What is Staking?
Staking is the process of locked your cryptocurrencies to get rewards or earn interest. If you do not think to sell your cryptocurrencies in the short term, staking allows you to earn income from the tokens you hold.
Cryptocurrency projects are created with blockchain technology, where crypto transactions are verified and the data obtained is stored on the blockchain. Staking is the method that allows these transactions to be verified on a blockchain.
Users earn rewards at certain rates at certain periods from the cryptocurrencies they locked. We can compare staking cryptocurrencies to depositing cash into a bank account.
While the depositor has his money in the bank, he earns interest as a reward from the bank that uses the money for other purposes (lending, etc.).
Likewise, staking and locking crypto is similar to earning interest. The longer a user stakes their token, the higher the potential for profit will be due to compound interest.
There are several variables specific to proof-of-stake coins that affect how much stakes users receive.
When looking for the most profitable coins to stake, it is useful to research by considering these factors:
- The size of the block reward
- Stake pool size
- Locked supply
How Staking Works ?
When a crypto investor stakes their assets, the network can use those assets to create new blocks on the blockchain.
The more cryptocurrencies there are, the more likely the assets will be selected.
The data is “written” to the new blockchain and the coins that the investor has staked are used to validate it.
Then, the network rewards the shareholder for allowing these assets to be used as validators.
Each time a block is added to the blockchain, new cryptocurrency coins are minted and distributed as stake rewards to the validator of that block.
The rewards are usually in the form of the kind of cryptocurrency participants stake. However, some blockchains use a different type of cryptocurrency for rewarding.