Imagine relaxing while watching a good movie and earning money all the while. This is exactly what passive income can allow you to do.
There are several alternatives to generate income that do not require continuous effort on your part. The staking of crypto-currencies is an approach that is gaining momentum. Here’s why staking Ethereum (ETH 4.08%) could be an absolutely awesome way to earn passive income.
Give your place
Staking is only supported on blockchains that use the proof-of-stake consensus mechanism. These blockchains allow you to pledge your tokens to support transaction verification. See the article: ETH back above $3000: is the correction over, and what level to watch? Ethereum Price Reviews & Analysis. In return, you receive rewards.
Ethereum started out on the proof-of-work model, which does not support staking. However, the introduction of the Beacon chain in December 2020 paved the way for staking Ether tokens. This chain is expected to merge with the Ethereum mainnet this year, bringing staking to the entire Ethereum network.
How much can you earn by staking your Ether tokens? It varies depending on the stock Exchange of cryptocurrencies you use and how long you stake your tokens. However, the returns can be quite impressive.
At the time of writing, the highest annualized return available for Ether staking is 10.1%. Binance offers this particularly juicy yield for a staking period of 120 days. It is easy to find other exchanges that offer returns between 4-8% for shorter periods. These yields are more attractive than those offered by most dividend-paying stocks.
The flip side
With the potential for double-digit annualized returns, why wouldn’t everyone want to stake Ether tokens? The main disadvantage is that your ability to sell is limited. See also: What is the Fantom Token (FTM)? What to know, and some FTM price predictions for 2022.
Cryptocurrency exchanges usually require you to lock your Ether tokens for a predefined period when you stake them. Even after the lock-in period ends, you may not be able to sell immediately. Some exchanges have “destocking” periods that can last several days.
This inability to sell can be particularly problematic when the price of tokens drops rapidly. We have seen this exact scenario play out in recent days. Ethereum has fallen over 30% in the past week.
It is entirely possible that a downturn will be prolonged. While staking can mitigate your losses to some extent, the returns will be nowhere near enough to compensate for large losses like the ones we experienced this month.
A long-term vision
This is essentially the same challenge faced by investors in dividend stocks. You cannot sell your shares and still receive dividends. On the same subject : PlaceWar: a promising new P2E project in the NFT and Metaverse universe in 2022?. It’s possible the stock will drop a lot more than you’re earning from the dividends.
This is why investors are most attracted to dividend-paying stocks. societys with strong long-term prospects. The stock price may go down in the short term, but investors expect it to be at least flat (and preferably up) in the long run.
Anyone considering staking Ether tokens should adopt the same mindset. If you don’t believe in the long-term prospects of cryptocurrency, staking Ether tokens is a misguided decision.
It’s a different story, however, if you think the Ethereum blockchain has lasting power and Ether remains a great investment for the next few years. If this view turns out to be correct, Ether staking could really be a great way to generate passive income.
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