As the world of cryptocurrency expands its reach to newer frontiers, more and more people are jumping on the cryptocurrency bandwagon. Today, users can trade cryptocurrency on exchange platforms quite easily. Moreover, many internet users are now partaking in what is known as crypto staking.
This article will serve as a brief introduction to crypto staking, explaining what it is, how it works, and how crypto staking serves to maintain the integrity of the technology that powers cryptocurrency transactions. Check out this platform too YuanPay Group
What is Crypto Staking?
In simple terms, crypto staking is a way of investing in cryptocurrency. When someone purchases cryptocurrency on an exchange platform, they are not investing in cryptocurrency like stakers are. Importantly, those who stake cryptocurrency serve a very important function in securing and maintaining the integrity of the crypto sphere.
Staking is the act of holding crypto funds in a crypto wallet to support the technology that powers it all: Blockchain. Blockchain is best viewed as a public ledger, which is accessible to everyone in the crypto sphere. This ledger contains a history of all previous transactions since the inception of the cryptocurrency in question up to the present in the form of individual blocks.
When one stakes cryptocurrency, they are essentially holding their crypto on an exchange for other users to use and trade amongst one another. The incentive for stakers to do this is that they win rewards for the crypto that they hold. Normally, one can stake crypto directly from their wallet. However, like the Binance Smartchain, many exchanges today allow users to earn rewards by staking crypto directly on the exchange.
Since staking helps to maintain the decentralized nature of all Blockchain transactions, it is a key element that holds the crypto universe in place.
How Does Crypto Staking Work?
Staking is a mechanism by which decentralized agreement can be reached regarding all transactions on the Blockchain. Another common method of doing this is Crypto mining, whereby miners use computational power and compete to solve a complex mathematical puzzle. Whoever does this first for any single transaction can add another block to the Blockchain.
Similarly, staking is a mechanism by which users achieve and maintain decentralized consensus regarding transactions on the Blockchain. Staking is a much less costly method than mining as it requires much less computational power.
So how do stakers achieve this decentralized consensus? This is where Proof of Stake comes in.
What is Proof of Stake?
Proof of Stake (PoS) allows users to lock a chosen amount of crypto, also known as their crypto stake, on an exchange for others to trade amongst one another. As part of the protocol surrounding staking, these stakers are given the right to validate the next block assigned to them. What is important about this protocol is that the probability of being chosen to validate the next block is correlated to the amount of cryptocurrency that the user has staked. The higher the stake, the greater the probability of being chosen to validate the next block on the Blockchain.
Through this simple mechanism, participants don’t create a block by solving a complex computational puzzle, as in crypto mining. Instead, what determines who gets to validate the block is how many staking coins users are holding.
Crypto staking is a very important part of the cryptocurrency world as, along with crypto mining, it is part of the protocol that maintains the integrity and transparency of the technology that powers all cryptocurrency transactions: Blockchain.