Cryptocurrencies and blockchains are very large entities, consisting of very big parts that combine and create one massive system. With cryptocurrencies becoming more popular and blockchain technology developing at a rapid speed, more and more things are being added to this ecosystem and staking pools are one of the latest blockchain technologies that have risen in popularity over the last few years.
Staking pools are what help a large number of cryptocurrencies and blockchains to operate as they provide essential services for them. But what exactly are these staking pools and how can we take advantage of them? This is what we will be taking a look at today.
Before we discuss what staking pools are, we need to discuss what proof-of-stake is and why it is important for cryptocurrencies. Every cryptocurrency will use either an old proof-of-work protocol, that requires crypto miners, or it will use a newer proof-of-stake protocol that operates on staked cryptocurrencies. Because of the absence of miners, cryptocurrencies operating on proof-of-stake protocols are considered green as they don’t need electricity and don’t pollute the environment the way miners do. They are also much faster when making transactions and don’t require huge transaction fees, like the Forex market. Staking pools are what makes all of this possible, but what are they exactly?
Crypto Staking Pools
As we mentioned before, cryptocurrencies using proof-of-stake protocols need staked cryptocurrencies in order to operate, staking pools are what make everything possible. Whenever you are staking cryptocurrencies on a blockchain, these cryptocurrencies are put to work in order to complete transactions. But some cryptocurrencies require a set amount of tokens as a minimum amount for staking and for just one individual this might be too big of an amount. Because of this, people started creating staking pools where they combine their cryptocurrencies in order to stake them together and each staker receives a reward proportional to the number of tokens they have staked in the pool. It is also much easier to join a staking pool as you don’t need any technical knowledge of how the blockchain operates or how proof-of-stake protocols work. You can simply choose the pool you want to join and the number of tokens you wish to stake.
Benefits of crypto staking pools
There are many benefits associated with the crypto staking pools, and there are benefits for both users and the blockchain itself. When it comes to people who stake cryptocurrencies the benefits they receive come in the form of rewards given out by the blockchain. Since these staked tokens are used for completing transactions and the blockchain can not operate without them, it rewards those that contribute with some cryptocurrency. If you are someone who is a long-term investor, staking your crypto can be a good decision. But keep in mind that some platforms require you to wait a certain amount of time before you can gain access to your staked tokens again, and if the price of crypto starts falling, you might be unable to sell it in order to avoid suffering losses.
When it comes to blockchain, proof-of-stake is considered to be the future. Compared to proof-of-work, proof-of-stake requires much less electricity and causes less harm to the environment. This absence of electricity dependence also makes transactions of cryptocurrencies using proof-of-stake very cheap. A good example of it is Solana which has a fixed transaction cost of 0.000005 SOL, which is less than a cent. Proof-of-stake is also very fast compared to proof-of-work protocols. For example, when transferring Solana, you might need to wait a few minutes before the transaction goes through, but when making Bitcoin transactions it can take a few hours.
FAQs on crypto staking pools
Can you lose crypto by staking?
When staking cryptocurrencies it is impossible to actually lose tokens you have staked. When using staking pools to stake cryptocurrencies, you simply add your tokens to one pool but still retain the rights to these tokens and no one can take them away from you. The only challenge you might face is that you might be unable to unstake your cryptocurrencies whenever you want as most pools have a minimum amount of time you can stake and you can not take out your tokens until this time has passed.
As such, the only loss you can suffer when staking crypto is if the price of crypto drops and you are unable to unstake in order to sell your crypto. It is also important to check that you are dealing with a legit staking pool, as there are many people trying to scam others out of their crypto.
Can I create my own staking pool?
Of course, you can create your own staking pool as every staking pool is owned and operated by someone. But in order to do so, you will need to have a decent knowledge of blockchain technology and will need to learn how the blockchain you want to create a staking pool on works. It is a hard task to take up, as you will be responsible for the pool being operational and if something goes wrong, your pool will be shut down. For simplicity, there are services that make this staking pool creation easier, but you lose some level of control when using these services.