I've been trying lately to make posts regarding frequent questions I find on here. This post includes simplifying proof-of-stake What is proof-of-stake? ( also known as POS )
Why does it matter for the investment? Staking lets you earn cryptocurrency as a reward for using your existing holdings to vouch for blockchain network transactions. Staking is one way for crypto users to generate passive "income". In other words, you can get a +% reward over a specific time frame known as APR ( annualize reward rate ) But here comes the tricky part - you actually don't generate "passive income". This is a huge misunderstanding that makes the option sound great on paper, but doesn't promise actual returns. You get the crypto rewarded and not a direct +% of your initial investment. Therefore if the crypto went down since you originally bought & staked it, you might not even reach a breakeven point. Something to keep in mind. Additionally, it is very important to be fully aware of the inflation rate of the crypto. This is something I see a lot of people not knowing even tho it's very important during long bear markets. Simplified, the longer you hold an inflating crypto, the harder it will get for it to reach All-time-high again. This is why some offer really high staking rewards to fight back the yearly inflation. You do not want to miss out on this way to fight it back holding for the long term. Example: This token has a yearly inflation rate of ~7.57%. If you stake it you will receive 14.5% as reward therefore an adjusted reward of 6.93% Summarized: The longer you hold on an inflating token without taking advantage of the staking to fight back the inflation, the more you will lower your return of investment. ( ROI ) Lastly I want to mention that every proof-of-stake crypto is different. So I highly recommend doing your own research about all the numbers especially the lock-up period. There have been countless of cases where investors had their crypto stuck in a lock-up period while prices spiked or plunged and they weren't able to trade them. [link] [comments] |
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