What is staking and how does it work?
Staking involves storing PoS coins on an exchange account and receiving rewards depending on the number of tokens stored. It is similar to a bank deposit, and the more funds in the account, the higher the income.
Staking is a way of passive earnings, in which users store coins on a PoS algorithm, which gives them the right to participate in mining and make a profit.
Where does the staking reward come from?
Its essence is that in PoS-based blockchains, operations for processing transactions and generating new blocks are performed by special trusted nodes, the so-called validators. And the more coins are stored in the validator’s wallet, the more chances he has to get the right to create the next block.
The staking process supports all operations on the blockchain and helps the network work, for which validators are rewarded. Blocking digital coins also protects the network from inflation: users do not sell their assets at the earliest opportunity but keep them in an account and receive passive income. It maintains a balance of supply and demand and also protects the asset from depreciation.
It works similarly to bank deposits. The user deposits funds into the account, and they generate income. And the more funds are in the bank, the higher the profitability will be. The amount of profit also depends on the time for which the bank holds the depositors’ funds. The longer the period, the higher the%.
Types of staking
— Locked staking
Locked staking assumes a predetermined specific time during which funds will be held. The owner of the tokens chooses a period, for example, a week, a month, etc. During this time, his funds will be unavailable for trading and withdrawal. The interest rate on fixed contracts is higher. Therefore, this type is chosen by those who want to get higher profits. If the user wants to redeem the fixed staking earlier, then the invested amount will be returned to him without%.
— Flexible staking
In this kind, there is no fixed expiration date for the contract: the investor receives income until the moment of creating a sell order or withdrawing funds. It is an excellent option for those who value the flexibility of assets and are not ready to freeze their capital for a long time. The coins are just located in a separate wallet, and rewards come to it regularly.
Staking is a new trend in the crypto market. This method of making money on cryptocurrency has advantages over mining: you do not need to buy special equipment, pay for electricity, have certain knowledge and training.
When it is, the cryptocurrency remains in your wallet all the time, which protects against the risk of non-return. Staking allows you to invest capital without fear of losing money and frequent payments minimize operational risks.