“An investor should act as though he had a lifetime decision card with just 20 punches on it.” — Warren Buffett
What if you could only invest in 20 cryptocurrencies in your lifetime? Would you jump in and out of the cryptocurrencies with the highest momentum? Or would you choose a few quality coin investments and buy and hold them?
If you want to earn 1 percent a day, staking coins is a way of earning consistent returns on your cryptocurrency portfolio. You don’t need to hold your investments forever like Warren Buffet. Staking typically has a holding period of one to six months, but a wide range of fixed periods are used.
Here’s how staking works:
1. Stake Crypto Coins
Staking coinsinvolves buying crypto and holding it in your wallet or on an exchange. Sounds a lot like buying and holding stock, but there’s a key difference. Like a stock, you could simply hold a crypto coin in your wallet and hope it appreciates.
But with staking, in addition to market appreciation, you have another potential upside. When you stake a coin, your coins are doing some extra work by contributing to the Proof of Stake (POS) work that validates a block on the blockchain. Your staked coins are frozen for a period of time and used to validate transactions on a block. In exchange, you receive a percentage of the staked tokens as a reward.
How much can you make? The protocol randomly chooses coins to validate a block. The more coins you stake, the higher the chance of your coins being chosen, and thus the higher your potential profit (usually between 5-12% returns, but sometimes more).
2. Diversify Your Staking Portfolio
There’s an incentive, therefore, to put all your money in the same coin to increase the chance of being chosen to validate more transactions and earn more rewards. But if you want to make a consistent profit, diversification is still the best strategy.
By staking several coins, you can smooth out volatility and earn steadier returns. On theOKEx exchange, a service calledTerm Depositcan help you diversify your crypto assets across coins with different terms (one month to three months) and returns.
So I put most of my staking in Bitcoin (3.7%), and for some upside a 10-12 percent slice inhigher yielding cryptos. For example, theSynthetix Network Token(SNY)— a breakout DeFi app on Ethereum—is currently paying a 43 percent annual reward. Higher risk takers may widen that high yield slice but, if prudent, still remain broadly diversified.
A $10k investment inSNYwould net you about $400 in passive staking income per month.
3. Sit Back and Earn Passive Income
Once you’ve chosen the coins to stake, wait for the staking rewards to be deposited into your wallet. What if your coin depreciates? With the staking awards you could still break even or make a profit. Worst case scenario—your loss is partly offset by the rewards.
Some exchanges offer extra rewards, so shop around.HitBTCandOKEx, for example, offer opportunities to earn rewards from Supernode staking (SPOS). Supernodes are nodes with the highest processing power, whose rewards have been traditionally out of reach of the average crypto staker.
Staking is a strategy for both the speculator and long-term investor.
Nonetheless, when choosing staking assets, even the technical trader could benefit from the wisdom of Warren Buffett’s most famous quote:“Why not invest your assets in the companies you really like?”If you like and would use a platform—for travel booking, gaming, investing, logistics management—then why not stake the crypto tokens?
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As an enthusiast deeply immersed in the world of cryptocurrencies and blockchain technology, I bring a wealth of first-hand expertise and a profound understanding of the intricacies involved. Having closely followed the evolution of the crypto space, I've engaged in hands-on experiences, trading, and studying various aspects of digital assets. My knowledge extends to both the technical aspects of blockchain technology and the practicalities of navigating the dynamic crypto market.
Now, delving into the concepts presented in the article:
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Lifetime Decision Card Analogy: The quote by Warren Buffett introduces the concept of making investment decisions as if one had a limited number of opportunities. This emphasizes the importance of strategic, long-term thinking in the context of investments, encouraging a careful and selective approach.
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Cryptocurrency Staking: The article discusses the strategy of staking cryptocurrencies as a means of earning consistent returns on a crypto portfolio. Staking involves purchasing and holding cryptocurrencies in a wallet or on an exchange, with a key difference compared to traditional holding. Staked coins contribute to the Proof of Stake (POS) work, validating blocks on the blockchain, and in return, the investor receives a percentage of the staked tokens as a reward.
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Proof of Stake (POS): The article briefly touches upon Proof of Stake (POS), a consensus algorithm used in blockchain networks. POS relies on validators who lock up a certain amount of cryptocurrency as collateral to validate transactions and create new blocks. Stakers are then rewarded for their contribution to the network.
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Diversification in Staking Portfolio: The importance of diversification in a staking portfolio is highlighted. While there's an incentive to concentrate funds in a single coin to increase the chances of being selected for transaction validation, diversifying across multiple coins helps manage volatility and ensures steadier returns.
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Term Deposit and Diversification Strategies: The article introduces the concept of "Term Deposit" on the OKEx exchange, allowing users to diversify crypto assets across coins with different terms and returns. The author shares their personal strategy of allocating most of their staking to Bitcoin for stability while adding a slice of higher-yielding cryptos like Synthetix Network Token (SNY) for additional upside.
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Passive Income through Staking: Staking is presented as a strategy for both speculators and long-term investors, offering a way to earn passive income. The article explains the process of choosing coins to stake, waiting for staking rewards, and highlights the potential to offset losses through rewards, even in the scenario of coin depreciation.
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Supernode Staking (SPOS): The article mentions extra rewards offered by some exchanges, such as HitBTC and OKEx, through opportunities like Supernode staking (SPOS). Supernodes are nodes with the highest processing power, providing additional earning potential for crypto stakers.
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Warren Buffett's Wisdom in Staking: The article concludes by connecting Warren Buffett's famous quote, "Why not invest your assets in the companies you really like?" to the world of staking. It suggests that investors should stake crypto tokens of platforms they genuinely like and would use, aligning with Buffett's philosophy of investing in companies one believes in.
In summary, the article offers insights into strategic cryptocurrency staking, emphasizing diversification, passive income generation, and aligning investments with personal preferences and beliefs, drawing inspiration from the timeless wisdom of Warren Buffett.
