If you’re a crypto investor, you’ll hear about staking more often. It’s the way many cryptocurrencies verify their transactions and reward participants on their holdings.
But what exactly is crypto staking?
Staking cryptocurrencies is a process that involves holding your crypto assets to support the growth of a blockchain network and confirm transactions. The cryptocurrencies that use the POS (Proof-of-Stake) model can enable staking to process payments. This is a more efficient alternative to the POW (Proof-of-work) model that requires mining.
In the crypto world, staking is a great way to earn passive income, especially with cryptocurrencies that offer higher interest rates for staking. Before you get started with it, make sure you know everything about it.
What is Proof-of-Stake?
Cryptocurrencies are created when multiple computers run a shared software with common rules applied to it. And Proof-of-Stake (POS) is an algorithm that determines how computers running that software will agree on the exchanges of these coins.
In particular, the POS algorithm allows users to “lock” their coins or crypto assets in special contracts. In return, these users are rewarded with new cryptocurrency generated by the protocol.
How Crypto Staking Works?
Staking is about adding new transactions to the blockchain!
To get started with it, the participants first need to pledge their coins to the cryptocurrency protocol. Then, the protocol will choose validators among those participants to confirm blocks of transactions. The more coins you pledge, the more likely you will be chosen as a validator by the protocol.
If you want to stake crypto, you need to own a cryptocurrency that uses the POS model. Then, the next step would be to choose the amount you want to stake. You’re free to unstake your coins whenever you want to.
What Are Staking Rewards?
Every time a new block is added to the blockchain, new cryptocurrency coins are minted, and they are distributed to the respective validator as staking rewards. In most cases, the rewards will be the same as the cryptocurrencies that the participants have staked. However, in some cases, it could be different as well.
Are Staking Rewards Similar to Interest Payments?
Not necessarily! Interest payments and stake rewards are different from each other in major ways.
Staking rewards are paid by the network to the validators for helping to grow and secure the network. There are no rules that determine who will receive rewards when it comes to staking, so there is usually no guarantee.
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