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What is Staking?

You may think of staking as a less resource-intensive alternative to mining. It involves holding funds in a cryptocurrency wallet to support the security and operations of a blockchain network. Simply put, staking is the act of locking cryptocurrencies to receive rewards.

In most cases, you’ll be able to stake your coins directly from your crypto wallet, such as Trust Wallet. On the other hand, many exchanges offer staking services to their users. 

To get a better grasp of what staking is, you’ll first need to understand how Proof of Stake (PoS) works. PoS is a consensus mechanism that allows blockchains to operate more energy-efficiently while maintaining a decent degree of decentralization (at least, in theory). Let’s dive into what PoS is and how staking works.

What is Proof Of Stake?

If you know how Bitcoin works, you’re probably familiar with Proof of Work (PoW). It’s the mechanism that allows transactions to be gathered into blocks. Then, these blocks are linked together to create the blockchain. More specifically, miners compete to solve a complex mathematical puzzle, and whoever solves it first gets the right to add the next block to the blockchain.

Proof of Work has proven to be a very robust mechanism to facilitate consensus in a decentralized manner. The problem is, it involves a lot of arbitrary computation. The puzzle the miners are competing to solve serves no purpose other than keeping the network secure. One could argue, this in itself makes this excess of computation justifiable. At this point, you might be wondering: are there other ways to maintain decentralized consensus without the high computational cost?

Enter Proof of Stake. The main idea is that participants can lock coins (their “stake”), and at particular intervals, the protocol randomly assigns the right to one of them to validate the next block. Typically, the probability of being chosen is proportional to the amount of coins – the more coins locked up, the higher the chances.

This way, what determines which participants create a block isn’t based on their ability to solve hash challenges as it is with Proof of Work. Instead, it’s determined by how many staking coins they are holding.

Some might argue that the production of blocks through staking enables a higher degree of scalability for blockchains. This is one of the reasons the Ethereum network is planned to migrate from PoW to PoS in a set of technical upgrades collectively referred to as ETH 2.0.

What is a staking pool?

A staking pool is a group of coin holders merging their resources to increase their chances of validating blocks and receiving rewards. They combine their staking power and share the rewards proportionally to their contributions to the pool.

Setting up and maintaining a staking pool often requires a lot of time and expertise. Staking pools tend to be the most effective on networks where the barrier of entry (technical or financial) is relatively high. As such, many pool providers charge a fee from the staking rewards that are distributed to participants.

Other than that, pools may provide additional flexibility for individual stakers. Typically, the stake has to be locked for a fixed period and usually has a withdrawal or unbinding time set by the protocol. What’s more, there’s almost certainly a substantial minimum balance required to stake to disincentivize malicious behavior.

Most staking pools require a low minimum balance and append no additional withdrawal times. As such, joining a staking pool instead of staking solo might be ideal for newer users.

Frequent Asked Questions

What are staking rewards?

You can earn rewards when you stake cryptocurrencies for a period of time as an incentive to acquire and hold onto staking assets. Some staking coins may require a bonding period. To earn staking rewards, simply select the asset you wish to stake and once it has finished bonding, it will be ready to start staking and earning rewards twice a week from the Proof of Stake process.

 
Are the Staking Rewards guaranteed?

The staking yield figure displayed on Stake-it is an estimated APY based on the 7 day average (14 reward cycles), and is subject to change.

What is the Annual (Yearly) Percentage Yield (APY)?

The APY is the rate of return earned on a savings deposit or investment. It also takes into account the effect of compounding interest over a one year period. Please note: This is not a fixed or static rate, nor is it a future forecast but rather a flexible rate which is subject to change.

The staking yield can fluctuate due to a variety of factors, most notably:

A higher number of staking masternodes in operation, resulting in block rewards being paid out to larger pools and thus, smaller rewards per individual.

Time delays or failures of blocks, which is why there may sometimes be delays or irregularities in the payment of rewards.

How does the reward frequency of the shares work?

The payout days are always average – i.e.: ADF Nodes pay out every 7 days (as a pure example – this has nothing to do with luck, but only how the coin determines that payout frequency) – if e.g. 2 ADF Rewards are being paid by out by 2 different nodes on the same day, the average payout is every 5 days. It always depends on how many nodes are running and this is the average, the more nodes the more frequent payouts, because our nodes are always paid proportionally to all users who have shares of the respective coin. That’s why it also fluctuates, depending on how many nodes are currently active.

 
How long does it take for my rewards to be confirmed?

Rewards typically take 101 confirmations on the blockchain before they can be used. This is fully automatic, you do not have to do anything. If you have Auto Compound turn on, Cake4U would even automatically convert your rewards coins to staking shares upon confirmation so you will earn more rewards the next round!

 
 
 

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