Crypto community

Staking

Staking is only possible on networks that use the Proof-of-Stake (PoS) consensus algorithm or its variations, such as Delegated Proof-of-Stake (DPoS). In exchange for “freezing” your assets, you receive a reward in the form of additional tokens, making staking an easy option for passive income in the cryptocurrency space.

Benefits:

Passive Income
Staking allows you to earn tokens simply by holding them in your wallet, without actively trading or mining.

Reduced Energy Consumption
Unlike mining, staking requires significantly less computing power, making it an environmentally friendly and more affordable way to support the blockchain.

Long-Term Strategy
Staking incentivizes holders to hold assets for a long time, which can positively affect the price of the token.

Blockchain Support
You contribute to the decentralization and security of the network, which is especially important for young projects.

Accessibility for beginners
Many centralized and decentralized crypto exchanges offer convenient staking tools, which makes the process much easier for beginner investors.

High yield for some tokens
There are projects that offer attractive yield rates (up to 20% or more), which makes staking profitable for holders.

Disadvantages:

Asset freeze
During staking, your tokens become inaccessible, and you will not be able to quickly sell them in the event of a sharp price drop.

Cryptocurrency volatility
Even if your staking brings income, a decrease in the value of the token can zero out your profit.

Platform risks
If you use centralized staking platforms, there is a risk of hacking, bankruptcy, or other problems related to fund management.

Token inflation
Some projects create new tokens to reward staking participants, which can lead to inflation and a decrease in their value.

Platform fees
Many exchanges and wallets charge fees for staking, which can reduce your actual profit.

Difficult to validate for individual projects
Some blockchains require high initial investments or special equipment to participate in staking.

Staking cryptocurrencies is the delegation of your tokens to services or your own node to verify transactions in blockchains using the Proof-of-Stake consensus algorithm. In exchange for providing their tokens, users receive a reward in the form of additional tokens, similar to receiving interest on a bank account.

In simple terms, the user blocks part of their funds and receives a reward in the form of interest for the very fact of owning coins, without performing any actions. Since it is necessary to store and block your tokens in order to be allowed to verify transactions and receive additional tokens for this, the network encourages them to act in the interests of the network and prevents malicious influence. In case of malicious influence, tokens can be burned.

What is the Proof-of-Stake (PoS) algorithm and how is it related to staking?

Proof-of-Stake (PoS) is a consensus algorithm that is used by some cryptocurrencies to confirm transactions and create new blocks in the blockchain. In a PoS system, validators, or stakers, are selected to create new blocks based on the amount of cryptocurrency they own and have locked up. The more cryptocurrency a staker has, the more likely they are to be selected to create the next block and receive a reward.

The use of PoS and staking in a cryptocurrency network results in a number of benefits, including reduced energy consumption compared to the Proof-of-Work (PoW) algorithm used in Bitcoin and increased network security by incentivizing honest and transparent behavior. Also, the Proof-of-Stake algorithm does not involve any mathematical calculations or other operations, so it is considered environmentally friendly and affordable.

How does staking work in Proof-of-Stake?

In a PoS blockchain network, validators are selected to create new blocks and confirm transactions based on the amount of cryptocurrency they own and are willing to lock up as collateral. The more cryptocurrency a validator locks up, the higher their chances of being selected to create the next block and receive a reward.

Validators have a clear and simple incentive to act in the best interests of the network, as their cryptocurrency, which they have pledged as collateral, can be destroyed or lost if they misbehave or try to manipulate the system. This creates a more secure and efficient network, as validators have a direct stake in its success.

What are staking providers?

Staking providers are platforms that allow cryptocurrency holders to participate in staking without the technical knowledge and infrastructure required to stake alone. These providers pool the funds of several participants to increase their chances of winning a reward, and distribute the rewards among participants based on their contribution to the pool.

Providers usually charge a fee for their services, which depends on their individual terms and conditions, as well as the specific cryptocurrency. Some providers offer additional services, such as automatic reward redistribution and support for multiple cryptocurrencies. This is convenient because it promotes diversification and saves time.

Example of a staking platform whitebit.com