What is Binance Staking? How to calculate Staking rewards

What is Staking?

Binance Staking is the locking of cryptocurrencies to receive rewards. Currently, many exchanges also offer staking services to serve users. Binance allows users to earn rewards in easy way, and all you do is hold your crypto on the exchange.

What is PoS?

Proof of Stake (PoS) is a faster and less resource-intensive alternative to Proof of Work (PoW) consensus mechanism of Bitcoin. Users deposit their cryptocurrency into a smart contract to perform various network functions (such as transaction authentication). In return, they receive staking rewards. Shares encourage the maintenance of the network security through ownership.

What is Binance Staking?

Binance Staking is a product in the Binance Earn suite. It aggregates the staking programs of a variety of coins, making it possible for you to select and evaluate at the same time, the interest rates of more than 100 coins running the PoS algorithm today.

How to calculate Staking rewards

Each blockchain network can use different ways of calculating rewards on the basis of each block and depending on many different factors such as

• The amount of staked coins 

• Time to stake

• Total staked coins on the network

• Inflation rate

• Other factors

Staking rewards are also determined at a fixed percentage for other networks. These rewards are distributed as inflationary compensation that encourages people to use their coins instead of holding them. This helps increase the usage of cryptocurrencies and encourages users to participate in Staking.

Benefits of Staking

For staker

• Create passive income & increase the amount of coins during Staking.
• Cost savings compared to PoW mechanism: PoS does not need many computers to run nodes but almost only 1 machine installs once time to increase the amount of staking coins. This is much different and much more economical than PoW – the more high-performance computers the more digs.

• Safety: Staking has a backup so it is very safe. At the same time, before the official Staking, it is possible to calculate in advance the rate of profit, the time to be unlocked, or if you want to un-stake early, how long it will take to receive the coin.

For projects

• Create decentralization for the blockchains network. The power of network will be divided among the participants (Node, Masternodes…).
• Take advantage of external resources to participate in network operations through nodes.
• Increase incentives to join the network: Participating in stakes and receiving rewards will help participants stay active.
• Ensure network: To carry out attacks, hackers must hold 51% of the network’s power. Dispersing that power in different nodes would make it impossible to gather their power to attack.
• Affect coin prices: During the Staking process, the amount of coins will be locked and not able to participate in trading on exchanges. The decrease in the amount of coins in the market will push up the price.

  

Staking risks

So you can let coins earn passive income while you are sleeping with staking. Increased potential returns on investment usually go hand-in-hand with increased risk. Holding cryptocurrencies can give you very high interest rates but it isn’t entirely without risk. If you understand and control the risk of investment decisions, you’ll come up with more informed strategies.

Price fluctuations

Keep in mind that even if you generate an additional 10% profit per year from that coin, if the price of the coin falls by half, you will actually lose 45% of your initial investment. Determine which coins you want to hold for a long time before staking.

Malicious attacks

Attacks and scams on wallets are common in decentralized market. When users make a deposit on their own, they should understand the risks when trading on wallets, platforms, and decentralized agents that are not reputable organizations. Users need to research carefully before transferring crypto.

Technical requirements

Some blockchains have complex technical requirements for those who want to participate in their consensus mechanism. Wrong wallets can result in losses due to incorrect configuration.

Tokenomics are unsustainable

It is essential to carefully investigate tokenomic patterns and also understand that your predetermined returns can vary. Token values can fluctuate greatly and have high market risks. You may lose part or all of your investment.

The support of Binance Staking

To avoid these risks, Binance staking offers a number of solutions to protect users. However, risk and return are highly correlated, even on Binance.

Reduce Risk

Binance Staking bears all the risks of the network for users. This means that the amount of tokens that users have deposited will be returned to them.

Attacks and scams on wallets

Binance users can significantly lower the risk of wallet attacks, scams on Binance exchange. You can let Binance perform these tasks for yourself without transferring crypto or placing orders manually.

Technical risks

Binance Staking offers a simple way to stake more than 100 cryptocurrencies. You can also quickly receive, delete, or reinvest your staking rewards without any complex techniques or knowledge.

Parameters to keep in mind when Staking coin

Inflation rate

It is calculated based on the ratio of newly born coins to the amount of coins in circulation in the market. The cryptocurrency market is similar to traditional financial markets, new cryptocurrencies are always introduced into the market. This results in inflation and directly affects market prices.

Lock time

It’s the period of time that your crypto is locked in and can’t be transferred.

Unlock time

Normally, you can still stop staking before the specified time by pressing the un-stake button. However, you will not be able to get back the staked amount immediately. It will take a certain amount of time.

A sudden un-stake can affect the normal operation of the network, so this rule is set out as a way to minimize risk and give the system time to process if the amount of un-stake requests is too large.

For example, in TomoChain, people who vote for Masternode if they want unstake will receive after 48 hours. For Masternodes that want to stop working, they will only receive TOMO after 30 days.

Interest

That’s the rate of return after the Staking period ends. Of course we want the interest rate to be as high as possible when staking.

Minimum required cryptocurrency amount

To start participating in Staking, you must have the minimum amount of coins that the project requires. It varies depending on each project.

For example: TomoChain requires 100 TOMO, Decred (DRC) needs a minimum of 5 DRC to start Staking.

Weight Value

The higher this weight value, the greater the amount of cryptocurrencies and the longer the staking time. Therefore, the likelihood of winning the right to process transactions and create new blocks is greater. This means you get higher reward.

Optimize profits

For those with a small amount of coins (not enough to make a node or Masternode), it’s optimal to join Staking on the wallet or on some supporting exchanges. If the Hold is determined to be long-term, Staking will help them earn an additional amount of coins during that time period.

Those who hoard large amounts of coins can also apply the above method if they want to be flexible in the process of locking the coin. They can also apply as nodes or Masternodes directly involved in processing transactions and creating blocks. This will help the staker receive more rewards but will also require higher levels of hardware installation and connectivity.

Staking guide on Binance

To get started, you need to sign up for Binance and successfully verify your identity

Step 1: Go to the Staking homepage.

Select a coin and Staking mechanism.

Of course, before selecting, it is necessary to consider the above parameters (inflation, price, interest rate, weight) to balance its needs, capital, and interest rate expectations. Click [Stake now] to select the coin that you stake.

Closing thoughts

While Binance can’t eliminate all the risks of staking, there are still some benefits if you join Stacking through the Binance platform. You can significantly reduce your overall risk by making more informed investment decisions.