“Investing in Cryptocurrencies is considered extremely risky as the market is highly volatile and the price can jump or fall drastically in a very short period of time. Thus, there is an alternative investment strategy that can prove to be a better choice while investing in cryptocurrencies.”
What is Staking?
With the advent of the Proof-of-Stake consensus mechanism, the rewarding of the validators in a blockchain has been transformed. As in the case of Bitcoin which uses Proof-of-Work, the miners are responsible for validating the transactions on the blockchain and are rewarded for their work in terms of BTC. The power required to mine Bitcoin is extremely high and expensive making it non-eco-friendly and less efficient. In the proof of staking, for validating transactions you need to stake the native currency on a staking pool to get rewards for staking. This helps in growing one’s crypto assets with time apart from the value appreciation of the crypto asset.
Why is it better than Trading?
As an investment strategy, staking is better when compared to traditional trading in which you buy and hold for the long term. The following are the facts that make staking better:
For staking a cryptocurrency, the investor gets rewards which are around 3-5% annual interest. This helps in growing the crypto assets without doing anything or without paying any fees. In case of buying and holding the cryptocurrency, the only way is to earn if the value of the asset increases but in case of staking a periodic growth in assets is accompanied with the appreciation in price of the asset.
Prevents Panic Selling
If you keep your crypto assets on an exchange or in a wallet, there is a chance that you actively trade and lose in the process or you panic sell the crypto during a volatile market scenario. If you have staked your crypto assets in a staking pool it will help you in controlling your emotions and thus prevent you from selling in panic.
Provides Stability and Security to the Currency
The more investors stake in a cryptocurrency the more stable and secure it becomes. As proof-of-stake consensus mechanism requires staking of the cryptocurrency for validation of the transactions, more staking means more number of nodes available for validation which means that it will make the cryptocurrency secure and highly stable, thus having positive impact on its price which will be a good thing in the long term for an investor.
Has better Security than an Exchange
As, during staking, the crypto assets never leave your wallet, it is more secure than keeping your crypto assets on an exchange that has hot wallets connected to the internet making them more vulnerable to the cyber attacks.
As Staking provides better security and regular rewards, it is a better option for an investor while investing in cryptocurrency rather than buying and keeping the crypto in a wallet or in an exchange. Thus, you as an investor must explore the option of staking to diversify your investment strategy.
Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investment.
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