WHAT IS STAKING?

INTRODUCTION

As a result of technological advancements and the development of economic ecosystems around cryptocurrencies, staking, a process that allows us to obtain profits and the right to vote on a cryptocurrency project by doing something as simple as saving them, has emerged.

The process of staking consists acquire cryptocurrencies and keep them locked in a wallet in order to receive profit or rewards. It is a process very similar to HODL, only that in stake the balances are locked and you cannot use them freely. At the same time that contributes to the operability and operation of the blockchain of that same cryptocurrency.

The blockchain, as we all know, is the technology that gave birth to cryptocurrencies. And each cryptocurrency has its own blockchain, which keeps track of all transactions. Despite their differences, all blockchains have one thing in common: transactions must be validated by consensus.

Each blockchain, such as Bitcoin, uses a consensus protocol that uses Proof of Work (PoW) for block mining. A process that necessitates a lot of computing power and thus uses a lot of electricity. Proof of Stake is used by other cryptocurrencies such as NEO, Stellar, Algorand (and, soon, Ethereum) (PoS).

Stored cryptocurrencies are used to verify transactions within blockchains in this protocol. As a result, staking It's a method that's commonly used in blockchains that use Proof of Stake (PoS) or one of its variants.

HOW DOES STAKING WORK?

Validators are nodes that participate in the PoS consensus protocol. They are also in charge of validating the generated blocks, as their name implies.

The selection of these validator nodes is a completely random process, similar to a lottery. Those nodes with more cryptocurrencies have a higher chance of being chosen. As previously stated, block validation in PoS is performed by nodes that have cryptocurrencies in their possession rather than by miners. Staking is the basis of the PoS. Users are encouraged to keep their funds in a wallet to contribute to the network's support and profit.

So, to perform staking, all you have to do is acquire a cryptocurrency that allows you to do this process, and use the official wallet to stake. As a result, you can earn rewards from the network simply by storing those cryptocurrencies. Having a savings account and earning interest on your money is very similar.

STAKING TYPES

• Staking Groups

They are user groups that come together to expand their block validator capabilities. As a result, they pool all of their funds to increase their staking power. Then, when the rewards arrive, they divide them among all of the participants in proportion to their individual contributions.

This method allows small users or new users to participate in the network regardless of the amount of assets they own. Contributing to the decentralization of it.

• Cold Staking

It's all about staking with a cold wallet. Like a hardware wallet with no constant Internet access. Some blockchains allow for this type of staking, allowing users to keep their funds offline and thus safer. It is ideal for those users who possess large amounts of cryptocurrencies. That without a doubt being online, they would be at great risk.

• Staking Suppliers

This modality allows many to offer a dedicated service to coin users to stake. However, the returnability with this type of staking depends a lot on the commissions that they charge. They can range from 2% to 50% of rewards. So they would contribute a lower percentage of profits than if staking will be done only from one platform.

STAKING ADVANTAGES AND DISADVANTAGES

Advantages

The core benefit of this method is that it eliminates the need for specialized mining hardware or equipment to be purchased or invested in. And with it, the energy requirement that they demand. In addition, the generation of blocks through staking allows greater scalability of the network.

On the other hand, for users, keeping a large number of cryptocurrencies in stake gives them a greater probability of being chosen as validators. And thus be able to validate and verify the new blocks that are produced in the blockchain. Making better profits and much more stable than with the PoW mining process.

Likewise, cryptocurrencies that remain in stake do not devalue over time. As can happen with mining equipment if a better and more powerful one is designed.

Disadvantages

The process of buying cryptocurrencies and keeping them tucked away for rewards can be quite eye-catching. However, you should not expect to make significant gains. The platforms and exchanges pay very low annual percentages, so the rewards are very low compared to those obtained from mining blocks.

Also, keeping cryptocurrencies stored in an online wallet can pose your risks. Since a hacker could extract all your funds. In the same way, using a platform or exchange is putting your trust and funds in the hands of a third party.

As for the possession of coins, it is a factor that undermines the decentralization by which cryptocurrencies were created. Since the greater the number of assets, the greater the probability of generating blocks and making decisions.

SOME OF THE BEST KNOWN CRYPTOCURRENCIES THAT OPERATE WITH POS

Here we will present you a small list of the best known cryptocurrencies that can be used to stake. Let's see.

• Stellar (XLM)

This platform was designed in 2014 in order to facilitate cross-border transactions. Making them much faster and more efficient. Like Ethereum, Stellar enables the development of smart apps (dApps) and other tokens. To start staking with this cryptocurrency you must have at least 10 XLM. And you can get between 2% to 4% annual returns.

• TRON (TRX)

It is currently ranked number 11 for its market capitalization. TRON was designed with the goal of improving network scalability and reliability. So you can process transactions at high speed through high-performance computing.

TRX is among one of the most profitable staking options. Binance offers you a returnability between 7% and 9% per year. And you only need to have a minimum of 5 TRX to start.

• NEO (GAS)

NEO is a platform very similar to Ethereum whose purpose is the development of smart contracts. Its technology is of Chinese origin and promises to generate GAS (the token) automatically without the need for an Internet connection. Currently it is an excellent option for staking.

• Algorand (ALGO)

Algorand is a platform that uses PoS to improve decentralization, security and scalability of the network. Your ALGO token can be purchased on various exchange platforms such as Binance, which allows you to stake with it.

TIPS WHEN DOING STAKING

If you are reading this it is surely because you have thought about staking. Well, we will give you some little tips to take into account when choosing.

• Always do your own research and do your research on the cryptocurrency you are considering. Don't get carried away by other people's comments or experiences.

• Always do the math and calculate with your minimum investment how much return you will have, and in how long.

• Go for a purposeful cryptocurrency that can stay in the future. Remember that today there are thousands of projects that were born and no longer exist.