Cryptocurrencies make their payment systems stable by motivating those who deal with them to earn income. There are different ways a person may acquire cryptocurrency apart from trading it for money or other assets.
Through a mining mechanism, a person earns income and makes transactions in cryptocurrency safe. Mining requires more and more powerful computers, and individuals use a cryptocurrency mining pool to work together.
A cryptocurrency Euthereum has introduced a new mechanism to secure the functioning of the payment system. It lets users receive crypto as a reward too. When staking some of their crypto assets, users get paid in crypto for doing it.
Staking is a bit similar to depositing money in a bank. Normally, you cannot withdraw your stake within an agreed period, and if the exchange rate of a cryptocurrency you have deposited goes down, you will lose. You will not be able to spend or exchange it if you desire.
From a system point of view, a vast number of users do not waste resources unnecessarily trying to come up with a new blockchain.
After Euthereum, some other cryptocurrencies have started using the staking principle, but not all of them do so far. To create new bitcoins, the most famous cryptocurrency ever, you still need to go mining.
Why Staking Is Good for the System?
While being staked, your crypto verifies transactions within the system. This is an alternative mechanism to mining when transactions were verified by calculations fulfilled by those aiming to create new crypto.
The more exquisite a blockchain becomes, the more demanding the calculation is, requiring more time. The fees for transactions were going up, making payment mechanisms less efficient.
Also, stacking adds a level of protection to the project since hackers not only need to possess power machines to try to attack them but also need to already have a significant amount of crypto to stake. Various currencies establish entry limits for an initial stake.
Staking is a new mechanism that has emerged to solve some inefficiencies in the mining mechanism. Those who want to stake some of their crypto assets still need powerful computers.
Why Staking Can Be Useful for a Crypto Holder?
When you stake some of your assets, you aim to earn more crypto. It can be seen as a form of investment.
Various currencies offer different conditions for holding your assets in stakes, depending on the period you choose to deposit them. Typically, the longer the period, the higher the interest you get is.
Is There a Disadvantage of Stacking?
A holder of cryptocurrency cannot reach assets for a certain period. If the exchange rate of the currency you have deposited goes down, the only thing you can do is to sit and watch how you are losing income until the end of the term of your stake.
Why Staking Is Good for the Planet?
Fewer resources are spent in vain compared to mining, when numerous people are still trying to find a new key solution for a blockchain.
When talking about crypto mining, the parallel is gold mining in the times of the Golden Rush. It used to be a complicated and tiring task performed by those who were physically fit and desperate. One needs a powerful computer and skill to mine Bitcoins and other cryptos. Staking is like ranting your money to a bank to secure their liquidity. Because of the reality of a blockchain, stacking is still about the verification of transactions but in a different way. A blockchain holds your crypto, which enables it to secure payments within various participants. If your crypto comes from some illegal source, it can be burned by the chain.
We will see whether staking is the future of crypto projects or both methods will exist in parallel to each other.