How does Crypto Staking work and why should you do it?
Crypto staking is a process in which a cryptocurrency holder can earn additional tokens by holding and supporting the network of a particular cryptocurrency. This process is also known as “proof of stake” (PoS). It represents an alternative to the more well-known “proof of work” (PoW) consensus algorithm. PoW is used by many cryptocurrencies, such as Bitcoin.
Crypto Staking follows the “proof of stake” principle
In proof of work, miners compete to solve complex mathematical puzzles in order to validate transactions and add new blocks to the blockchain. The miner that successfully solves the puzzle is rewarded with a certain amount of the cryptocurrency. This process requires a significant amount of computational power and electricity. This process can be expensive for the miners. In addition, it is considered harmful to the environment.
In contrast, proof of stake does not require miners to solve complex puzzles in order to validate transactions. Instead, the process relies on cryptocurrency holders who stake their tokens in order to support the network. These holders are known as “validators”. They are responsible for verifying transactions and adding new blocks to the blockchain.
How does it work?
To participate in staking, a cryptocurrency holder must first choose a cryptocurrency that uses a proof of stake consensus algorithm. He or she has to hold a certain amount of tokens in a wallet that is specifically designed for staking. The exact amount of tokens required to participate can vary depending on the specific cryptocurrency and its network rules.
Once the required amount of tokens has been staked, the validator can then begin participating in the process of verifying transactions and adding new blocks to the blockchain. In return for their participation and support of the network, the validator is rewarded with additional tokens.
There are also forms of PoS where no new tokens are mined. Here, the support of the project is the most important factor. Usually, a reward is granted for this in the form of additional tokens.
Advantages and possible risks
Technical and financial chances and advantages
There are several advantages to proof of stake over proof of work. One of the main advantages is that it is more energy efficient. It does not require the use of expensive and energy-intensive computational power. This makes it a more environmentally friendly option for supporting the network of a cryptocurrency.
Another advantage is that proof of stake allows for more decentralized decision-making within the network. In proof of work, the miner who solves the puzzle first gets to decide which transactions to include in the next block, giving them some control over the direction of the network. In PoS, validators are chosen to create new blocks based on the amount of tokens they have staked, rather than the amount of computational power they have. This means that the network is more evenly distributed and less centralized.
Another advantage is that Staking Rewards are often paid out. This gives you another financial advantage and can be seen as passive income.
Risks to consider
There are also some potential drawbacks to proof of stake. One concern is that it can potentially create a system in which the wealthiest holders have the most influence over the network. They could be able to stake larger amounts of tokens and thus have a greater chance of being selected as a validator. This can lead to centralization and potentially create an unequal distribution of power within the network.
Another potential drawback is these systems can be vulnerable to attacks known as “nothing at stake” attacks, in which a validator can simultaneously support multiple conflicting versions of the blockchain, potentially leading to a split in the network.
How Crypto Staking works at BeFaster.fit
The company BeFaster.fit offers in its decentralised BeFaster.fit Protocol a staking pool for BFHT Holder. BFHT is a cryptocurrency of the company and is handled as the investors token. Here, BFHT holders can stake their BFHT for different periods of time and receive rewards for doing so. The rewards and interest rates are based on the duration of the period and range from 0.5% APY for 14 days to 10% APY for 2 years.
In addition, the staked assets participate in the staking pool which is fed with 50% of the apps revenue. The distribution is daily and smart contract based. The more BFHT participate in the pool the higher your personal distribution.
Overall, this ecological solution represents a promising alternative to proof of work for supporting the network of a cryptocurrency. While there are some potential drawbacks to consider, it offers a more energy-efficient and potentially more decentralized approach to decision-making within the network. As the use of cryptocurrencies continues to grow and evolve, it is likely that we will see more and more cryptocurrencies adopt proof of stake as a means of supporting their networks.
Depending on the project and company, you can even get a passive income and rewards. Here, every crypto holder must inform himself well about the project and study the exact conditions.
If you want to learn more about the BFHT and generate passive income haga clic aquí.