s a smart investor to do?
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Many traditional investment options offer attractive forms of passive income designed to encourage confidence in investors for times when the market is less than ideal. Crypto-savvy investors have turned to “staking” as a method of ‘playing it safe’ in their own market.
Most cryptocurrencies today are trading 60 – 90% below their ATHs, but these investors have figured out quite a lucrative safety net that can generate returns of as much as 200% depending on the coins being staked and the amount held. Not surprisingly, it’s touted as the best way to make passive returns in a bear market.
Strong interest in staking is perhaps best revealed by following the money. In January 2019, Staked raised $4.5 million from institutional investors that include Pantera Capital, Coinbase Ventures and Winklevoss Capital, while Anchorage launched in the same month after an even larger funding round of $17 million, led by venture fund Andreessen Horowitz.
So, if you are interested in more than just holding bags and would rather see your investments grow, keep reading.
What Is Staking?
Staking is the process by which an investor commits their tokens to the service of a blockchain in exchange for rewards in the form of new tokens.
Staking rewards are a byproduct of a consensus algorithm used in certain cryptocurrencies called proof-of-stake (PoS), first introduced by Sunny King and Scott Nadal in a 2012 whitepaper for Peercoin (PPC). Since then, hundreds of cryptocurrencies have adopted this consensus mechanism as their own and empowered coin holders in bear markets times over.
Advantages To Staking
Instead of miners, the security of a proof-of-stake blockchain lies in something much simpler – the tokens you hold. This means you save a lot of money on expensive and energy-consuming hardware.
There are also very few barriers to entry with staking. Theoretically, anyone who owns tokens has the ability to process transactions on a blockchain. So, you not only get to be a holder, but also a ‘miner’ and get rewarded as such.
This makes proof-of-stake tokens a cost-effective way to maximize your initial investment.
Such accessibility also makes proof-of-stake a safer consensus algorithm for cryptocurrency, because it reduces the chances of a powerful few from gathering undue influence over the blockchain – all of which benefits investors in return.
“I am seriously looking forward to when the cryptocurrency community basically passes away with proof-of-work.”
Ethereum is set to migrate to proof-of-stake as part of the Serenity network update expected for the end of 2019.
Nevertheless, staking doesn’t benefit you only with rewards, it can also give you decision-making power on a project’s future direction through voting rights. This is good news, since you have skin in the game.
In the big picture, voting empowers proof-of-stake systems to potentially turn representative democracy into direct governance, but let’s talk about this world changing potential in a future article.
How To Get Started With Staking
When investing in staking coins it’s important to take into account certain variables. The more coins you stake, the more profit you make. Similarly, the longer you stake, the more profit you make. You also need to understand the tokenomics (token economics) of the projects you’re considering.
There are certain characteristics that stand out in the best of proof-of-stake tokens. Look for coins that have the following:
● Reasonable inflation from staking rewards (1–8%)
● Reasonable maximum supply
● Reasonable rate of supply burning
● Reasonable market cap and daily trading volume
Next, you need to decide on the level of involvement you want to have.
Regular staking is truly passive in income, but you accept a smaller return. Typically, all you need is to download a wallet on a secure device and start, even if you have just a single token.
Masternode staking, on the other hand, requires more maintenance and time setting up, but you receive a higher return for your efforts. Masternodes typically have a higher minimum token requirement. Also, if you decide to stop, you need to wait a few days before your tokens are released from service, a drawback if you want to take advantage of trading opportunities on short notice.
Next, you need to decide your level of investment.
If you identify as one of the key types of investors below, I included a bonus for you suggesting a crypto to consider as your starting point.
“I made my riches and I want something with a proven track record”
DASH has been around since the early days of cryptocurrency and is the leading staking token. It’s established and reliable, with good tokenomics and a loyal user base.
DASH is a masternode only project. Even in the current market, rewards from a single DASH masternode reach over $1000 a month. However, choose DASH if you already made your riches and want a proven track record, because setting up a DASH masternode requires 1000 tokens. At current prices, this equals an up-front investment of $200,000.
“I have ‘cash to splash’ and I’m willing to take a chance on a rising star”
Energi is a cryptocurrency designed by investors for investors. Its aim is to overtake Ethereum as the leading smart contract and payments settlement blockchain. Their rewards model is one of the best in the market, accounting highly for their rise to popularity.
Energi offers both regular staking and masternode staking. At current prices, setting up a masternode requires an up-front payment of $30,000. So, choose Energi, if you have cash to splash and you’re looking for a rising star.
“My funds are tight and I’m looking for a hidden gem”
Enecuum is a true hidden gem right now. They’re a smart contract platform that leverages mobile phones, seeking to ultimately transform into a peer-to-peer powered supercomputer network.
Staking is done through a dedicated android mobile app and it’s available for regular staking only. Their minimum investment is only 25 ENQ, meaning investors can get involved at whatever level fitting their budget. If you stake at the wallet’s maximum capacity of 25,000 tokens, you’d be making around $100 a month at current trading prices. Not bad.
Remember that the more people that decide to stake Enecuum, the larger the upward pressure on the price of the token. This is because staking locks the coins out of circulation and, as per the principles of supply and demand, when demand increases but scarcity follows, prices will rise.
So, choose Enecuum if your funds are tight and you’re looking for a hidden gem. Heck, choose Enecuum regardless of your budget.
Enecuum is available on KuCoin exchange.
“I love the idea of making passive income with crypto, but I can’t be bothered to set it up.“
I hear ya. Time is money, after all.
‘Staking pools’ are an option for those that don’t want to spend time figuring it out at all. They take away the hassle by taking care of all the technicals and guaranteeing that servers are always up and running. Also, pools grab a higher percentage of staking rewards due to their size.
Of course, you’re giving away control over your tokens to another entity. So, if you decide to go down this road, make sure you trust them.
For security reasons, I consider established exchanges as the safest option. KuCoin has its own soft staking program, giving all traders the opportunity to reap the most staking rewards collectively.
Staking on an exchange has other important benefits to it too, such as the opportunity to quickly react to market changes right on the platform.
The next step is to start staking. Your tokens need to be placed in a wallet and run on a device that is connected to the blockchain, and therefore the Internet, at all times. To protect your wallet from hackers, it’s suggested you use a device you don’t typically use in your daily life.
Alternatively, you can also choose to run a Virtual Private Server, which is a service you buy to run your staking wallet(s) on the cloud. This is also the preferred choice for those that choose to go the masternode path.
You might also come across certain proof-of-stake tokens that let you stake by holding the cryptocurrencies in a simple dedicated wallet and that’s it. Some also offer cold storage staking, so that your investment is completely secure from hacking.
All in all, the way to stake is slightly different for each token. But there are many resources and guides available online by people who have already done it. Check out these resources for further information:
● POS List
After the volatility of the last few years, many investors are now becoming content with earning ‘interest’ on their bags through staking. While traditional investment markets seek to help struggling investors with passive income when times are hard, staking may potentially offer wild returns that are just as bullish.
I hope this guide has given you an insight into what staking is and how to get started. Now go forth and prosper!
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