What is cryptocurrency staking?

Do you want to grow your money while acting for the planet? Cryptocurrency staking is the ideal solution. This eco-friendly and lucrative consensus method is experiencing tremendous growth in the cryptocurrency industry. In this article, we’ll reveal the secrets of staking, how it works, its benefits, and how you can take advantage of it right now. Are you ready to join the wave of eco-responsible investors? Follow us !

Staking, what is it?

Staking consists of securing a blockchain by locking cryptocurrencies. This practice is closely related to Proof-of-Stake (PoS) and its variants. Unlike the proof of work (PoW) used by Bitcoin, PoS aims to reduce energy costs related to the maintenance of the blockchainwhile ensuring adequate security and better scalability.

Thus, to participate in the governance of the blockchain, it is no longer necessary to invest in expensive computer hardware. In effect, users must block a certain number of cryptocurrencies in a smart contract, in return, they receive rewards in the form of tokens as well as governance power. That’s what we call “staker” in French.

There are several variations of Proof of Stake (PoS), the most popular are:

• Proof-of-Stake (PoS): for this system, users must directly own a node to participate in block validation.
• The Delegated Proof of Stake (DPoS): Here, only a small group is responsible for validating transactions to make the system faster. Token holders vote to elect validators or delegates, who take care of the validation for them.

Each proof of stake system has its own rules. Nevertheless, the criterion for selecting a validator is not based solely on the quantity of tokens pledged. It can be done based on several, including the reputation of the node.

Some examples of blockchains using staking

Proof-of-stake blockchains have grown in popularity due to their increased performance and efficiency. This trend was reinforced with the transition from Ethereum to PoS during The Merge.

As a result, new staking opportunities have emerged, giving investors a wider range of choices.

Many blockchains now offer staking, we can mention:

• Ethereum
• Solana (SOL)
• Cardano (ADA)
• Polkadot (DOT)
• Avalanche (AVAX)
• Polygon (MATIC)
• Cosmos (ATOM)

How does staking work?

Staking is a practice that only exists in blockchains using Proof-of-Stake (PoS). The latter is a consensus mechanism born in 2012 and which relies on the deposit of a deposit to operate. How to participate ?

Cryptocurrency holders must lock their assets in a smart contract. In the case of’Ethereum, for example, users must block 32 ETH. On most PoS blockchains, the returns received are often proportional to the amount invested, as well as the governance share.

With each validated block, the validator receives new newly created tokens as well as transaction fees. This system encourages users to secure the network. However, this mechanism is also designed to deter fraudulent activity through the loss of governance participation and blocked tokens in the event of fraud.

Conclusion

Staking offers an eco-friendly solution for securing a blockchain while generating passive income. However, the “staking pools” generally offered by Exchanges are options for investors without technical knowledge. But their centralization poses a problem of sovereignty of the funds. Fortunately, new initiatives such as “liquid staking” and “decentralized staking poolsare emerging, offering a more secure and decentralized alternative. Despite these issues, staking has the potential to accelerate blockchain adoption and solve scalability issues.