What Do You Know About Staking?

Staking cryptocurrency has become a popular method for crypto investors to earn “interest income” on their digital asset holdings that can be staked, referred to as PoS (Proof-of-Stake) coins. More on that later. From an investor’s point of view, staking can be viewed as similar to investing in fixed income securities, such as bonds or money market funds, although with more risk to principal loss or fluctuation in the underlying digital asset being -staked.

In the cryptocurrency world, staking refers to “locking up” a digital asset by “staking” it, agreeing to hold it in a wallet on its respective blockchain network. By agreeing to stake some or all of your holdings you are helping to ensure the blockchain the assets are staked on, operates correctly and securely. In exchange for helping to secure a blockchain network, participants who stake their coins, receive a share in the block reward in the form of newly minted coins.

Staking is an integral part of a Proof-of-Stake (PoS) consensus mechanism. Proof-of-Stake requires network participants to stake the network’s native asset to achieve distributed consensus. Block rewards are attributed to stakers using a combination of random selection and the size of the stake (measured by the number of tokens) that have been provided.

Unlike its predecessor, the Proof-of-Work (PoW) consensus algorithm, which has been made popular by Bitcoin, PoS does not require machines to make energy-intense calculations to solve a puzzle. PoS is, therefore, considered a more environmentally-friendly alternative, and many consider it as the future of consensus protocols. Have you heard about the $DIVI consensus mechanism?

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