Staking

Written by Max Hinchman

Introduction

In Proof of Stake (PoS) consensus mechanisms, nodes deposit tokens that are then used to validate transactions on the network. The nodes that are chosen are done so at random and are compensated in tokens in return. Staking is an alternative to mining on a proof-of-work network, where rather than expending computational energy, they give up the opportunity cost of capital. There is also risk of incorrectly validating transactions which can result in stake being slashed.

Staking requires a certain level of technical expertise, so individuals who want to earn inflationary rewards can delegate their tokens to a staking-as-a-service platform who will retain a portion of tokens earned.

Some PoS networks allow the holders of the staked coins to participate in major governance decisions of the network through a voting process. Generally speaking, the more coins that are staked, the more power this individual has on the network.

Suggested Reading

Staking Isn’t Just a Way to Earn Crypto Money – And It Shouldn’t Be by Jake Yocom-Platt

Staking and Inflation Explained for Crypto Investors by Jane Chung

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