While most cryptocurrencies might be trading below their all-time highs at the moment, crypto staking has become an easy and simple way to earn money. Why wouldn’t it be? Staking has the potential to deliver up to 100% rewards to crypto owners.
This is why more and more crypto owners are considering staking as the best way to make passive income in the crypto market.
So why are we talking about crypto staking misconceptions?
The misconception isn’t that crypto staking can make money. The misconception is that people believe that’s the only reason why people stake crypto.
Let’s break down all the crypto staking misconceptions.
Image via Wizardia
Crypto Staking Misconception #1 – Higher Yield Results in Better Rewards
One of the most widespread crypto staking misconceptions among investors is that they believe that higher yield means better rewards.
With this theory, if you stake $1,000 worth of crypto at 30% APY, you should have $1,300 at the end of the first year, and by the second year, your total capital should be worth more than that.
However, it’s not necessarily true.
Here is why this is one of the common crypto staking misconceptions.
The Truth – Inflation is the Key Parameter Behind Staking Returns
The rewards aren’t only influenced by the APY, but the rate of inflation and price fluctuation also play a significant role.
For example, let’s take two staking options. Option 1 gives 30% APY with a 25% inflation rate whereas Option 2 gives 5% APY with 0% inflation.
Which one would you pick?
Here is the catch. Option 1 with 25% inflation would have a return percentage of 4% (calculated with inflation-adjusted return formula), whereas option 2 will have a 5% return since the inflation is 0%.
After breaking the myth, option 2 seems more profitable.
Crypto Staking Misconception #2 – Staking is for Rewards
One of the other crypto staking misconceptions is to think it is only for rewards. Staking has widely been portrayed as a crypto version of a savings bank account where crypto owners would park their money and earn rewards.
Although there are projects and staking startups that don’t require crypto owners to do anything but accept rewards, this approach to staking is fundamentally unsustainable. It can get the crypto platform into trouble which affects the crypto owners themselves.
Staking projects often claim that they’re not in control, but the truth is these systems are very complicated and have non-binding voting, which discourages voter participation and ultimately leads to voter apathy.
The Truth – Staking is to Gain Participation and Power
Several staking projects like Dash, PIVX, and Decred are paving the crypto owner’s way in governance, where the participants can contribute to project-level decisions.
For example, Decred’s participatory voting feature for staking allows crypto owners to vote on every level of project decisions – including protocol decisions like hiring a new PR firm.
Staking has a spectrum of opportunities beyond just earning rewards. For example, it can contribute to the security and authenticity of a blockchain to ensure its success. Although Proof of Stake doesn’t necessarily mean governance, its reward mechanism can boost participation when combined with governance.
What more?
With the right reward mechanism, staking not only earns crypto for owners but also gives them input on the project’s future direction.
This is way different to what we typically understand considering the common crypto staking misconceptions in the market.
Crypto owners have too much at stake. If they vote against the project’s interest, they can bring the project down while they’ll still earn their rewards.
Moreover, the crypto goes through a lock-up period when staking for voting. Only after voting can the owners get their coins back along with the staking reward.
Get Started With Crypto Staking
Long-standing crypto staking misconceptions have focused crypto owners on rewards and not much else. But to simply receive rewards for staking sets up a dark future for crypto platforms. Crypto owners should understand the responsibility that comes along with staking their crypto.
Now that you know the common crypto staking misconceptions, you can get started with staking your crypto for the right reasons.