Staking in digital currency actually allows users to increase their digital assets by supporting blockchain networks based on Proof of Stake ( PoS ) consensus. In this process, users play an active role in ensuring the security and integrity of network transactions, and in exchange for this participation, users receive their staking rewards .
Staking in digital currency
Staking is a term used in the world of cryptocurrency and blockchain. Basically, staking involves locking a certain amount of a digital currency in a digital wallet to support the operation of the blockchain network related to that currency . In return for this action, the network rewards contributors. Basically, staking is a concept that originates from the Proof of Stake (PoS) mechanism. Also, the stick method is one of the popular and effective ways to earn money from digital currencies .
History of staking
The history of staking is generally related to the development and adoption of the Proof of Stake mechanism, which was proposed as an alternative to the Proof of Work (PoW) mechanism. The proof-of-stake mechanism was first theoretically introduced by Sunny King and Scott Nadal in 2012 in the Peercoin project. This mechanism was designed to reduce energy consumption and increase the scalability of blockchain networks.
After Peercoin, the PoS mechanism was also implemented in other projects such as Blackcoin and Nxt. But the most prominent project that used proof of stake and became widely known is Ethereum. Ethereum originally started with a proof-of-work mechanism, but with pressures to improve scalability and reduce energy consumption, the network’s development team worked on transitioning to a proof-of-stake mechanism under a program called Ethereum 2.0, which began in 2020. .
Now, many blockchains and cryptocurrencies have implemented proof-of-stake mechanisms or versions thereof, and staking has become a popular way for users of these networks to play a role in securing the network without the need for powerful mining equipment. Receive financial rewards.
How does staking work?
Staking is actually part of the process of verifying transactions in the ” Proof of Stake “ or PoS consensus algorithm. Unlike the “Proof of Work” algorithm , which requires mining and consumes a lot of energy, PoS uses a different approach. In PoS, people ” stake ” their digital currency to ensure the security and integrity of the network .
Staking steps:
- Choosing a digital currency: The first step is to choose a currency that allows staking. Some of the most famous cryptocurrencies that use PoS include Ethereum 2.0, Cardano (ADA), Polkadot (DOT), and Solana (SOL).
- Creating a wallet: For staking, you must have a suitable digital wallet that supports the desired currency.
- Locking currencies: You lock a certain amount of currency in your wallet. This amount acts as your collateral or “stake”.
- Receive rewards: In contrast to staking, you receive rewards in the form of digital currency.
Advantages of staking:
- Passive income: You can earn money without daily activity.
- Less expensive than mining: Unlike mining, staking does not require expensive hardware equipment.
- Network support: With staking, the security and efficiency of the blockchain network is increased.
Disadvantages of stacking:
- Price risk: If the price of digital currency decreases, the value of your investment will also decrease.
- Asset Lockout: Your asset will be locked for a certain period of time and you will not be able to trade it freely.
- Technical Complexity: Some of the staking processes may be a bit complicated for beginners.
List of digital currencies suitable for stick
The currencies that can be staked may change over time, but some popular currencies that can be publicly staked include:
Ethereum
After transferring Ethereum to the Proof of Stake consensus algorithm or PoS through the protocol known as “Olympius Challenge” and converting to Ethereum 2.0 . It is one of the hottest investment options. By investing in Ethereum, you can become one of the first validators of this network and help the system flourish.
Solana:
Solana is also one of the popular platforms for investing; Because it has an acceptable annual profit, and there are many staking pools. Just like other popular staking currencies, many exchanges have made SOL token staking possible.
Cosmos (ATOM) :
Cosmos is one of the famous currencies that works based on the PoS protocol. Cosmos staking (ATOM) is a process in which holders of the ATOM digital currency, which is the native token of the Cosmos network , allocate their tokens to the network to participate in network security, transaction confirmation, and validation. In return, they receive additional ATOM tokens as a reward.
Cardano (ADA):
One of the famous projects in the blockchain field that uses the PoS algorithm. Cardano staking (ADA) is a process in which holders of ADA digital currency – the native token of the Cardano network – participate in the process of validating and producing blocks by assigning their tokens to a staking pool. In return for this contribution to the network, ADA holders receive rewards.
Tzonos (XTZ) :
This digital currency called Tezos (XTZ) works based on the PoS algorithm and can be staked. The process of investing in this platform is known as ” Baking “. Bakers ( Bake r), or shareholders of the Tezos platform, receive the platform’s native coin as a reward for their participation. Also, on the other hand, the invested assets of the bakers who have a destructive performance will be confiscated.
Polkadat (DOT) :
Polkadat is one of the popular blockchain projects that allows staking. Polkadot staking is a process where DOT token holders lock their tokens to the network to ensure the security and proper functioning of the network.
Banance Coin (BNB) :
Binance digital currency (BNB) can also be used for staking. BNB staking is an effective way to earn rewards from your idle tokens and also helps to ensure the security and efficiency of Binance -related networks . If you intend to stake BNB, it is recommended to use reliable and official sources and do the necessary research.
Tron (TRX) :
TRX staking on the TRON network provides a great opportunity to earn rewards as well as participate in network decisions. Staking in the Tron network is also a similar process to other blockchain platforms, but it has its own differences and characteristics. Tron uses the Delegated Proof of Stake (DPoS) consensus mechanism, which makes its staking process particularly attractive.
Note: Of course, this list is only a part of staking currencies , and many other currencies also use the proof-of-stake algorithm and have staking capabilities. It is recommended to always get detailed information about the terms and requirements of staking each currency from reliable sources before starting staking.
The role of staking in blockchain networks:
In networks that work based on the PoS algorithm , staking plays a key role. Unlike blockchains that operate based on the Proof of Work algorithm and require a lot of miners and energy, PoS uses a mechanism that relies on the security and integrity of the network through staking. In this algorithm, instead of competing to solve complex mathematical problems, validators validate transactions by locking a certain amount of their digital currency in the network.
Staking on different platforms:
Depending on the blockchain platform you choose, the staking process can be different. For example, in Ethereum 2.0 , you need 32 Ether ( ETH ) to create a node, while in some other networks the minimum stake may be lower.
Nodes in staking:
In PoS-based blockchain networks , ” nodes ” are the central units responsible for verifying transactions and maintaining the health of the network. To become a node (or Validator), a user must lock up some of their digital currency as collateral. The higher the amount of this deposit, the more likely the node will be selected to validate transactions and receive rewards.
Conclusion
Staking is one of the attractive and low-risk ways to earn money from digital currencies . By choosing the right currency and wallet , you can take advantage of this opportunity to increase your profitability. Also, staking is one of the fundamental and important methods in blockchain networks that use the PoS algorithm.
This process has important benefits for both users and the network; On the one hand, users can benefit from their assets, and on the other hand, the network becomes more secure and stable. Choosing the right digital currency and fully understanding the staking process can help you make the most of these financial opportunities.