Token Staking: What is it and How it Works
Did you know that Peercoin is the first coin to use Proof-Of-Stake (PoS) consensus method? That type of mining process is becoming more popular nowadays — thanks to the much-expected Ethereum 2.0 update, which is going to sink its Proof-Of-Work (PoW) forever.
Bitcoin is the first cryptocurrency in the world and uses PoW to create new satoshis (BTC cents) and validate transactions inside its blockchain. But there’s another way to gain more assets: crypto staking.
But what is crypto staking and how does it work, exactly? Fear not: this article will answer all of your questions regarding that matter.
What is crypto staking?
In short, crypto staking is when you “lock up” a certain quantity of tokens inside a wallet and that process alone provides mining and validation processes. There’s no need to buy massive quantities of specialized hardware to make things work.
According to Nicole DeCicco, founder of CryptoConsultz, staking “is a term used to delegate a certain amount of tokens to the governance model of the blockchain and thus locking them out of circulation for a specified length of time”.
Some developers believe that PoW protocols aren’t good for the community, since it requires a huge amount of hardware to show some efficiency. A node designed for PoS is much more affordable and promotes (real) decentralization.
How does it work?
Each crypto platform requires specific amounts of tokens to begin staking process. According to the Ethereum developers, you’ll need at least 32 ETH to create your own node inside its blockchain. Other projects have their own minimum requirements to do so.
It’s safe to assume that staking is similar to bank deposits — with the advantage of not having banks involved in the process.
In exchange, stakers can earn new tokens and loads of rewards depending on how the platform is designed. Some say that this is a much better way to provide network performance and benefits for all its users — after all, staking is usually much cheaper than mining through traditional ways.
Also, depending on how much of tokens are being staked, special rewards can be given to stakers.
Ethereum (testnet), Cardano and Solana are good examples of crypto platforms that uses PoS protocol. You can delegate assets to their respective staking pools, which allows multiple stakeholders to combine their computational resources and make the platforms even safer, faster, and more profitable).
Here are some of the most interesting advantages of staking crypto:
Much less resource intensive.
Voting rights and participation throughout the governance system of that ecosystem.
The ability to earn additional tokens (airdrop).
Usually, a great way to make a (good) passive income.
Since the launch of Bitcoin in 2009, the crypto market is evolving at a terrifying speed. New protocols are being developed to guarantee even more security and decentralization of the decentralized finance (DeFi). Proof-Of-Stake is one of the strongest moves up to date.
Projects that are using PoS ensure network speed without power-hungry hardware, faster and cheaper transactions and many possibilities to make a profitable portfolio.
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