What is Staking?
Staking is a way to earn rewards on your crypto by participating in the validation process for a Proof-of-Stake network.
Simply put, you delegate your crypto assets into a staking pool, and the pool will use those coins to help validate transactions, earning a yield in the process. It's a bit like earning interest for holding a cryptocurrency.
How does staking work?
Most blockchains either follow a Proof-of-Work or a Proof-of-Stake consensus model to verify transactions and secure the network.
In Proof-of-Work blockchains such as Bitcoin, transactions are added to the blockchain by miners who expend energy to solve computational math puzzles. In Proof-of-Stake blockchains, transactions are added to the network by existing coin holders who have chosen to participate as a validator. In each case, participants earn a reward for validating transactions and keeping the network secure. This is also how new tokens are created in different blockchains.
Staking involves locking up your tokens for a finite period and contributing to a validator, and in exchange, you earn a yield that’s paid out every few days or every few weeks, depending on the asset.
How do I stake with Bitbuy?
Staking with Bitbuy is easy and safe. To stake, you need to create an account, either deposit or purchase a stakeable asset, and click through our Introduction to Staking informational flow.
Are there any risks with staking? Where does the yield come from?
Sometimes crypto enthusiasts and various platforms that provide opportunities for clients to earn yield on their crypto holdings conflate the concepts of staking and lending. While both concepts allow holders to potentially earn some yield or interest on their crypto holdings, crypto staking is considered to be much safer than crypto lending. Lending involves credit risks, and counterparty risks, as the yield is earned by charging interest to the lender, and relies on repayment of the initial loan amount to recover the principal amount. Staking rewards come directly from the network and are earned by validators for participating in activities that help secure the network and process transactions.
The biggest risk with staking is usually slashing, which means missed rewards as a result of infrastructure downtime or validator misbehaviour. To prevent slashing, Bitbuy has partnered with thoroughly vetted industry-leading infrastructure providers like Figment, and has designed our systems and processes to greatly reduce the likelihood of a slashing event. For more details on the specific risks of staking, please refer to the CCML Risk Statement.