What is Solo Staking?
Solo Staking is the process where retail investors lock their cryptocurrency reserves in smart contracts to earn block rewards. It is possible for investors to stake their holdings by creating a staking wallet.
When solo staking, the investor is able to keep the whole reward generated by the blockchain or decentralized protocol. However, there are also some downsides of solo staking such as the additional cost of creating a staking wallet and the requirement to stay online in order to earn more rewards.
Advantages of Solo Staking
The most important benefits of solo staking are listed as under:
The investors who are locking their coins in the staking protocols are able to earn all the rewards that are generated from the block. At the same time, the staker is also able to bag all transaction fees associated with these blocks.
In solo staking, investors enjoy a greater control over their reserves. They have the freedom to include intended transactions in blocks.
Solo stakers are able to enjoy greater amount of financial privacy since they are sole in charge of the private keys and possess knowledge about how much coins they have staked.
There is no minimum set threshold set for solo stakers in order to participate in staking process. However, they have to make sure that they are able to cover the transaction fee.
It is more difficult to hack or exploit solo stakers since there is no centralized entity involved.
What is Pool Staking?
Pool staking is the type of staking method where investors are able to create a pool in association with other investors in order to generate higher rewards. Investors have the option to either create or join an existing staking pool for this purpose.
In this manner, an individual investor is able to join their digital currency holdings with other investors and the pool increases. In this manner, the total amount of block rewards generated from a massive staked fund also increases proportionally.
It means that the staking yield continues to increase in direct proportion to the size of the staking pool.
Advantages of Pool Staking
Here are some benefits of pool staking mentioned as under:
It is possible to sake various different types of coins in a staking pool to earn rewards. The joining fee for participating in a pool staking is usually low and it can be considered a good investment opportunity to maximize profits.
Investors do not need a lot of technical knowledge in order to use and participate in staking pools. Pool operators manage the technical governance of the entity and therefore the participants are able to stake their coins and earn rewards.
Staking pools bring more security to ensure protection against hacks by incorporating various nodes as backup. Since there are many nodes serving as the backup for a staking pool therefore there is no single point of failure.
Staking pools are one of the best and easiest ways to earn and maximize investment income. In this manner, investors are able to collect rewards while staking different types of digital tokens.
Solo Staking Vs Pool Staking
Here are some key differences between solo staking and pool staking:
Solo staking allows investors to stake one type of cryptocurrency in a given smart contract. However, when dealing with a staking pool, investors have the option to stake more than one type of cryptocurrency by contributing to the same pool.
This brings more diversity within the staking pool and at the same time, it also enables the investors to earn more staking rewards in comparison to solo staking.
It is important for investors to estimate their risk tolerance before investing in either solo or pool staking. Pool staking is more suitable for investors who have a bigger risk-tolerance. On the other hand, solo staking is more ideal for investors who wish to retain a greater control over their staking reserves.
Solo staking does not have a minimum investment requirement or participation fee unlike pool staking. Therefore, the cost of solo staking is cheaper in comparison to pool staking. However, the profits generated from pool staking are often higher in contrast to solo staking.
When it comes to staking, cryptocurrency investors have the option to opt for either solo staking or pool staking. It is best for an investor to go for one or other option based on their personal requirements and expectations.