Everything You Need To Know About Staking Crypto in 2020

The words “passive income” don’t exactly bring positive associations. One might imagine those annoying Instagram accounts with bios that read “Learn How To Make $4,000 A Week With My Exclusive Forex Trading Course” and are filled with pictures of random Lambos and Warren Buffet quotes. 90% of the time, you’d probably be right to think that. But there are a few ways to make a side-income with cryptocurrency, and one of those ways is staking crypto.

“Staking” is a way to earn interest with your crypto by helping validate transactions in a public blockchain, and it’s not new. Various iterations of it have been around since crypto’s beginnings. Think mining, but without all the equipment, high energy bills, gradually declining rewards, and of course, the ever-present risk of a 51% attack.

Staking crypto is sort of like investing your money with a bank. But there are obvious drawbacks to traditional bank investing, one being — you guessed it — centralization. Another is their insultingly low APY rates. Here are the interest rates of central US banks today:

• Bank of America (0.06% APY)
• BMO Harris Bank (0.05% APY)
• Chase Bank (0.01% APY)
• Marcus by Goldman Sachs (0.80% APY)
• PNC Bank (0.01% to 0.15% APY)
• Wells Fargo Bank (0.01% to 0.02% APY)

To give you some perspective, Swan offers up to 20% per annum when staking its tokens on our platform.

Staking is, by definition, the act of holding cryptocurrency in a wallet for the purpose of validating a transaction in a blockchain network that uses the Proof-of-Stake (PoS) consensus algorithm. As such, to better understand staking, it’s pertinent to understand what Proof-of-Stake (PoS) is.

What is Proof-of-Stake?

Blockchain uses what’s known as a consensus algorithm to validate transactions within the network. PoS is one of these consensus algorithms, and it’s a way that public blockchains can solidify trust without a third party. Most public blockchains, however, use a different consensus algorithm, called Proof-of-Work (PoW).

While PoW was the first consensus protocol ever used on a public blockchain and is still currently used on the bitcoin and ethereum blockchains, it has some limitations. Expensive equipment due to high processing power requirements, high energy costs, a greater likelihood for fraud — not to mention the inevitable decrease of mining rewards over time.

Some look at PoS as a rejoinder to the limitations of PoW. Of course, PoS isn’t perfect either. Others believe that it compromises too much to achieve consensus. It also requires a fair amount of energy consumption, albeit far less than PoW.

With PoS, consensus is achieved through the action of staking a token to validate a transaction. These “validators” are called foragers rather than miners and must meet two criteria.

1. They must own some stake in the network by depositing tokens into a sort of blockchain safe within it, which is usually locked for a given amount of time. This is to “vouch” for the transaction being validated. How much stake they have in the network also plays a role in who is chosen to validate.
2. The semi-random second element varies between blockchains but can include what’s called Coin Age Selection and the Randomized Blockchain Selection — focusing on either a user’s hash value and stake volume and the length at which a user has staked tokens.

It’s an answer to problems like high energy costs and consumption, and because a forager’s assets are on the line, there is less incentive to wage a cyberattack on the network. Mining pools — or miners that combine their resources (sometimes in datacenters) — could pose a threat to the decentralized nature of crypto. In fact, the top four miners in bitcoin and the top three miners in ethereum make up over 50% of the overall hash rate for those cryptocurrencies.

Because of this and more, LTC currently uses the PoS system, and Ethereum is in the process of switching from PoW to PoS.

How To Stake

Staking certainly takes the act of earning interest passively with crypto one step further, since stakers also earn compound interest on top of their initial stake.

What’s more, it’s not super complicated to set up. You’ll have to create an account with a wallet or platform whose blockchain uses PoW, like Swan Finance. Generally, though, you’ll need to stake in their native token to earn the highest amount of crypto and subsequent interest — with Swan you can earn 20% interest per annum!

After you’ve set up an account, there’ll be an option to transfer your funds into their wallet. Once you’ve done that, it’ll give you a choice to opt-in for staking.

Earn up to 20% interest by staking SWAN! Sign up to receive 50,000 SWAN pre-launch and a 25% bonus of SWAN tokens at launch! Limited supply! https://bit.ly/2TjCeRv

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Swan Finance is an exchange and a staking platform for lending and borrowing that utilizes Bitscanner to check for bugs and safeguard your crypto while you stake. Our trading bots can help you succeed in trades through a meticulous algorithm while our platform will provide users with the ability to make payments or transfer funds. Check out our project at swanfinance.io