June 28, 2022

Reflection Group

Business, BtoB, Health

Understanding Crypto Staking Risks and How to Address Them

The world of technology is evolving rather fast, and before you have exhausted looking at the features of current tech, a new one has already hit the market. It is critical to move at high speed because you cannot be left behind as others move on. One of the latest technologies is blockchain, and it has opened gateways to a whole list of new applications, from smart contracts to staking. In this post, we take a closer look at staking.

Staking is the process of locking your coins in a proof of stake (POS) blockchain to help with things such as processing transactions, governance, and network protection. In return, you get a reward calculated as a percentage of transaction fees charged on users.

So, should you start staking right away? It is true that staking your crypto coins is an awesome thing, but you also need to learn about the risks involved. So, here are the most common and how to avoid them.

The Risk of Crypto Coins’ Value Falling

Like other investments, from stocks to forex, there is none that does not come with the risk of value depreciation. When it comes to cryptocurrencies, the same risk looms. The coins can lose value because of the latest market dynamics, such as a downward price shift because of unsupportive policies.

For example, the price of most coins fell down when China banned any form of mining in the country. 

However, the impact on price does not just affect the price of the staked coins. Even if you had left the coins lying on the crypto wallet, they would still be impacted by negative price movement. Therefore, staking will be a better option than leaving the coins in your wallet because they will generate some returns. The returns on investment might even be ample to cover the loss caused by the downward shifting value.

NOTE: Do not let thoughts of the crypto losing value blur your vision for growth. The current indicators are that most proof of stake (POS) crypto coins are about to experience a huge price growth. Therefore, you better jump in and ride on the wave. One example of a coin predicted to experience price explosion is ETH because it is shifting from POW to POS consensus protocol.

The Danger of Losing Your Coins through Hacking

The danger of losing your coins always looms. Cases of hacks that result in people losing their coins are not uncommon, but the good thing is that they can be avoided.

Here, you only need to select staking platforms that come with top-notch security. Here are some tips to help you identify the most secure decentralized platform for crypto staking.

  •       It should have regular updates of the system, including the security protocol.
  •       The platform should be run by professionals in the crypto staking discipline.
  •       Select the platform that uses cold staking for top-notch security.

You Have to Share the Rewards

This is not really a risk but a disadvantage that you need to appreciate as a staker. Because your coins are pooled together on a platform like Mantra Dao with others to ensure the staking node has more opportunities to confirm transactions and forge new blocks, the rewards must be shared among contributors. Although some see this as a disadvantage, it is actually a good thing because the node is likely to forge more blocks and enjoy higher returns.

Indeed, you are likely to get more when working in a pool compared to staking a few coins alone.

As you can see, crypto staking is not risk-free, but the challenges can be addressed with ease. For example, most DeFi platforms have the best systems that help to keep your coins safe and optimize rewards. For example, Mantra Dao can help you address most of the risks and increase your passive income. Do not hold back: it is time to move ahead with cryptocurrencies and crypto staking.