Convenience is crucial in the cryptocurrency industry. Most people do not like the hassle of setting up proper wallets for their asset holdings. A lot of online services also provide staking functionality these days. While incredibly convenient, it is also a significant risk. After all, users do not own the coins they stake by entrusting them to a third-party service provider.
Online Staking is Popular
A growing number of cryptocurrencies and tokens currently support proof-of-stake. Because of this functionality, users can earn passive interest by keeping their coins in their wallet. To earn the stake, users need to be connected to the internet at all times. It is not surprising to learn a fair few service providers offer this functionality.
Most cryptocurrency owners cannot leave their computer online continuously. It would draw too much electricity simply to keep a program running which may or may not receive a stake every day. For this reason, most people set up a VPS so they can stake coins. Additionally, there are online wallet services available. Those services can be very risky, as users do not own the coins they send to these service providers.
Different From Exchanges
On the surface, online staking providers and exchanges are not that different. They both provide convenience to their customers on a global scale. Additionally, they both act as a custodian over customer funds Exchanges do so for trading purposes, whereas online wallets do so for balance or staking purposes. This is also where the real dangers can be found.
Exchanges have a reputation to uphold at all times. In the case of Coinbase or Binance, mishaps seem very unlikely to occur. When using an online coin staking service, however, the situation is very different. These services are niche, thus their reputation is of less importance. It is not unlikely a fair few of these providers will steal customer funds down the line. Then again, they are only taking what customers gave them willingly.
Customer Support Often Lacks
Although there are legitimate coin staking services, the majority of them will not be around for very long. This is often apparent as far as customer support is concerned. Once a staking provider doesn’t allow customers to withdraw funds without issues, the exit scam scenario looms near.
In most cases, users will try to get in touch with customer support. Depending on the company, this will either be difficult, if not impossible. If the latter scenario ensues, one can almost guarantee their coins will be lost forever. Numerous excuses can be offered by a company as to why they won’t allow for a withdrawal. Unfortunately for users, there is very little they can do about it.
Disclaimer: This is not trading or investment advice. The above article is for entertainment and education purposes only. Please do your own research before purchasing or investing into any cryptocurrency or digital currency.