What is staking and its role in cryptocurrencies?
If you are interested in cryptocurrencies but mining seems too resource intensive, you might want to consider staking. This method allows you to earn by keeping your coins in your wallet. Simply put, staking is locking up cryptocurrencies to get a reward. Let’s understand this further.
What is stake and proof of stake?
Proof of Stake (POS) is a mechanism that allows participants to lock their cryptocurrencies in staking and get rewarded for creating new blocks. Unlike mining, where miners solve complex mathematical problems, in POS, the choice of validator is based on the amount of coins locked.
Benefits of sticking
Staking provides a high degree of scalability to blockchains and is a more economical way to support the network. For example, Ethereum is planning to move to POS as part of the ETH 2.0 update.
Stecking required: DPOS
Delegated staked staking (DPOS) is a type of PoS where users can exchange tokens for voting rights and choose delegates who will manage the network on their behalf. This mechanism increases network performance by reducing the number of validating nodes, but may lead to less decentralization.
How does sticking work?
By locking their coins, participants participate in the creation and validation of new blocks. The more coins locked, the higher the chance of eventually being selected as a validator. Staking allows users to earn money by holding cryptocurrencies while providing security and network activity.
Now that you understand what staking is, you can look at it as an interesting way to earn cryptocurrencies without resorting to mining.
