STAKING vs HODL
Centralized vs Decentralized Financial Ecosystems
January 17, 2023Crytpocurrency proposes various ways of profit-making. Investors can get into trading on exchanges or get into the less risky business of blockchain aided services on the platform like staking and mining.
The processes, while quite similar in their functioning and consequential returns, are built on different consensus mechanisms differentiating them in vital aspects. Staking and HODL are often wrongly used as interchangeable terms, usually assumed to be more of a holding strategy. Though consistent with the concept of holding, both strategies vary hugely in the way they work and their and results.
HODL refers to buying and holding crypto assets till they can be sold at a higher price. Staking resorts to locking up your crypto assets with collateral advantages to the blockchain platform and getting rewards in return.
Serving an example for holding, 1 Bitcoin purchased in 2013 for $1,110 would approximately amount to $19,000. Staking, on the other hand, works much like a fixed deposit. Investment amount locked for a specific amount of time adds up to the principal value in interest earnings.
| STAKING | HODL | |
| 1 | Returns through value appreciation and reinvestment | Returns through value appreciation only |
| 2 | Less liquid as it is subject to a locking period | Maintains the currency’s liquidity |
| 3 | All cryptocurrencies cannot be staked; reliable on the blockchain mechanism | All cryptocurrencies can be held irrespective of the wallet or platform |
| 4 | Crypto assets are usually held in offline wallets | Requires assets to be stored in an exchange wallet |
| 5 | More volatile; affected by price movements on the blockchain | Doesn’t pose a high volatility; market conditions have little effect on long-tern holdings |
Staking offers a value driven passive income strategy that brings in high yield yearly. Holdings, too, propose great profit margins along with trade benefits. Both serve as prudent strategies with long-term horizon to maintain a cryptocurrency profile. The success of either option depends on the kind of returns an investor is looking for, and the chosen project’s market approach.
