For supporting the operations of a blockchain network, staking is the process of holding funds in a cryptocurrency wallet that gives currency holders some decision power on the system.
By staking, one gains the ability to vote and generate an income, which is similar to how someone can receive interest for holding money in a bank account. To put it in simple words, we can say that coin staking gives investors the capability to earn a regular income for their investments. Want to get an online degree in cryptocurrency and Trading? Check out the best blockchain certification courses and grasp the in-deep understanding of cryptocurrency and know-how to trade and store cryptocurrency safely.
Advantages of Staking Coins
Before understanding how the mechanism works, let’s have a look at the advantages that staking coin offers to the mining operators.
- One of the significant benefits of staking coins is that it eliminates the need for continuously purchasing costly hardware and consuming energy.
- Unlike other mining hardware, the value of your staked coins doesn’t lower, although it can be influenced by fluctuations in the current market prices.
- It allows investors with enough holdings in the coin to validate transactions on the network.
- Unlike the proof-of-work system, where coins are rewarded through a random process with low probability, the PoS Staking offers guaranteed returns and a predictable source of income.
- Apart from al the above, it is also more environment-friendly and energy-efficient.
The concept of staking is related to the Proof of Stake mechanism. Unlike the PoW mechanism that relies on the concept of mining to verify and validate new blocks, PoS produce and validate new blocks through staking, which allows for blocks to be produced without relying on mining hardware. Thus, instead of racing for the next block with heavy computation work, PoS validators are chosen based on the number of coins they are investing in staking.
Unlike PoW, which requires a significant investment in hardware, staking requires direct investment in the cryptocurrency.
As crypto staking remains one of the most effective ways to make money through blockchain, there are few risks and precautions that need to be addressed. Although the concept of staking coins looks quite attractive, there is no sure shot profit to be expected, and in some cases, the rewards for stacking are comparably less than the usual rewards for blocks issued by the network. Whether to stake or not to stake depends on your own investment style, but before you stake, get an in-depth understanding of how things work behind the scenes along with initial research on minimum amounts, staking rewards, and staking protocols particularly.