What is Staking?

Staking cryptocurrencies is a process that involves locking coins in a wallet in a lockup period (if there is) and not transferring them. Over the lockup period, users earn rewards on their holdings. Although the types of staking may differ, the main idea is to earn rewards in exchange for holding crypto assets in circulation.  There are several consensus models on the blockchain.  The nodes in a blockchain must be in agreement, and validators ensure the security of the blockchain network. Those nodes must reach a consensus of 51% to prove the accuracy of transactions made on the blockchain.

Bitcoin, the first cryptocurrency, uses Proof of Work (PoW) consensus mechanism. The PoW mechanism requires enormous electrical power, large facilities, and computer hardware to solve complex problems and profit for its miner. Therefore, it is quite expensive, and the processing capacity is limited. By this mechanism, transactions can be verified between users at different ends of the world and prevent them from spending the same funds twice.

The PoS
is a consensus mechanism that enables cryptocurrency asset owners to create blocks and be verified. The concept of ”staking" is a mining method closely related to Proof of Stake (PoS). The PoS consensus was created as an alternative to the mining method on the PoW consensus. We can consider the “Staking” process, which requires less resources, as an alternative to mining. Mining power in proof of stake depends on the number of coins a validator is staking. Also, mining earnings rates on the PoS vary from the wallet balance. Although early supporters usually have more digital value in their hands or have higher levels of authority, this varies according to the basic rules of the network. As the wallet balance is higher, the earning also gets higher in a balance-based mining system.  So, that's how the blockchain operates the digital value by staking and rewarding. Thanks to the PoS mechanism, all transactions become verifiable and security is ensured in a decentralized way without intermediaries.

Staking Pool 
is when a group of digital asset holders merge their resources and increase their chances of being rewarded. It takes a lot of time to set up and manage this pool, which requires expertise. For this reason, most pool providers may charge a certain fee for the rewards of the staking pool distributed to participants holding digital value and providing some flexibility to individual staking participants. The unlock and rewards collecting period is sometimes defined by the protocol. In general, the minimum balance is highly compatible to prevent incorrect or system-damaging behaviors.

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