What is staking?

1. What is staking?

Staking (from English “stake”, “part of profit”) – receiving passive income from cryptocurrencies on PoS-algorithm and its variations. The essence of the process is to keep coins in a wallet in order to get the right to participate in cryptocurrency mining and make a profit.

2. What is the Proof-of-Stake (PoS) algorithm?

Proof-of-stake is a consensus mechanism first implemented in 2012 in the cryptocurrency PPCoin (now known as PeerCoin). The idea is to use a “stake” (stake) as a resource that determines which node receives the right to mine the next block.

3. What is Delegated-proof-of-stake (DPoS)?

In 2013, Daniel Larimer developed Delegated-proof-of-stake (DPoS), a type of PoS in which participants use their tokens to select validators who check and add blocks for a fee.

4. Versions of PoS

The PoS protocol is rarely used in its pure form: most cryptocurrencies use hybrid modifications: Leased Proof-of-Stake/LPoS, Proof-of-Stake-Velocity/PoSV, Proof of Space, Proof of Storage and others.

PoS and its variations are used by dozens of cryptocurrencies: EOS, NEM, Lisk, Waves, Cardano, QTUM, Bitshares, Nxt, Stratis, OmiseGo and others.

5. How does stacking work on PoS?

In the Proof-of-Stake mining algorithm, the veracity of a user’s transactions is checked against the proportion of coins stored in his wallet. The algorithm, by hashing the user’s transaction data, validates the truth of the transaction and updates the records in the blockchain.On the PoS algorithm, the average mining complexity and profitability is inversely proportional to the number of tokens owned by the owner of a particular pool or node.

Since mining tokens on the PoS algorithm does not require the use of PC power, pool participants are usually not called miners, as in the case of cryptocurrencies on the PoW algorithm, but foragers (from “forger”). Their remuneration is limited to transaction fees, and the income is determined by the “age” of a coin, which is obtained by multiplying the total number of coins by the duration of their storage by one forger. A user with a number of coins in their account, which varies from network to network, can become a forager.

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Coin mining on PoS does not require installation of expensive equipment (ASIC-devices, cooling systems and autonomous power supply): a laptop or a stationary PC is enough for the steaking.Because foragers must have a large amount of coins in their account to get the required steak faster, they are combined into pools (masternodes) – high-speed services with round-the-clock network connection.

6. How does stacking work on DPoS?

In DPoS blockchains, each wallet with coins on its balance can vote for “delegates” – community representatives empowered to generate a block and be rewarded with transaction fees. The authority of the delegates is to set the basic rules of the network, keep the blockchain stable, and generate blocks. They receive transaction commissions as profit. Any member of the network can become a delegate, but only for a short time.

Stacking users who have a chance to temporarily become delegates are called witnesses, as they are witnesses to transactions and simultaneously nodes in the network. DPoS uses a reputation system and real-time voting to elect witnesses and delegates. Witnesses generate and distribute blocks, confirm transactions, hold coins in the steak, and vote. Unlike delegates, they cannot customize the basic rules of the network.

All coins in DPoS blockchains are divided into free coins (those in circulation) and those in the stack. It is up to each individual to determine the size of the steak, and it is not allowed to spend it. These coins can be used to witness, vote for delegates, and participate in the management of the network via smart contracts.

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