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- 1 Staking has become a major means of passive income for crypto users.
- 2 This process allows token holders to gain rewards in return for active participation in the blockchain.
Those who know cryptocurrency well are aware of its two major consensus mechanisms, PoW and PoS. While Proof-of-Work is about solving mathematical equations, Proof-of-Stake is about staking coins. The latter begotten the practice of crypto staking which is now very popular among crypto users. In simple words, it is stashing the tokens in a network and earning a passive income through it. With the wider adoption of the PoS mechanism, staking has become quite ubiquitous today.
Crypto Staking: In A Nutshell
Staking is the key characteristic of any PoS blockchain. This mechanism works only when the users stake their assets to support the network. When the members reserve their tokens, they become entitled to profits and other benefits. The users holding cryptos make a potential passive income while bringing stability into the network. One can equate this system with a bank account that offers interest to savings account holders.
Staking gives a chance to every individual to become an active part of the blockchain mechanism. They also partake in the upkeep of the security of that blockchain. The blockchain returns the favor by offering rewards to those participants. Typically, the yields in the form of tokens hold quite a few benefits on their own. Many blockchains give the rights of decision-making to the token holder. As a result, staking has become a prominent way to make money in the crypto sphere.
A Sneak-Peek Into The Staking Structure
When the participants stake their tokens, they get authorized to verify new blocks too. Thus, they help the network generate new assets too. Since they take part in the validation process, the participants are also called validators. While promoting higher staking and more participation, blockchains also stress honest validation. Notably, some participants purchase tokens and stash them elsewhere instead of staking them right in the home network.
These acts often result in a drop in the token’s price. Hence, the network encourages the validators to have total participation without concealing the true state of the tokens. To increase the rewards, the holders have to increase their stake volume. The bigger the size of the lot, the higher the probability of earning yields. Now a particular stake of tokens doesn’t need to belong to one person. In fact, in every blockchain, there are fewer participants with individual stakes.
Most of them join a staking pool which is a collection of staked coins belonging to multiple persons. Also, stake owners can appoint delegates to manage the tokens on their behalf. These delegates charge some fees from the actual holders in exchange for their services. Blockchain networks also implement some measures to prevent any suspicious activity or irregularity.
For example, if a validator is truant for a long duration, they are subjected to suspension by the network. Some popular networks like Ethereum and Polkadot have taken such steps in the past.
Upshot
In terms of cost, it’s quite cheap to run a PoS mechanism. That’s the reason so many platforms like Ethereum, Solana, Cardano, Avalanche, and Polkadot have adopted it. Furthermore, it has become very easy to join a blockchain as a crypto staker. People interested in becoming stakers can do it with the help of exchanges too. With profitability prospects, It’s playing an instrumental role in crypto adoption.
Mr. Pratik chadhokar is an Indian Forex, Cryptocurrencies and Financial Market Advisor and analyst with a background in IT and Financial market Strategist. He specialises in market strategies and technical analysis and has spent over a year as a financial markets contributor and observer. He possesses strong technical analytical skills and is well known for his entertaining and informative analysis of the Financial markets.
