What is staking?

by Andy Mora

Cryptocurrencies remove the need for relying on the stock exchange, banks, or any reliable intermediary. With the new monetary system, millions of people around the world are making money through crypto trading, mining or staking coins. The thing is – we need to have some kind of consensus algorithm in place to be able to verify the integrity of the blockchain. There are two main types of protocols used by cryptocurrencies Proof-of-Work (PoW) and Proof-of-Stake (PoS).

What is Proof-of-Stake coin?

With standard Proof-of-Work (used by Bitcoin, Ethereum or Litecoin) new coins are generated with help of hardware in the process called mining. With Proof-of-Stake new coins are generated in the process of staking - a person who is holding some coins helps in validating new transactions on the blockchain. As result new blocks are added to that blockchain, the network is kept alive and running, and an individual who was able validate new transactions is getting paid for providing taking service. The more coins a person stakes, the higher their ability to validate transactions is.

How does the staking work?

In Proof-of-Stake (PoS) protocol, blockchain validators are chosen randomly. A staking person can be added to the pool of available validators by staking a certain amount of coins in a wallet (or within Masternode). If the coins in the staking wallet are chosen to be transaction validators by the network then it creates a new block that is proportional to the percentage of coins staked. The slight downside of the staking is a fact that to enable staking the coins are locked up for a period of time and cannot be sold.

Happy staking!

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