Cryptocurrency Staking Explained For Beginners

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Crypto staking, simply put, is the act of holding cryptocurrencies in a crypto wallet to earn rewards. 

Similar to mining, staking involves active participation in transaction validation on a proof-of-stake (PoS) blockchain. It can be considered as an alternative to mining, however, staking does not involve numerous requirements. All you need is a crypto wallet with a required number of coins in it, in order to start generating passive income.

The concept behind staking is the proof-of-stake. 

What Is Proof-Of-Stake (PoS)?

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PoS was created as an alternative for proof-of-work (PoW). With PoW, mining requires a huge amount of energy and routine maintenance. Miners need to keep buying expensive hardware to keep it running.

 This ultimately results in miners needing to sell their coins to foot its bill. PoS was created to resolve this issue by ascribing mining power to the number of coins held by a miner. 

Now with PoS, miners are eligible to receive an earning percentage reflective of their ownership stake. This means miners can mine based on the amount of tokens they hold. Simply put, the more coins a miner holds, the more mining power the miner wields. 

How To Start Coin Staking

In order to start crypto staking, the first thing is to choose an exchange like Coinbase or Binance that offers coin staking or download a software wallet for that coin. This is where your funds are stored. There are a lot of coins in the altcoin market which are available for staking. Examples are Fusion, Tezos, Algorand, and Cosmos, amongst others. 

The most essential requirement for staking is to meet a required minimum balance on the coin you wish to stake with.

After you must have met the balance requirements, set up your wallet and start staking!

How Does Crypto Staking Work? 

As discussed earlier, the process of staking involves depositing a minimum balance into a crypto wallet. The node deposits that amount into the network as a stake. The idea is to forge new blocks to add to the blockchain. 

The chances of a node being chosen to forge the next block, are highly dependent on the size of their stake. 

Staking systems also make delegation possible. Each individual can delegate their voting rights and earn income from a trusted party. If the node successfully creates a block, the validator receives a reward.

Benefits Of Staking Cryptocurrency

PoS is made for convenience. It could be seen as a less risky and cheaper way of mining. The two major benefits of staking are explained below. 

Income is guaranteed: Unlike the Proof of Work system where coins are rewarded through a random process, PoS guarantees a predictable source of income, with time. Profit depends on how much a miner stakes, and for how long.

No expensive mining machine required: PoS is surely a simple and less resourceful way of investing. As opposed to spending an exorbitant sum on buying mining hardware, you only have to buy coins into your own wallet to keep. Once in your wallet, the coins keep growing in value.

Conclusion

On a very practical level, PoS produces and validates new blocks on the blockchain through staking. PoW, on the other hand, relies on mining in order to add new blocks to the blockchain. Staking is considered to be a cheaper and less risky way to actively participate in a blockchain network validation process.

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