What is crypto staking?
The process of active participation of validators in Proof of Stake ( PoS) blockchain for the process of validation or mining, with minimum required cryptocurrencies, is known as staking or crypto staking. These validators will be rewarded some amount which is termed as staking rewards.
In simple, the process of locking cryptocurrencies in a crypto wallet is clearly known as staking, people who stake cryptos in wallet will receive rewards.
So, why crypto staking, and how does it work ? will be the next query that winds up in your mind. Right?
Now, we are going to discuss the complete importance and working of crypto staking in this article. Keep reading without any pause.
How does crypto staking works?
Before diving into the workflow of crypto staking, let us first have a look into Proof of Stake ( PoS) blockchain.
What is Proof of Stake ( PoS )?
Proof of Stake is a blockchain consensus mechanism that allows a person to mine or validate the block based on the number of crypto coins or stake he holds. This implies that the more cryptos one owns, the more probability he/she has to mine the next block transaction in a PoS blockchain.
This Proof of Stake ( PoS ) was created as the alternative to Proof of Work ( PoW) which aims to achieve distributed consensus in the blockchain network.
Now, let us look at how the process of crypto staking works.
The process of crypto staking slightly differs from one crypto exchange to another with simple changes like stake amount to participate in staking or staking rewards and so on. However, the crypto staking works as follows,
In PoS blockchain, if a validator has met with minimum balance ( that is required to involve in staking ), the validator/node deposits this amount into the network as stake.
More the deposited stake, more the probability for that node to take part in staking. That is the amount of stake is directly proportional to the probability of that validator/node to build the next block in the network.
As if the validator rewarded in PoW chain, here in PoS blockchain network, if the validator completes the process of staking, ie., if he creates the next block successfully in the network, he is rewarded which is known as stake rewards.
If the node or validator attempts to hack or attack the network or double-sign the network, then he will be resulted in losing his stake.
This is how the process of staking takes part in the blockchain which is the backbone of the performance of secured cryptocurrency exchanges.
Now, you may all have a question to ask with, ie., how much will one be rewarded for participating in staking?
Let us look into the staking rewards calculation deeper to know the answer to your question.
How staking rewards calculated?
As said above, the rewards may differ for the various blockchain network. Most of the rewards are calculated and adjusted on the block-by-block basis.
Some of the factors that are included in staking rewards calculations are as follows :
- The number of coins the validator is staking
- The active time period of validator involvement in staking
- The total amount of coins staked in the network
- The Inflation Rate
- And also some other factors in the network.
In some blockchain networks, the rewards are fixed percentages. These staking rewards are given to the validator as compensation for inflation. The process of Inflation encourages users to spend their crypto coins rather than holding those, which increases the usage of crypto coins.
What is cold staking?
The process of staking the cryptos on a wallet that is not connected to any internet medium is known as cold staking. It is usually done with Hardware wallets and air-gapped software wallets.
Cold Staking is more useful for large stakeholders, who ensure maximum protection of their funds in the network.
What is crypto staking pool?
A Staking Pool is a way in which a group of stakeholders merges their stake resources or computational power to increase both the probability of mining and also the number of rewards.
However, setting up and maintaining a stake pool requires more time and expertise. The staking pools where the restriction for entry is high, tends to be the most effective on any blockchain network.
Staking Pools provide more flexibility for each individual stakers in the network. Thus, joining in the stake pool may be ideal for new users than staking solo.
Top Crypto coins that can be staked
Here comes the list of crypto coins that can be staked and are being staked higher in recent days.
- Tezos (XTZ)
- Algorand (ALGO)
- Synthetic (SNX)
- Decred (DCR)
- Cosmos (ATOM)
- Icon (ICX) and so on
Is Crypto Staking Safe?
Staking is one of the two safest ways to make money in the crypto globe. Another way is notably, Crypto lending.
Crypto staking can be a safe way to make a profit as the process of staking includes the rewards for each participant in the stake network. These returns on staking as rewards are the most attractive counterpart in the process of crypto trading.
Cryptocurrency Exchanges that supports Staking
Knowing the major advantages of the Proof of Stake ( PoS) mechanism, many blockchain networks and cryptocurrency exchanges involve the crypto staking options in their platform to benefit their users.
Ethereum, the second-largest cryptocurrency, shifts its mechanism from Proof of Work (PoW) to Proof of Stake ( PoS), which is termed as Ethereum upgrade Ethereum 2.0.
Some of the Cryptocurrency Exchanges that include crypto staking are as follows :
- Okex and more.
Benefits of Crypto Staking
Crypto staking has its own significance in the field of cryptocurrency. Here let us look at the major benefits of cryptocurrency staking.
- The Probability of mining or validating increases, as the amount of stake is high.
- Staking crypto coins returns rewards known as staking rewards.
- Provides passive income through rewards.
To Service Providers,
- To tackle the issues in PoW, PoS was introduced which reduces the risk in the network
- Less likely to the attack of the system
- Reduced Fraudulent transactions in the system.
- Increase the user density, which in turn increases the transactions, which results in a high Return on Investment (ROI).
I think, now you are clear about Crypto Staking and the benefits of staking your cryptos.
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