There are a lot of earning opportunities in the crypto market. If you have been investing in cryptocurrencies, one thing to consider is staking your crypto, as this is a great way to claim rewards and earn passive income.
Many times, each project holds its own staking rewards and the benefits you get from staking into a coin can be different. To help investors understand what they can gain from claiming rewards, we dive into what proof of stake is and how staking rewards are determined.
How does Proof of Stake work?
Crypto staking is an easy way to make your cryptocurrencies work for you. By putting your coins into a staking pool, you will get rewarded for your contributions. This is how Proof of Stake (PoS) works.
Proof of Stake (PoS) is more affordable for new investors. Anyone can contribute his share or “stake” to a pool and get rewarded based on the amount of his stake. In PoS, investors need to lend their coins to developers.
Explaining a staking pool
When you start Polkadot staking, for example, your money is put somewhere else so blockchain project developers can use it. All investors are formed in a group where they become block validators.
The funds collected from these investors are put in a staking pool. Once the rewards are ready for distribution, they go to a pool operator, who then rewards investors based on the percentage of their stake.
What are staking rewards?
Staking rewards are what you get from staking cryptocurrencies. But, instead of obtaining rewards from an increase in coin price, you will get your profits through coins. If you’re staking Polkadot, for instance, you will get more Polkadot coins as your staking rewards. Usually, rewards are distributed after a locked-in period.
How are staking rewards determined?
Blockchain networks calculate their staking rewards differently. If you try to look at some staking coins list and your stake in each one, you will discover how they differ when distributing rewards.
Staking rewards are calculated based on the following:
- Number of coins staked by investors
- Locked-in period
- Total number of staked coins on the blockchain network
Aside from these things, some networks may use other factors to determine staking rewards. Some networks provide fixed percentages.
Factors affecting staking rewards
The first thing you have to understand in terms of staking rewards is the number of coins you staked. This is the first factor that will determine how many coins you will receive. The more coins you stake, the higher the rewards.
The number of rewards you will receive will also depend on how much is the overall stake. With your stake and the total number of coins invested by all investors, you will be able to determine the percentage of your stake.
The locked-in period is also something to consider. Different blockchain networks provide a different timeline. The longer the period, the higher the rewards. For example, if you wait for 24 months before you take out your investments and have a high percentage of stake, you will get higher rewards than other investors. Note, however, that you will not be able to withdraw your coins during the locked-in period. It would be best if you waited for the period to pass.
One factor that makes staking more rewarding than other exchanges is the service fees. The rewards you earn from your personal wallet are higher than the profits you get from trading platforms since they charge fees on each trade.
When you stake, the value of your coins is determined by the market price. This implies that you can’t avoid price volatility. What’s different in staking is that you will not have to play with prices in the meantime because what you are getting in return are coins. You can determine their value later on when you pull them out.
Its important to check the maintenance costs, operational costs, and commission fees charged by the network. This will affect your staking rewards. If these costs are high, they will reduce your staking rewards even before you get them.
Use a staking rewards calculator
Understanding staking rewards is the first step to maximize your profits from staking. If you don’t want to go through manually calculating your staking rewards, you can use a staking rewards calculator.
This tool will make it easier for you to estimate your earnings from staking. Platforms like RockX will allow users to calculate their staking rewards and give more insight into what coins are worth staking into.