Staking and Investing – It will benefit if you are educating on many information before starting using cryptocurrencies, like WAX to ETH exchange. However, it is worth knowing more things so that your experience is better to find some valuable information here.
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Table of Contents
What Is Staking Cryptocurrency?
The staking process means participating in the actual process of validating the transactions in the blockchain. There is a protocol that is using by the cryptocurrency to validate the transaction. Bitcoin uses the proof-of-work protocol. But sadly, that protocol has come across various problems and issues. It is due to which it cannot be considered the best protocol to be uses for transaction validation. As a result, a new protocol called proof-of-stake was developed.
The proof-of-work, the protocol used by Bitcoin, used miners to validate the transaction. A cryptographic puzzle is to be solve. Whoever validates a transaction after solving a puzzle gets the reward. But in the case of PoS staking, no miners are uses. Instead, in this protocol, the users lock their coins, or in other words, stake them. When they have close to a certain number of cash, the protocol randomly assigns the users, who are now call as forgers, to validate a transaction. In this process, the more coins you have, the better chance of validating a trade you get. Once the forger has validated a transaction, they will get some reward. The rewards would be calculating based on the number of stakes coins. It would also consider the inflation rate and the age of the funds that are stack.
Benefit of Staking Cryptocurrency
Another benefit of using the proof-of-stake protocol instead of the proof-of-work protocol is that the validation does not require higher computational power. It all depends on the number of coins you have stakes. This is also beneficial for the environment since less energy is spent, which causes less heat to be releasing. Proof-of-Stake has a higher level of security. If a forger tries to validate a fraudulent or illegal transaction, then a part of the coins that he has stake will be lost. So, in a way, you are risking your coins to validate a transaction to earn a reward. If you validate an illegal transaction, a part of the coins you have stack will be lost. Furthermore, staking coins is also safe because there is no trading involved; instead, there is only the process of keeping them in a wallet.
How Does Investing Differ from Staking?
Investing implies options you can go for to increase the amount you obtain. This activity aims to purchase cryptocurrencies and selling them at a higher price than what was initially paid. In this case, it is necessary to opt for assets, which increases over time. Staking is different because it implies holding money in a digital asset to support security. In other words, staking happens to be the act of locking coins to get rewards. In most cases, users are allowing to stake their assets directly from their wallets.
After reading this article, the difference between the process of investing and staking will be clear. Both options are profitable, but you should remember that it all depends on how much money you have. In staking, you will only get small interest every year, which is similar to traditional banks. Investing should provide much more profit very quickly, but it depends on the amount you are ready to invest. The good news is that you are free to utilize both options if you are eager to earn more.