Chances are, you first heard about the concept of staking as a term related to earning money with cryptocurrency or simply, crypto. To get a better understanding of this concept, we look at the definitions and the purpose of staking crypto, before we go into the staking consensus mechanism, staking process and staking rewards. We then examine pooled staking as a way most people participate in the activity, before discussing some of the pros and cons of staking digital assets.
Staking coins isn’t just about passive income
While this is the current predominant concept in crypto staking, that is, to earn more money by staking in crypto, staking was also originally used to describe a way that many popular blockchain-based cryptocurrencies verify their transactions and secure their network.
It is worth noting that these two definitions of crypto staking are actually inter-related. This is because the process of staking to secure the network also rewards those who participate in this activity. Only today, many crypto investors who stake their crypto are motivated primarily by the potential rewards they can earn, and do not necessarily actively participate in the running of the network.
Staking to secure a network and earn rewards
To summarise, staking crypto involves committing your crypto assets to help secure a blockchain network and verify transactions. As the term “stake” suggests, stakers hope to share in the potential reward but they also share the associated risks with securing a blockchain network. We’ll discuss some of these risks in a latter section.
Leave a Reply