Crypto staking is a phenomenon that has arisen in reaction to the increasing energy demand generated by Proof-of-Work (PoW) protocols like the one used to process transactions on the bitcoin (BTC) blockchain.
In essence, staking cryptocurrencies entails acquiring and reserving a specified amount of tokens that will be needed to authenticate blockchain transactions.
This novel system, dubbed Proof-of-Stake (PoS), consumes less energy since it eliminates, or significantly decreases, the need for a large amount of mining equipment to protect the blockchain.
Numerous blockchains, notably ethereum (ETH), have recently implemented proof-of-stake (PoS) algorithms to power their networks in response to rising environmental concerns around the rapid use of cryptocurrencies.
How does Staking actually work?
Staking cryptocurrency is the practise of purchasing and reserving a specified number of tokens in order to become an active validating node for the network.
Simply by retaining these coins, the purchaser becomes an integral part of the network’s security architecture and is rewarded appropriately.
Staking revenue is provided in the form of interest payments to holders, and rates vary amongst networks based on a variety of factors, including supply and demand dynamics.
As the number of PoS-based networks increases, new ways to stake crypto have developed, including the introduction of group staking, also known as staking pools, staking providers, and cold staking.
These efforts seek to democratise access to staking possibilities for retail investors who own a modest number of a blockchain’s tokens.
How does the staking process begin?
Staking begins with the purchase of a certain amount of tokens on the network. It is critical to remember that staking is only possible on networks that implement the PoS protocol.
After completing the purchase, the user must now secure the assets by following the method specified by the network’s creators. In most situations, a staking transaction may be completed within a few minutes by following the instructions provided by your wallet.
On the other hand, cryptocurrency exchanges have made staking tokens easier by including features such as staking pools.
These seek to enhance the payout received for staking a network’s tokens by increasing the amount of coins staked at any given moment.
In most situations, the more coins staked, the more transactions a specific node will be allocated to validate. Nodes are often ordered according to the quantity of tokens they possess.
As a result, nodes with the most tokens frequently earn a greater payout, which is why staking pools have grown so popular in recent years.
A user can stake tokens for a specified length of time. This is referred to as fixed staking.
Additionally, some companies provide the option of adopting a more flexible system in which the user can withdraw their tokens at any time – this is referred to as flexible staking.
Due to the inflexible structure of fixed staking, the holder often receives a greater interest rate, whereas flexible staking typically offers less appealing conditions.
Crypto staking has gained popularity in recent months as a result of the high benefits associated with this practise.
At the time of writing, interest rates on staking range from 6% per year on well-known networks like Ethereum (ETH) and Cardano (ADA) to 100% on some smaller networks.
Can I do staking on Coinbase?
Coinbase have introduced staking though it is only available in some regions, which include Europe, the UK and the US. Asia and Africa have some restrictions on which coins can be staked.
Coinbase do take their own cut from any fees earned.
Bitpanda has also recently integrated staking to their exchange.