Opinion

Earn Passively Through Staking – Staking Rewards

By the Lumos Labs team with inputs from Jun Soo Kim, Head of Operations and Strategy at stakefish

The boom of cryptocurrencies combined with the high level of internet penetration in India has led to a large number of traders trying their hands at this form of decentralized currency. This excitement about cryptocurrencies is reflected in values of up to $4.5M in trading volume from the top 4 exchanges in India alone as of March 2020. In just 9 months, this number has grown over 500% to a peak volume of $22.4M as of 16 Dec 2020.

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Although this reflects a growing interest among Indians to invest and trade in cryptocurrencies, there are still a significant number of Indians who are reluctant to actively participate in trading, citing reasons such as not understanding how crypto works or being wary of market volatility.

However, trading isn’t the only way you can earn money through crypto. In fact, most blockchain protocols provide ways to earn rewards through validating and staking!

What is validation? Why is it required?

Every time a transaction is made on the blockchain, it needs to be verified to ensure that the transaction hasn’t been double spent or, in other words, that it is indeed valid before it can be written to a block on the chain. 

Validator nodes are constantly listening for broadcasted updates regarding transactions happening on the blockchain, but due to time delays or differing time zones, two validators may choose the same transaction to write on the block, or may even attempt to act maliciously by attempting to spend the same coins more than once!

To avoid this, blockchains have some mechanisms in place to decide which validator gets to forge the next block. The two dominant mechanisms are Proof of Stake (PoS) and Proof of Work (PoW).

What is Staking?

Staking can be imagined as a lottery of sorts: If you have two validator nodes trying to forge a block with a few transactions each, they both stake a certain amount of crypto, which functions as a safety deposit (ensuring that validators can’t attack the network) while validators conduct the work to add blocks. One validator is chosen in a pseudo-random fashion, and they are granted access to write the block. Once the block is verified by the rest of the network and consensus is reached, the network moves on to the next block and the process repeats.

*In the PoW (Proof of Work) mechanism, validators must solve a cryptographic puzzle, and the first one to solve it gets to forge the next block.*

Earn Through Staking

Validators play a very important role in a blockchain network, and these nodes are the ones that allow the blockchain to function smoothly. In the case of most PoS projects, the state of staking on the network reflects its reliability. To incentivize validators on the networks, some protocols offer rewards for validating transactions. In addition to this, the validators also get to collect transaction fees for all the transactions they validate! 

In comparison to trading crypto, staking may be a safer bet, and although it may not be as rewarding as trading can be, it is a lot less risky, since all you need to do is satisfy the minimum required balance for staking on a particular protocol. There are also platforms that have made staking simple and relatively inexpensive. In addition, staking consumes less electricity and computing power than mining does, which makes it an attractive investment for those with simpler commercial equipment. 

Not only can you earn rewards and collect fees for validating transactions, but you’re also making the network a safer place to make transactions every time you validate and forge a block.

Getting Started with Staking

As a validator on a network, one of the most important roles is to help secure the network. A validator ensures that there is no double spending and that only valid transactions make it to the blockchain, and staking is a relatively simple way to participate in validation.

Through staking, not only can you actively participate in securing the network and earn rewards, but as a validator you are also a fundamental pillar in supporting a financial infrastructure that is completely decentralized. 

To get started with staking you can either try your hand at some publicly available testnets or sign up to stake using staking services  like stakefish, Certus.one, Stake.Capital, etc. and be on your way to earning rewards and collecting transaction fees!

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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