To Stake or Not to Stake?
By now you’ve heard of Proof of Stake. But not sure what it means. Staking is a mechanism used in blockchain to secure a blockchain network and validate transactions. It involves holding a certain amount of cryptocurrency in a wallet and participating in the network’s consensus process to validate transactions and earn rewards.
Staking is used in various blockchain networks that use proof-of-stake (PoS) consensus algorithm, which is an alternative to the proof-of-work (PoW) algorithm used by networks like Bitcoin. In PoS, instead of solving complex mathematical puzzles to validate transactions, as in PoW, validators are selected to validate transactions based on the amount of cryptocurrency they hold and are willing to “stake” or lock up as collateral.
When a user stakes their cryptocurrency, they become a “validator” and help validate transactions on the network. In return for their contribution to the network’s security, validators receive a portion of the block rewards for each block they validate. The size of the rewards depends on the network’s inflation rate, the number of validators, and the amount of cryptocurrency staked by each validator.
Staking can be seen as a way of participating in the blockchain network and earning passive income, as users can earn rewards for simply holding and staking their cryptocurrency, without the need for intensive computational power as in PoW.
There is more to learn about Staking… Check out part 2!
Nothing in this article constitutes professional and/or financial advice.
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