Friday 17 September 2021
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Crypto Staking

Risks In Crypto Staking

Staking in the stock-based Crypto currency (PoS) industry has become popular these days. Although this has many advantages and can benefit the stockholder well, there are some risks that you will encounter in this article.

A brief overview of stock proofs

In the Proof of Work algorithm used in the first and second generation of Cryptocurrencies such as bitcoin or Ethereum, people are called miners by providing their devices with processing power, security They provide the network. In such a mechanism, depending on the amount of work done by the miners, they are rewarded.

However, mining is not always profitable, especially when the low price of a currency does not cover the cost of electricity and equipment friction. Mining power consumption has also raised concerns about increased pollution and global warming. On the other hand, according to the Mining Opponents, this activity cannot provide the scalability network (ie, fast and cheap transactions).

For the reasons mentioned, Proof Of Stake came up and gained a lot of popularity.

In stock proofs, users allocate their Cryptocurrencies to the network in their wallets, and the network uses these tokens to verify transactions and maintain security. In such a mechanism, the creation of new blocks is also done using these tokens.

In other words, in order to prove stocks, one has to choose the Crypto currency that uses this algorithm, buy some of it and put it in the net in their wallet. The network adds a certain percentage to its Crypto currencies each year. So in addition to investing in Cryptocurrency, one can make more profit by proving the stock and also invest in Cryptocurrencies that they truly believe in.

In the approach of proving shares, nodes, or participants, work with their inventory to confirm blocks and ensure that they are not fraudulent. In this way, the block validation process is split between nodes based on the inventory.

Therefore, the more noodles the network has, the more chances it will have to build the next block. The need for minimal computational resources and not consuming too much power are some of the reasons why the stock has become a popular algorithm.

Tezos, Cardano, cosmos, Tron, Ontology, and Neo are the largest Crypto currencies that use stock proofs. Ethereum, the second-largest Cryptocurrency market, is also set to go on the stock market soon.

They are called stocks, stocks, or stocks.

Now that you are familiar with stock proofs, you should know that this algorithm has many advantages and disadvantages for shareholders, in addition to its interesting benefits.

Slashing

First of all, let’s go to Slashing.

What is Slashing?

Slashing is, in fact, a punishment that takes the shareholder for the wrong he has done. This is the mechanism by which the network avoids further instability by removing shareholder assets.

Many times the user does not intend to break the rules of the network, but rather the software of the shareholder or the agent or pool where the stock is located fails. To prevent this from happening, valid software or pools should be used.

Who will be punished?

In Liquid Stock Proof Protocols (LPoS) such as Tezos, only the shareholder is penalized for the error they committed, but in BPoS protocols such as Cosmos or IRISnet, both the validator and the related agent, Are punished.

When does this happen?

Slashing can occur in several ways:

  • Liveness Error (Kazmas, IRISnet ): The shareholder does not participate in the network consensus for a long time and loses several blocks.
  • Security Error (Tesos, Kazmas, IRISnet, and most protocols ): The distributed network is disrupted by two or more confirmations from the same block. Such security errors are referred to as dual signatures in Zeus, Dual Baking or Verification, and in Kazmas and IRISnet.
  • Monitoring error (Kazmas, IRISnet ): Validators have voted in consensus voting multiple times and their votes are inconsistent.

What are the penalties for?

The penalties depend on the type of performance and the parameters of each protocol. Often times, a shareholder is penalized by paying a certain percentage of tokens that he shares or holds in his wallet. In some protocols, validation can even be blocked for a specified period of time. In BPoS protocols, such as Kazmas and IRISnet, agents are also at risk of penalties. So carefully select your validator.

Cryptocurrency fluctuations

Representative Risk and Investing in CryptoCurrency

Market volatility is probably the most risky risk in stocks. When the market is on the upward trajectory, your dividend yield seems very acceptable. On the other hand, if the price drops too much, your dividend yield cannot offset your losses.

So it’s important to know that your stocks (dedicated Crypto currencies) may decline drastically.

Tips to reduce the risk of volatility in stocks:

Choose the Crypto currency that has a strong team and community behind them and really strive for their goals. Sometimes some unprofitable projects make high profits for the stock, but falling prices in the near future will lose all that profit. Do whatever research you need to choose the queen you want to make sure your project is not a scam and has strong technological backing.

Another thing to keep in mind is that diversifying the portfolio is very important.

Shortening or buying sales contracts can also help you reduce prices; in other words, profit by reducing prices!

So it’s important to invest in what you invest in, because even if the protocol guarantees its profitability, you may lose it, and your stockpiled currencies will not profit.

Validators do not pay bonuses

Representative Risk and Investing in Digital Currency

Another risk is when you put the hard-earned tokens into credentials (similar to the pools in the mining) that don’t pay the rewards.

This factor is very important. In some protocols, such as Tezos, the first reward is received after the seventh cycle or after approximately 20 days. In such a network, people do not need to check the timely and correct rewards. However, some protocols cannot guarantee up to 100% of validation payments.

Most people are not fraudsters, but you should always exercise caution. Credentials do not need to be capital controlled, so you should not send your funds directly into their wallets.

You should never share your private key or recovery terms with a validator or anyone else.

Losing an Account; Losing a Recovery Phrase or a Private Key

Representative Risk and Investing in Digital Currency

Mnemonic and private keywords are very important concepts in the blockchain world, and in particular Crypto currencies. If your wallet is deleted or otherwise inaccessible, your only way is to use a recovery key or a private key to access your wallet. If you do not back up your wallet, there is always the risk of losing money forever.

That’s why you should back up your wallet in a secure way and keep it safe.

One thing to keep in mind is that using hardware wallets can help to prevent this problem. The most dangerous thing is to store private keys and retrieval terms online.

Ledger problems

Representative Risk and Investing in Digital Currency

Sometimes when you use Ledger hardware for stocks, you need to update its firmware as well. Otherwise, there will be many problems for you. During these updates, all information on your wallet may be erased. You will not be able to recover funds unless you have properly stored your private key and recovery phrase.

Don’t worry and don’t panic. You can easily recover your funds if you have your private key and recovery phrase correctly stored in a safe place.

If accounts in your wallet have problems, you can easily recover them again through Ledger Live software after recovering your account through the recovery phase.

Focus on the network

One of the dangers of blockchain protocol on a global scale is the 51% attack.

A 51% attack is an attack that a group of miners takes over 51% of the network’s processing power, giving them control of the network and can do whatever they want with the network.

In the case of stock-based Crypto currencies, one can largely control the network if one has more than 51% of tokens. Of course, there is not enough incentive to change the network, because then people start selling out of fear of losing a Quinn and the shareholder loses the value of his or her assigned asset and the principle of loss includes itself. But as a whole, you should know that when you outsource your token stocks, you are directly involved in decentralizing the network.

The table below shows the percentage of royalties held by the top four blockchain manufacturers in Kazmas, IRIS, and Tezos. As you can see, in the segment owned by Casmas, the top 10 block makers own more than 57% of the stock tokens.

Representative Risk and Investing in CryptoCurrency

Proper performance does not necessarily mean that you put your tokens into the largest credit ratings, but it is also important to validate your credentials based on peak performance time, independence, security practices, community engagement, customer service, fees, and more. Select. By encouraging smaller validators, you can contribute to decentralizing the network, a very positive point that is sometimes forgotten.

 

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