Cryptocurrency has become more than just a speculative asset these days. Crypto is now used as a payment option, as a hedge asset, and even as an interest-producing financial instrument. Apart from trading and waiting for airdrops, one other money-making strategy with digital currencies is ‘staking.’
Staking is essentially part of a consensus mechanism for securing a crypto blockchain, although many people in the cryptocurrency space see staking as a way to earn additional cryptocurrencies. In this post, we will dwell mostly on offline staking. Before that, however, let’s take a simple definition of staking.
What is Staking?
Staking is actually the process of participating in the transaction validation of a blockchain network – usually Proof-of-Stake (PoS) – which also comes with a reward. So, these blockchains basically reward you for securing their network through the process of staking. Technically, it means giving your coins to finance the operation of a particular PoS blockchain network.
The ten largest cryptos PoS blockchains include:
- Polkadot (DOT)
- Cardano (ADA)
- Binance Coin (BNB)
- Stellar (XLM)
- Neo (NEO)
- Cosmos (ATOM)
- Dash (DASH)
- Solana (SOL)
- Elrond (EGLD)
- Kusama (KSM)
Staking can either be done online, over the internet connection, or offline – a relatively new concept. In cold or offline staking, cryptocurrency is held in offline wallets, also known as cold storage. The major difference between this and online staking is that you do not need to assign your crypto to a validator, which is like a party or entity. With this type of staking, you do not require an internet connection to access your wallet.
If you are new to cryptocurrencies or staking in particular, you might be confused about which of the staking options you should go for. Whether you should choose cold staking, or you choose the online staking option. Well, offline crypto staking may be a relatively new approach to staking, but it doesn’t have a number of benefits over its online option.
Why Offline Staking?
Firstly, offline staking is better for beginners as it is easier to understand and operate. With this kind of staking, you can easily stake your cryptocurrencies with little or no help, as some wallets offer a user-friendly interface for it. Hence, it can be understood by a beginner in a short while.
Some of these offline wallets include:
- Atomic Wallet
Another major advantage with offline staking is the fact that your cryptocurrencies are secured from hackers, just like storing them on cold wallets. Online staking usually takes place on crypto exchanges. If an exchange gets hacked, there are chances that the staked coins might be affected in the incident. So, if your crypto is part of a hack, there is no assurance you will get full compensation for it.
Additionally, offline staking saves you the stress of setting up your own node for staking, especially if you are not tech-savvy. Blockchain networks are a collection of nodes, and each node is run by a node operator. The crypto staked is given to a super staker, who ensures the running of the node or nodes.
Offline staking gives a lot of users the opportunity to stake crypto because it does not use up a lot of resources compared to other staking methods. Regular staking that runs on a full node consumes a generous amount of power and can be cumbersome. Due to this, only a few people can participate in it.
How Do You Earn Crypto With This Method?
In offline staking, you only need to keep your crypto in that particular wallet. Keeping it in this wallet ensures that your rewards keep adding up every day, according to the interest or APY (Annual Percentage Yield).
The APY assigned to your staking varies with different platforms but can be anywhere from 5-15% APY. However, one thing you should note is that you cannot move your crypto to another wallet. Doing this can mean that you have violated the staking rules and can end up robbing you of your staking rewards.
What wallets can I use?
You can choose from a variety of wallets to start your offline staking journey. Any wallet you select must support the wallet staking function to be effective. While Tezos is the oldest offline staking wallet, there are other wallets such as Qtum, Trust wallet, etc., aside from the ones listed above.
Qtum wallet is a relatively new offline wallet, and it’s aimed at encouraging more people to stake crypto. It also ensures that users are in full custody of their crypto.
Ledger is also a good wallet and a very popular one at that. Users can still have full control of their assets whilst staking the seven cryptocurrencies supported by Ledger. So you are not restricted by few choices. For you to use Ledger, however, you need to install the app and open a Ledger Live account. The staking begins when funds are moved to the Ledger Live account.
Trust Wallet is a wallet that is available for both Android and iOS. It allows you to stake XTZ, ATOM, VET, TRON, and ALGO, among other coins. Staking is done the same way as Ledger; you download the wallet and transfer the coins to the staking address.
Are there any disadvantages to offline staking?
Yes, there are disadvantages. As much as offline wallets do not use an internet connection, they are not ideal for regular transactions, which will affect frequent staking. To access them, you will need a backup key, which is usually a phrase of ten to twelve words. Once this key is lost, all the crypto in the wallet is gone!
If you are using a cold wallet, it’s advisable to make copies of your backup key and store it in multiple places.
Offline staking, or staking in general, is a great way to make profits from your cryptocurrencies lying dormant, especially when you don’t want to trade them on the market any time soon. Do not forget that cryptocurrency is a risky business, so staking comes with its own risks as well. Bear in mind that fluctuations in the crypto prices, as well as other factors, might not give you all your rewards.
However, it is still better than using DeFi apps or an online wallet to keep your crypto.
Source: A Concise Guide to Offline Staking