Crypto Staking: The Ultimate Guide

By . In Proof of Work, digital assets like Bitcoin confirm transactions. While Proof of Stake, in simple words, is mining the currencies without using huge and expensive machines. This factor of PoS makes it a great way to earn passive income in the virtual currency world. Let us understand the term in brief below.Introduction to Proof of StakeProof of Stake is a substitute consensus algorithm that is equal to Bitcoin’s Proof of Work. This consensus method is used to validate transactions on the blockchain and secure the network. A crypto owner, who takes part in validating the network, stakes his/her coins. After staking their own coins, they get more coins in the reward that are proportional to their staked coins quantity. Validation power depends on the number of coins staked. Higher the number of coins staked, higher will be the validation power.Supporters of digital currencies say that Proof of Stake is a securer way as compared to Proof of Work. It is because attacking a network will require more machinery and resources. And taking control of a blockchain network is possible only when half of the network validators are settled. Buying digital currencies to stake half of a PoS network will lead to inflation and increase an asset’s price until it becomes high-priced. This is very expensive as compared to earning half a hash rate of a PoW network. Hence, Proof of Stake can be assessed as more secure.How Does It Work?In PoS, owners of crypto who want to stake their assets put them in the wallet which is connected to the blockchain. This wallet, which contains coins to be staked, requires to be connected to the blockchain all the time. Crypto owners stake their coins on the blockchain, and those coins are used for validating transactions and create new blocks. By staking digital currencies, users help in securing the blockchain and keep it progressing.[Crypto owners who stake their coins are known as Forgers. ]How To Stake Cryptos?To start staking virtual currencies, you need to follow some steps and they are as following:Choose a CoinThere are many staking coins available in the crypto market. You can search for such coins and choose from them.Download the WalletA software wallet is important for the process of staking. In this wallet, you will store the assets you want to stake. For downloading a wallet, go to the website of the virtual currency you are staking and download.Determine the Minimum RequirementsSome digital currencies have a minimum limit for the number of coins you want to stake, like Ethereum and Dash. But there are also some that do not have any minimum requirements.Decide What Hardware to UseSome staking schemes need a staker or forger to be connected to the network around the clock. So, it is important to use a device that has a constant and untroubled internet connection. You can use a simple computer as it would perform well. Also, choose the device that uses less energy as you need to be connected with the network all the time.Start StakingOnce you set up your wallet, you are ready to start the process of staking. Make sure that you have an internet connection at all times. In between, keep ensuring that everything is running smoothly.Different Setups for Proof of StakeThere are different setups for the working of PoS. For example, there are differences in how new blocks are formed and how transactions are verified. Following are the setups:Selection based on Age of Coin- Forger is selected based on number of days and coins stakedRandomized Block Selection- Here, a model is created for finding a crypto owner who has the lowest hash value and size of stakingInflation Amount- In this, an inflation rate model is added depending on the number of coins staked. The cut-off number can be more or less than 50%.Benefits of Proof of StakeFollowing we have listed some advantages of staking digital currencies:Cheaper EquipmentIn staking virtual currencies, you don’t need to invest in expensive and heavy mining machinery. You can perform staking by using a mobile phone or a computer easily.Less Energy ConsumptionWhen you mine crypto, you need to have huge mining machines and to operate that you require a huge amount of energy. But staking cryptocurrencies is much more efficient and helpful for the environment too as it uses less energy for functioning.Decreased Risk of 51% AttackThis factor works best for digital currencies such as Ethereum and other famous cryptos. As no one would be holding more than 50% of all coins of Ethereum, it decreases the risk of 51% attack.Staking virtual currencies is a less risky, cheaper and efficient way of taking part in the validation process of a blockchain network. Together with that, most importantly, it uses less energy which makes it an eco-friendly way of earning income passively in the digital asset market. Finding good PoS currencies can be difficult sometimes. You may also need to manually verify sometimes that a coin allows for staking or not.Reference: Magazine Staking: The Ultimate Guide was originally published in ALTCOIN MAGAZINE on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Author: Peter Jack