Basic principles of crypto staking

25.03.2022
Basic principles of crypto staking

One of the general notions mentioned alongside the crypto sphere includes staking – an option of consensus mechanisms picked by certain cryptocurrency. Though the concept may seem quite clear from the first glance, not everyone understands the specifics of operation it presents. That is why one needs to get the peculiarities first before deciding, whether to choose it for passive income or put it aside.

The definition of proof-of-staking consensus

First of all, staking is one of the comparingly recent mechanisms aimed at verification of performed transaction. It is based on the concept of creating blocks according to the involved users who already have a certain share staked inside in the native cryptocurrency – whenever the transfer is made between users, the people chosen become validators of operation, getting rewarded for participating. On the contrary to the proof-of-work consensus mechanism, it is not about being the first one to solve the block but becoming the part of the system with equal chances of being involved.

 

How to be involved into staking system

The rating depends on three main factors – the amount of assets entrusted to the blockchain, the time already spent within the system and the random choice made between the potential candidates. After that the operation is made, where the validators confirm the transfer made through their section, and participants get their reward for partaking. However, there are certain risks attached to it – together with being rewarded, the user can easily lose the part or even whole amount of the stake if the transaction confirmed was fraudulent.

Despite the possibility of losing it all, many consider proof-of-staking to be much better choice than proof-of-work consensus due to the advantages it offers:

  • opportunity for hitting the jackpot with the right choice of cryptocurrency supporting such mechanism;
  • more justice in getting the deserved reward, as the combination of random and defined factors becomes fair enough for involving more participants;
  • no need in additional equipment that pollutes the environment, countering the proof-of-work algorithms with their needs for considerable investments made beforehand.

However, the user should be prepared for possible volatility that almost every cryptocurrency experiences from time to time, lock-ups of the assets for the certain period after entering the blockchain and some chances of losing the part of funds entrusted to the system. Comparing to the benefits presented, there is no big issues, but some may consider this for taking precautions.

In case anyone wants to join the system based on proof-of-stake consensus, there are two main ways of entering there as a validator. For one, it is possible to monetize the assets gained from crypto exchange, putting them inside and proving oneself as a validator without any support. Other way is offered through becoming a part of certain staking pool with clear hierarchy and lesser risks, but it takes more resources for covering the additional fees taken for entry or membership. But both types can feel themselves rather comfortable inside the system, benefitting from it without much to give up.

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