What is Cryptocurrency Staking?


Cryptocurrency staking has become an alternative way for crypto investors to make money from the market. Staking of cryptocurrencies is usually possible by digital currencies using the proof of stake (PoS) and the delegated proof of stake (DPoS) consensus mechanisms.


What is Proof of Stake?
Proof of Stake (PoS) concept states that a person can mine or validate block transactions according to how many coins he or she holds. This means that the more Bitcoin or altcoin owned by a miner, the more mining power he or she has.

What is staking in cryptocurrencies?

Cryptocurrency staking is the act of hodling crypto in your wallet for a specific period, then earning interest as a result of that. Users receive rewards by hodling the cryptocurrencies, and the earnings differ depending on the length of time an investor hodl the cryptocurrency in their wallet. The longer the staking duration, the higher return an investor gets.

Staking is used as a way of validating transactions on a blockchain, similar to what mining represents in the proof of work (PoW) protocol. In a PoS blockchain, the higher the coins a user holds in his/her account, the higher the chances that they would take part in a transaction validation process.

The next validator in a PoS system is usually chosen in a random process which is heavily influenced by the number of coins a user is holding at that particular time or in some cases, the length of time the user has been keeping the cryptocurrency.

How does crypto staking work?

Crypto staking works in a similar fashion to traditional fixed deposit investment accounts, the longer your staking time, the higher the reward you would earn at the end of the tenure. Staking coins differ from one cryptocurrency to another, but the underlying principle behind then remains the same. If you want to stake coins on most PoS and DPoS networks, you would be required to operate a node or masternode, or you can join one of them.

The staking mechanism also has a delegation feature that allows users to delegate other people to carry out votes on their behalf. Users can earn coins if they entrust their vote to a trusted party, and is one favorite way that investors make money via the staking system. This feature gives delegate extra validation power, who will, in turn, pay its customers coins for their votes.

Benefits of the staking protocol
Staking cryptocurrencies have several advantages to the users, and they include;
  • Investors with a large holding of a cryptocurrency would be able to validate transactions on the blockchain. This is unlike the PoW system where the job falls solely to miners.
  • Unlike the PoW protocol, the consensus mechanism in this system eliminates the need for high-end computer networks, which usually consumer high energy and cost a lot to maintain. This makes staking an environmentally friendly cryptocurrency consensus method.
  • The value of PoS cryptocurrencies does not depend on ASICs and other mining equipment, with their prices only affected by a change in the market conditions.
The probability of a 51% attack is usually lower in PoS cryptocurrencies compared to their PoW counterparts.



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