What is cryptocurrency stacking in simple words
The term staking has English roots and in translation means “part of the profit” or “bet”. For a long time there have been cryptocurrencies on the market that allow you to organize passive income for yourself. Initially, this process was called mining. But as a result of the evolution of the process, the elimination of a number of shortcomings, stacking appeared.
The principle of operation
Staking is a simplified process of passive earnings, which has eliminated many negative aspects of mining. The principle of accumulation of a bank deposit is taken as a basis. Wallet owners open brokerage accounts on special exchanges. PoS coins are stored on them. The more tokens there are on them, the higher the final profit.
The benefits of such a solution have become so relevant that almost all major cryptocurrency exchanges have added stacking to their functionality.
Types of staking
The key classifier of staking is the shelf life of cryptocurrency funds on deposit. Experts distinguish three main types:
- Fixed. In this case, an agreement has been concluded between the exchange and the user during which the account will be frozen for interest accrual. The choice of the term directly depends on the desire of the crypto holder himself (it can be a week, a month, a quarter, a year). According to this decision, the highest percentages are provided. The profit is the maximum.
- Indefinite. In this case, the account holder has the opportunity to create a sell or withdrawal order at any time. Interest is accrued until such an order is created. They are credited to the account within a day after the order is created. And the withdrawal can take up to a month. This solution is suitable for those who want to constantly supervise their own accounts and need flexibility in their decisions.
- DeFiestaking. The sphere of decentralized finance. When choosing this option, asset allocation is allocated to specialized organizations – smart contacts. This option became widespread in 2021.
How to start making money on stacking
The algorithm for starting earnings on stacking is not complicated. It is important to follow three basic steps:
- Choose the most convenient cryptocurrency exchange.
- Select PoS coins that are available for stacking on the selected platform.
- Top up your wallet and start earning on staking.
Important! In all investment areas there is a risk of loss of invested funds. Therefore, it is impossible to invest borrowed funds to make a profit at the expense of a steak. The work should be carried out only with personal capital.
How is stacking different from mining
Some representatives of the crypto community call staking – “mining without hassle”. Mining is a reward for participants for supporting operations within the network using the Proof of Work (POW) protocol. The work of bitcoins was based on this principle. The support was due to the use of the production capacities of the users’ computers, which were called miners.
Mining has a number of disadvantages in comparison with stacking:
- the need to purchase additional equipment;
- pay additional energy bills;
- the need to use additional cooling systems for the video card;
- continuous supply of uninterruptible power supply is required.
In the presence of all these additional complications, the risk of financial collapse during mining is incomparably higher.
TOP 3 Crypto Exchanges for Stacking
The main exchanges on which they earn with the help of stacking include:
On the Binance exchange, staking has been applied since October 2019. Extensions are available in fixed staking and DeFi options. With a fixed option, freezing can be activated for a period of seven to 90 days. The percentage and profitability depend on the chosen currency. During the freezing period, all operations are impossible. In DeFi mode, smart contacts invest in the best projects on behalf of the user. The maximum level of security is achieved when performing these transactions.
Many components of the ecosystem of passive earnings on cryptocurrency are available on the Comex exchange. The minimum threshold is set at 70 PoS coins. After the tool is launched, the account holder is charged interest the very next day. Work via define is also available.
You can place 17 coins on Ku coin when choosing an indefinite staking and three for a fixed option. At the same time, all the main characteristics of the final earnings depend on the specific type of coin.
Risks of Cryptocurrency Stacking
The main risk of using cryptosystems is called a high volatility index. The value of the currency is constantly swinging in different directions, which leads to a complete imbalance in its application. It is almost impossible to predict the dynamics, since the currency is extremely dependent on external macroeconomic events.
There is a possibility that while the currency is frozen on the account, it will simply collapse in price. Stable coins were created as a safety net. They are much more expensive, but due to certain processes, their cost is artificially stabilized and protected from a sharp collapse. It is with them that the main prospects for the development of this system are connected.
Advantages and disadvantages
The main advantages and disadvantages are revealed when comparing the main characteristics of mining and stacking.
The advantages of stacking include:
- The minimum amount of effort to start earning and maintain income inflow.
- Reducing the level of expenses.
- No special knowledge and skills are required.
- Moderation of risk and profitability.
- Low threshold for participants.
- A variety of existing currencies and coins.
- Environmental friendliness.
- The exchange completely freezes the account. All operations for the selected period are closed.
- The complexity of forecasting the final income.
- There is a risk of income decentralization — that is, most of the funds will be accumulated by one platform.
Despite the disadvantages, the advantages of such a system of working with cryptocurrencies are obvious. The dynamics of the development of this direction and the current results of the work indicate long-term positive prospects.
Published: 4 August, 2021