Are you aware that you can store your existing tokens offline and still earn tokens from them? This is due to a process called cold staking. Cryptocurrencies and the blockchain ecosystem today can offer investors many benefits, including this one.
What is staking?
Blockchains that use the proof-of-stake consensus mechanism, like Ethereum 2.0, use stake. On a blockchain network, it allows transactions to be verified and new blocks to be added.
A staking pool or exchange are your two options if you decide to delegate. The low threshold requirement is also removed with these options, allowing you to stake with much smaller amounts. You will need to hold your tokens in a hot wallet regardless of which method you choose to stake.
Hot wallets (Bitcoin wallet, Ethereum wallet etc.) are always connected to the internet and are easy to use. In addition to being vulnerable to thefts and hacks, these kinds of wallets can also be hacked. In order to protect your tokens from these cyber threats, you can either stake them through a cold wallet or a hardware wallet. Cold staking refers to this process.
Cold staking: what is it?
The only difference between cold staking and normal staking is that your holdings are stored offline in a hardware wallet. As you stake offline, you’ll receive rewards for adding blocks to the blockchain.
You will automatically stop receiving rewards once you remove your tokens from the hardware wallet. During the staking process, large investors prefer this method to protect their assets.
The super staker is another unique feature of cold staking. Token holders can accept stakes delegated by friends, family, and others.
They can stake on their behalf without ever touching the delegator’s tokens, which are safely stored in hardware wallets. Delegators can also be charged a fee by these super stakers in addition to the staking reward.
Not many blockchains support offline staking yet; it is less common than online staking. The Tezos blockchain offers a model that is similar to offline staking. Getting started requires at least 10,000 XTZ, but it allows you to keep your coins liquid.
The QTUM project provides offline staking. By collecting fees from delegators, users can delegate their tokens safely without giving up custody. Cold staking is also available on some crypto exchanges like Binance, Coinomi, and Callisto.
Benefits of offline or cold staking
Since your crypto is stored in a hardware wallet that is not connected to the internet, offline staking is less susceptible to hacks and attacks. All you need is a cold wallet that allows staking.
Additionally, they attract new audiences. Cold wallet users who don’t trust exchanges or staking pools can now delegate tokens to a friend who will act as a super soaker and validate transactions on their behalf. The crypto ecosystem becomes more decentralized through cold staking.
If you lose or forget your hardware wallet login credentials, you might never be able to access your tokens again. Even if you forget the private keys to a hot wallet, the issuing company may be able to recover it.