Read on to discover more about crypto staking.
Staking means you have a commitment or a vested interest in something. Just like a stakeholder in a company is directly impacted by the company’s performance, or a player in a card game wants a hand to go their way, staking is all about creating a financial interest.
Crypto staking is similar to interest paid by a bank to a savings account. With crypto staking, cryptocurrency networks reward users who leave money in their wallets with a staking reward. This gives investors a chance to profit without engaging in market analysis and direct trading.
To begin with, you will stake your crypto. This simply means leaving the crypto accessible to the network during the transaction validation phase.
When a new transaction needs to be validated, the network will use the staked amount as a factor while selecting the node that will validate the transaction. Generally, the selection process is weighted towards the node and user that has staked the most.
This stake is essentially a 'pledge of availability' — the node must be online when it is called upon. If it isn't, you could lose the amount you have staked.
A new transaction is validated, and a new block is added to the blockchain. This is now part of the immutable record that forms the DNA of the cryptocurrency network. A copy of this chain is shared across all active network nodes to ensure full consensus and decentralisation.
In exchange for putting up their crypto holdings as a stake and validating the transaction, the node receives a crypto reward. Any holdings used in the validation process are returned, along with a further award, which means the node and its owner — the crypto user — have turned a profit.
With crypto staking, you are putting forward a certain portion of your assets in the hope that the network will reward you. With bonding, you are doing the same thing, but there is a time parameter — meaning you are putting some of your own capital reserves at risk for a specified time.