Staking is one of the hot topics liked by cryptocurrency enthusiasts. Why wouldn’t people love it when it is an excellent way to earn money while sleeping?
It’s is one of the many schemes to earn passive income through the help of top-tier Bitcoin trading sites, a less resource alternative to the ever-demanding crypto mining.
The process of staking involves holding funds within the cryptocurrency wallet, and these funds will be used in supporting the operations and security of a blockchain wallet. In easy terms, staking is the act of “locking” cryptocurrency holdings, receiving rewards in return.
If you have a cryptocurrency wallet, like Trust Wallet, you will stake your coins directly. However, while other exchanges also offer to stake their valuable users, Binance Staking allows users to reap reasonable rewards in a straightforward method.
Binance Staking is very simple but comprehending how Proof of Stake (PoS) works is necessary to grasp its concept thoroughly.
What is Proof of Stake (PoS)?
Proof-of-Stake had its first appearance at a 2012 paper for Peercoin by Scott Nadal and Sunny King, describing it as peer-to-peer crypto conceptualized out of Satoshi Nakamoto’s Bitcoin.
Essentially, cryptocurrency mining requires miner’s nodes to compute complex algorithmic problems in order to receive cryptocurrency as a reward. Proof-of-Work is the used mechanism to facilitate the work in a decentralized way.
In the early days of cryptocurrencies, proof-of-work has been appealing because people can even use ordinary computers to mine coins.
However, mining proof-of-work nowadays requires powerful computers, which are so expensive to buy. Hence, mining by well-financed pools and large organizations, cutting the general public the opportunity.
Another mechanism sprang up to open up new opportunities for the general public, known as the Proof-of-Stake.
In contrast to Proof-of-Work, Proof-of-Stake, or PoS depends on the validators in maintaining the cryptocurrency. In the Proof-of-Stake mechanism, a token is put up on lock as collateral, and they receive authority over the token equivalent to the amount they stake.
In the long run, token or crypto stakes receive additional ownership through newly minted tokens, network fees, and other rewards.
The primary idea of Proof-of-Stake is this. When a participant locks their “stake” at a particular interval, protocols allocate the right to one of them in order to get the following block validated. Getting chosen depends on the number of coins locked up in stake.
The more coins you lock up, the more chances you have to get chosen to validate a block. Instead of using hash rate to solve problems to validate transactions and create blocks as with Proof-of-Work to receive coins, Proof-of-Stake gets determined according to the amount of staking coins they lock up.
For blockchains, staking’s production of blocks opens up an opportunity for a higher degree of scalability. This is what pushes the Ethereum network to shift from Proof-of-Work to Proof-of-Stake, leading them to upgrade to what’s known as ETH 2.0.
Delegated Proof-of-Stake in a Glance
Delegated Proof-of-Stake (DPoS) model enables users to enact their locked coin balances as a vote. The voting power is equivalent to the number of coins held, and so the more coins an individual possesses, the more authority they have over the votes.
The votes are the basis in selecting the number of “delegates” who will deal with the blockchain for the voters. This ensures consensus and security.
The staking rewards are issued to the elected delegates, who then share the reward to all their electors according to their individual coin contributions.
Now that you have an overview on Proof-of-Work and Proof-of-Stake let’s head over to how staking actually works.
How Staking Works
Staking is a simple process that requires you to commit your cryptocurrency holdings to support a blockchain network, allowing them to confirm transactions.
With the use of the proof-of-stake mechanism, staking is the means of how new transactions are added to a blockchain. Staking participants pledge their coins to their chosen cryptocurrency protocol, and then the protocol selects the validators to authenticate blocks of transactions.
Every single time a block is added to the blockchain, new cryptocurrencies are minted and distributed as a reward to the block’s validator. Usually, the reward is the same cryptocurrency that the participant is staking. But some blockchains use other types of cryptocurrency as a staking reward.
Staking is also a good way to support the blockchain you’ve invested in, allowing them to verify transactions and run their business smoothly.
If you want to stake your cryptocurrency, look for exchanges that offer this option. It is worth noting that you need to own a cryptocurrency that uses a proof-of-stake model if you want to stake a cryptocurrency. After that, choose the number of coins you are willing to lock up as collateral in your stake.
There’s no need for you to worry about losing your coins through a stake.
Technically, even if your coins are locked up, they are still in your possession, and you’re just putting them into work. However, you need to wait until the locking period is over before you can use them again however you want.
Staking gives generous rewards for participants, allowing them to earn more cryptocurrencies. The returns could be as high as 10%-20% every year, which is truly a profitable way to invest your money.
Risks are also present in staking. If small cryptocurrency projects offer extremely high-interest rates, you might want to consider whether you should stake or not.
Remember that the cryptocurrency market is volatile, and prices can go down anytime. If this happens, small projects might not be able to support the interest rate, and the price may end up crashing.
The rewards a staking participant can get may vary depending on the network they have invested in. Factors like the number of every individual’s staked coins, rate of inflation, the total amount of coins staked in the network, and the time validator have been staking can affect the rewards stakes can get. Some networks offer a fixed percentage for rewards.
Staking Pool
Group of token holders can also merge their assets into a pool in order to have higher chances of getting chosen to validate blocks to receive rewards. A group of such people is referred to as staking people.
In a staking pool, token owners combine their shares and staking power within a pool. Usually, staking tools are efficient on networks that require relatively expensive technical or technical entry barriers.
The rewards for staking pools are distributed among each and every single participant according to their contribution.
Cold Staking
Cold staking can be done through cold cryptocurrency storage called hardware wallets. It is a process of putting coins in a wallet that is not connected to the internet at stake, allowing the staking participants to secure their crypto holdings offline while enabling them to grow.
Most often than not, cold staking is often used for big-time stakeholders who want to guarantee maximum protection of their funds. If a staking participant moves out their coins out of the hardware wallet, rewards will no longer wait for them.
Staking coins on Binance is completely free. You just need to create an account, fund it, join a stake, and you go to reap the benefits of putting your coins to work.
