What it means to Stake!

So you have some cryptocurrency sitting in your wallet & you think “There has to be a way these idle coins can work for me 🤔”

Yes, yes there is a way for them to do profitable work & it's called crypto staking.

🔒 What’s that? Staking?
Staking is a way for you to participate in the operations of a blockchain network and, in return, earn rewards.

It’s when you lock up a certain amount of crypto in a wallet to support the operations of a blockchain network. This is often done to contribute to the network’s security, validation, and overall functionality.

Here’s the catch: Proof-of-stake
There are 2 major ways for crypto & blockchain to secure their network, to keep it safe.

Proof-of-work and Proof-of-stake.

Other methods are irrelevant to this topic.

The former, Proof-of-work(PoW) involves “miners” (I wrote about Mining sometime ago) all over the world competing to be the first to solve a cryptographic puzzle. All so to earn some ‘coins’ while securing the blockchain network. This consensus method depends on the crypto in question. An example of a PoW crypto = Bitcoin.

The latter, Proof-of-Stake (PoS), is the one that involves the current topic: staking. Cryptocurrencies under this consensus method include; Ethereum, Tezos, Cosmos, Solana, etc. & they can all be subjected to staking, unlike BTC.

In PoS, validators (participants who secure and validate transactions) are chosen to create new blocks and validate transactions based on the number of coins they hold and are willing to “stake” as collateral.

Your crypto, if you choose to stake it, becomes part of this validation process.

💸 Earning Rewards
By staking your crypto, you have the opportunity to earn rewards. These rewards are usually in form of extra crypto tokens. The more coins you stake, the higher your potential rewards would be.

It’s kind of like investing regular money.

Where you lock a certain amount of money up for a specific period instead of letting it sit idle in your savings account. This money is then used by the institution/bank to attend to other needs of the economy. And when the time is up, you get back your money plus the returns you were promised.

Security & stability
Just like how investing contributes to the economy's financial growth, staking also contributes to the security & stability of the blockchain network.

Participants have a vested interest in maintaining the integrity of the network because they have staked their own crypto as collateral.

Can you choose to unstake staked funds?
In many Proof-of-Stake networks, you can unstake your crypto at any time. But then, there might be a waiting period before the unstaked funds become fully accessible.

It could also cost some extra breaking fees. Or even forfeiting the staking rewards.

This flexibility arrangement allows users to adjust their participation in the network.

🥙 Wrapping up
Crypto staking is when you pledge your cryptocurrency toward helping validate transactions on the blockchain.

When you do this, you earn passive income/rewards on the staked funds.

But just like in regular fiat investments, staking also comes with its risks.

Risk of low ROI (return on investment), crypto volatility, funds inaccessibility, hacking, scams, etc.

If staking is something you’d want to seriously consider, it's best to DYOR before diving in.


dyor!
Thanks for reading :)

PS: I made similar articles into a Medium “playlist” called #Web3Wednesdays. If you’d like to go through previous articles, they’re neatly packed for you in a List.

PPS: feel free to clap more than once on this piece, drop a comment, anything.

PPPS: DYOR — Do Your Own Research