Cryptocurrency staking: Earning passive income through validation

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Staking cryptocurrencies is one of the guranteed way by which we earn passively in this space and often involves a very easy process, as this passive earnings is actually the way the network rewards users who willing lock up a fair share of their asset all to support the network and thus they are able to earn passively this is because when users actually stake they are able to partake in the network validation and help to secure the network which thus makes the network to reward them for their part. Now I will be breaking down the elements or steps of this staking through validation in a very easy peasy way.

Key elements involved in cryptocurrencies staking through validation

Well one of the key steps here is knowing the cryptocurrencies to choose as this process of staking and validation is often most common in certain cryptocurrencies that uses unique consensus mechanism, and this includes the Pos(proof-of-stake) consensus mechanism or the Dpos (delegated proof of stake) consensus mechanism.

Choosing crypto asset that uses this mechanism is one sure way to start and some of this cryptocurrencies could be polkadot or Tezos and also possibly the eth 2.0, so when we select cryptocurrencies that are either product of proof of stake or delegated proof of stake, that's a sure way to start or begin the process of staking through validation.

Now after we must have choosen our choiced crypto asset from only this unique consensus mechanism that is then be it polkadot or cardano let's say then we ought to also buy or purchase this asset we are intending to use ofcourse we can't stake what isn't ours, so we have to buy this asset in the first place to begin with, after we must have purchased it then that leaves looking for a suitable wallet. Depending on the cryptocurrencies token we intend to use for the staking that will largely depend on the wallet we use so we have ensure that our choice of wallet are compatible with the said cryptocurrency.

Then comes the crucial part or the main part, this is where we actually get to participate in the network, after choosing a proof-of-stake or delegated proof-of-stake project and making wise choice of the wallet it's now time to take participate in the network that is by choosing the amount of the projects token we wish to lock up and when we hear staking in cryptocurrencies that's actually what it's all about, choosing to lock up a certain amount of cryptocurrencies asset in a wallet so as to be able to support the operation of that particular network. That's one of the honorable thing one who believes in a project or a network firm believer can do to help boost the networks operation.

Then comes the validation or delegations stage, yes now this part is after we must have staked a certain amount of the projects token then we can participate in this important stage for the network, in an event that the project is using the delegated proof of stake consensus mechanism this means that what we can do here is delegation as the name implies, yes we can after staking up this tokens then delegate them to a validator in the network, when transactions are initiated in a blockchain before it's allowed to go through it's the main duty of this networks validators to verify and confirm this transactions. Then if the project is operating on a proof of stake then after staking effort we are given a wonderful opportunity to act as the validators ourselves, yes in a proof of stake consensus mechanism it's the majority stake holders that take part in validating the transactions in the blockchain and they don't have to delegate their stakes to any validator whatsoever since the do the work themselves, you stake you validate.

These are the key steps involved in staking and validation in a network, but then what's the risk and reward of this whole process, well let's find out.

Risk/Reward involved in this process

Ofcourse when we stake we show we trust the network and we support the operations of the network and the network in turn reward us, yes by staking we are automatically in pole position to receive handsome reward from the network, and in what forms is this reward given? They arw often distributed by the network from time to time based on a particular format to its stakeholders and validators and ofcourse this rewards are always in the form of crypto tokens, so yes there is a reward for staking, I mean it's only right that the network rewards it users who have supported them, so apart from the fact they take part in the network validation they also receive payments in the form of cryptocurrencies token.

Well one of the major risk associated with staking is mostly the nature of the cryptocurrencies market, the market is a highly volatile one this means that often the value of the asset we stake maybe slashed or depreciated because of a negative movement in market price so the extreme volatile nature of the cryptocurrencies market is one such risk associated with staking of cryptocurrencies as the value of our staked tokens may no longer be what it was when we staked it, though this might work both ways in event of the market appreciating rapidly too it could work out for our own benefit. Also if we willfully violate rules involved in this process we might also see the value of our token halved as punishment, so these are the possible risks involved.

Conclusion

Ofcourse staking is so wonderful, yes ofcourse there is rewards and risk just like I have mentioned but then the risk actually is manageable I believe but still exist, that's why I believe if we want to stake then we must be ready to take responsibility and be prepared for every eventuality and if we must then it must be to a project we firmly believe in so that we won't panic in every little price fluctuations.