Blockchain and cryptocurrency undeniably took the world by storm, offering innumerable beneficial innovations to its users. At the top of this list lies staking, a process that crypto owners can use to earn passive income by locking up their cash. It is pretty much like the traditional fixed-income assets operations —you lock up your digital assets to work for you.
However, while the staking process looks straightforward, it has a learning curve that can be overly complex for many beginners. This leaves them open to making mistakes that can result in disastrous consequences.
This article dives into the world of crypto staking, exploring the common mistakes you should never make.
What is Crypto Staking?
Staking is an innovative process that allows crypto-asset owners to participate in a blockchain network’s operation and security maintenance. These networks typically use a proof of stake (POS) or delegated proof of stake (DPoS) consensus mechanism like Ethereum, Solana, Cardano, etc.
The staking process involves locking up your tokens to become eligible to be chosen as validators to create new crypto blocks and verify transactions on the network. It is the alternative to the mining process of the proof-of-work network like Bitcoin.
The good thing about crypto staking is that participants will receive a percentage of staking rewards in return for helping the network run smoothly and securely. This is often in the form of newly minted cryptocurrencies. And the more tokens you stake, the greater the rewards.
Benefits of Crypto Staking
The most significant advantage of crypto staking is its ability to earn the participant passive income. From buying and holding assets to investing, participating in airdrops, and playing games like Ganesha spin game on crypto casinos, there are many ways to earn money in cryptocurrency. However, most of these involve active participation. On the other hand, earning rewards from crypto staking is completely automated. All you need to do is stake your token, and you will earn rewards passively without even paying attention. Also, staking is more accessible to crypto enthusiasts, and just about anyone can participate with the right platforms.
Besides the benefit to yourself, another advantage of cryptocurrency staking is that it helps secure the blockchain network, allowing it to run with no hitch. Also, the process is eco-friendly and more sustainable than the energy-intensive mining. So, it’s not just you who benefits—the environment does, too.
Common Crypto Staking Mistakes to Avoid
Although crypto staking sounds pretty simple, certain errors can reduce or even wipe out the rewards and staked assets. Here are some common mistakes you must always avoid.
Not Doing Your Due Diligence
One of the most common mistakes in staking is choosing the wrong asset. Like any other important decision, you must conduct thorough research and determine which asset is good to hold. Before staking, find out the blockchain’s purpose, roadmap, team, community, etc.
Overlooking Lockup Periods and Liquidity
A mistake many newbies often make when staking is overlooking the lockup period and getting stuck. Most staking mechanisms involve a lockup period, during which owners won’t be able to access, move, or sell the staked asset. Depending on the network and staking platform, this period can range from several days to a few months or even years.
So, don’t just get excited about those sweet APYs. Be sure to check the lockup period before staking to prevent any surprises.
Not understanding the Technical Requirements.
Another mistake you should avoid in crypto staking is believing it is a one-size-fits-all process. While the general concept is the same for all POS cryptocurrencies, the actual process often differs from one blockchain network to the other. For instance, the steps involved in staking or selecting a reputable validator may vary depending on the ecosystem.
As such, it’s essential to understand any technical requirement involved with any digital asset before proceeding to the staking process.
Choosing the Wrong Validator
Typically, you can’t stake on your own unless you have some high-level equipment. Thankfully, several exchanges and validators have risen as validators that let players stake their digital assets on their platforms. However, these are not all created equally; some are better than others. Your choice of validator matters a lot, as a bad one can result in disastrous consequences, such as losing a portion of your staked funds (slashing).
So, before you start staking with any platform, you must do your due diligence to determine if it is good and trustworthy.
Chasing Only High APYs
Another mistake you should avoid when staking cryptocurrency is picking staking pools and tokens solely based on how high the Annual Percentage Yield (APY) is. However, such high yields often come with higher risks of unstable tokenomics, unsustainable reward models, rug pulls, inflationary supply models, etc.
So, don’t fall for “too good to be true” returns in your decisions when staking. Instead, you should consider token stability, market liquidity, and other relevant factors when deciding which coin to stake. A consistent low-yield but solid project can easily outperform risky high-yield ventures in the long run.
Conclusion
Crypto staking has emerged as an excellent way for asset owners to passively earn some income while also doing their part to support blockchain networks. However, this has to be done correctly to achieve success. By avoiding the common pitfalls highlighted in this article, you can navigate the evolving decentralized world more effectively and maximize your returns.
That said, you should always note that crypto staking carries risks like any form of investment and does not guarantee profits. So, start small, always DYOR, and stay safe.
