What is Staking?

Staking means you are holding your cryptocurrency funds in a wallet and thus support the functionality of a blockchain system. Stakeholders lock their cryptos in their wallets. In return, they are rewarded by the network. The concept of staking is closely related to the Proof of Stake (PoS) mechanism. It is used in many blockchains that are based on PoS or one of its many variants. Essentially, it consists of locking cryptocurrencies to receive rewards. In most cases, the process relies on users participating in blockchain activities through a personal crypto wallet. The system of cryptocurrency staking provides an alternative and easier source of income for miners, and the need for expensive mining equipment which consumes huge amounts of electricity for mining coins is eliminated. The value of the holdings staked does not increase or decrease with time unlike ASIC and other mining equipment. Staking of coins reduces the chances of a 51% attack commonly experienced by miners. The process of cryptocurrency staking consumes less energy. This means there is less consumption of electricity and a low generation of heat experienced during the process of staking.

Staking creates new blocks that are added to the blockchain. These blocks are staked by a person who is already holding some coins and help in validating a new transaction on the platform. An individual is only able to mine or validate new transactions for coins equal to the number of coins they have staked. The more coins a person stakes, the higher their power to validate transactions. Staking is the process by which an investor commits their tokens to the service of a blockchain in exchange for rewards in the form of new tokens. Users who stake can get some rewards that are then channeled back to the network as an investment. This model benefits both users and the network since all parties can receive a fraction of the staked coins at a given period. A majority of staking projects carry a minimum investment requirement and need a constant connection to a wallet as a way of keeping the ROI up. It just proves that there's money in staking coins. This recent trend of staking will allow more cryptocurrency projects to adopt this innovation and for the users to earn more income in cryptocurrency and blockchain.

What are the advantages of staking?

The bigger the amount you stake, the better are your chances to become the validator for the next block and grab the reward. The PoS model saves you a lot of money. You don’t have to invest in expensive mining hardware and cooling equipment. Also, you don’t have to pay huge electricity bills every month. You still spend some money, but it’s a direct cryptocurrency investment. Every PoS network features its own ‘staking currency’. The increased scalability, ensured by staking, is one of the main reasons why Ethereum plans to move to this model in 2020 when it adopts the Casper protocol. There are networks that prefer DPoS. In this model, you may use other network participants to signal your support for some event. It means you delegate decision-making to the nodes you trust. In fact, these delegates are responsible for handling the blockchain, as they deal with the issues of major importance. They play a key role in consensus achievement and make management decisions.

Coclusion

In conclusion, staking is an innovative investment tool. It can compete with traditional ones in terms of stability. In terms of assets growth potential, it’s superior to theirs.