Staking 101
In todays class at the academy we are tackling a frequently thrown around word of the industry, which might still very well be confusing to many. The language of blockchain might be hard to distill into understanding, but that’s where we come in! Let’s dive into learning!
So what really is staking?
Staking is the act of locking up one's cryptocurrency holdings in a smart contract in order to take part in blockchain operations. With staking, all you have to do to get payment from the network and generate passive income is keep cryptocurrency in a wallet. Staking and mining are similar in that they both give users rewards for contributing to the security of a decentralized network. As a result, you will store your cryptocurrency and gain advantages.
I’ve heard about POS and POW. What are they?
The PoW (Proof of Work) technique enables transactions to be verified before being gathered into blocks. A blockchain is created by connecting these blocks. Through this approach, miners allow the network to use the processing power of their computers to tackle challenging mathematical problems. The privilege to add the following block to the blockchain belongs to the first person to solve the issue. Of course, this kind of operation uses a lot of energy, and it has already received harsh criticism. The Stakeholder Proof (PoS). With PoS, the fraction of locked tokens determines the likelihood of being selected to validate the block. The user is therefore more likely to be selected to validate the transaction the more locked tokens he owns.
How do I stake?
Due to the increase in sites giving this opportunity, there are many different methods to stake. Though, not all of them provide the same level of protection, so be cautious.
Staking on DEX Staking can be done on a DeFi exchange platform, but you should be aware that while this option often pays more than the CEX, it also carries higher risks. Compared to major exchange platforms, DeFi protocols are typically more vulnerable to attacks and vulnerabilities. Additionally, this strategy is a little more difficult for experienced novices.
Staking on CEX Staking options are now available on almost all large exchange platforms. For instance, it is relatively simple to begin staking your crypto-currencies on Binance or Kucoin. Some even do not require a "lock" time, so you are free to remove them whenever you choose.
Conclusion
Staking cryptocurrencies involves some risk because you sometimes need to stake them for a considerable amount of time, exposing you to market volatility. Therefore, before you begin, you must determine your own acceptable risk/return ratio.
