Basics to Know About This Rewarding Activity

Essentially, staking is an integral part of the proof-of-stake (PoS) consensus mechanism. Under it, the member of the blockchain stake their tokens in the network. In return, they get to validate new blocks, eventually generating rewards for the validators. Of late, staking has earned huge popularity due to its potential to produce potential passive income.

Thus, knowing the basics of this activity is a must for every crypto enthusiast. 

Crypto Staking: The Gist of It

For the uninitiated, there are two fundamental consensus mechanisms in the crypto space. Besides PoS, there is proof-of-work (PoW) consensus which requires miners to solve mathematical equations. By solving them, they create new blocks and gain rewards.

There’s only one crypto that works on PoW in its truest form and that’s Bitcoin. The rest use PoS or modified versions of PoS or PoW. The reason behind the wide adaptability of PoS is its cost-effective nature. In order to mine crypto using PoW, miners require purpose-built machines called mining rigs or miners.  

But to do staking using a PoS blockchain, one doesn’t need any specific device. It can be done using a regular computer anywhere. The participants just need to be a part of the network. Also, staking uses much less energy than PoW-based mining. 

When it comes to earning, staking makes it less complicated, too. People unfamiliar with this concept can compare it with a high-yield savings account. They just need to keep depositing money and earn sizable interest. In the context of crypto, it comes with more benefits.

The stakers enjoy governance rights and many other advantages depending on what the blockchain offers. If one compares the rewards offered by blockchains with the interests offered by banks, the former weighs much higher.

Insights Into Staking Mechanism

Only a PoS-based network can conduct the activity of staking. As stated above, it is the core activity that creates new tokens on a blockchain. The participants need to verify new blocks of data in the validation process. The participants, aka validators or stakers, join the network by buying a certain number of tokens.

They stash away these tokens in the blockchain. This system ensures that the participants give their best to maintain the blockchain. Their honesty and efficacy determine the value of the protocol and its results. When the protocol does well, its token value sees a rise.

As a result, the value of the stakes tokens also increases, causing mutual benefits for everyone. The amount of rewards depends on the volume of the stake. The bigger the stake, the more chances of incentivizing. That’s because more tokens will give them higher chances to propose new blocks. 

Most blockchains manage stakes in pools. These pools maintain staked tokens of multiple participants together. Notably, not all stakeholders directly participate in the process of validation. Many of them delegate their tokens to others who act on behalf of stakeholders.

The delegates take some commission and give the rest of the rewards to real token owners. This system effectively increases participation in the crypto ecosystem. It allows many to benefit from blockchain without paying anything. To ensure fair practices, blockchains implement some punitive measures, too.

So if someone goes offline for indefinite periods or follows any other irregularity, they face suspension. Moreover, every blockchain has its set of rules to be followed. For example, Ethereum mandates every validator to stake at least 32 ether. 

The Process to Start Staking

To start staking, the desired participants need to own some stake first. It’s possible that they don’t have the tokens belonging to the blockchain they want to stake with. In that case, they’ll have to get the cryptos exchanged. 

All the leading crypto exchanges, including Binance, Coinbase, and Kraken, offer staking services. Joining the staking program through exchanges is a convenient option. Nonetheless, stakers can explore more options like staking-as-a-service. Some popular SaaS platforms are EverSTake, BlockDaemon, Figment, MyContainer, etc.

Participants should also know they can withdraw their staked assets whenever they want. However, they’ll have to wait for some time, it won’t happen instantly. Successful stakers can even explore more opportunities in this space. They can start their own staking pool and charge a fee from others for running it.

Some cryptocurrencies you can stake are:-

Ethereum

Cardano

Solana

Avalanche

Polkadot

Final Thoughts

Staking is indeed a good option for investors seeking long-term profits. Data suggests that over 261 cryptos have delivered an 11% annual yield on average. Despite that, crypto users should know that the amount of rewards can change at any time. Also, the stakers have to pay the pool fee too. 

Nevertheless, if done carefully, crypto staking can be very fruitful.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages ​​and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.