What is staking? Passive Income at its Finest

What is staking? Passive Income at its Finest

Staking is the practice of storing coins/tokens in a cryptocurrency wallet to actively participate in the validation of transaction on a blockchain network. In simple terms, you would need to hold onto your crypto to automatically receive rewards.

The concept of staking was developed to accompany the Proof of Stake (PoS) consensus mechanism and is thus not available for PoW coins.

Who invented Staking (Proof of Stake)?

The original idea of PoS comes from Scott Nadal and Sunny King. The duo introduced PoS in 2012, with the release of Peercoin. 

The cryptocurrency was initially meant to reward users with a hybrid PoW/PoS mechanism but eventually ruled out PoW becoming the first PoS cryptocurrency. 

Two years after the introduction of Proof of Stake, Daniel Larimer created an adjusted version of PoS, which he named DPoS (Delegated Proof of Stake). This staking model was first applied to Bitshares and was eventually adopted by more cryptocurrencies. It is worth mentioning that Larimer is also the co-founder of EOS and Steem, both of which operate on DPoS.

How does staking work?

PoS requires users to store their funds on a wallet and not move their funds for a certain amount of time. These funds may either require locking (which should be possible through their wallet) or simply not sending them to another wallet. Then, based on the total amount of coins you hold on the network, you will receive staking rewards. 

DPoS allows coin holders to use their cryptocurrency as votes, which in turn elect several delegates. These delegates will then validate transactions on the network on behalf of their voters and reward them in return. A great way to understand how this works is by looking at TRON staking on Binance. Due to a large amount of Tron (TRX) on Binance, the platform is able to vote itself as a representative. This helps them receive, and then equally distribute, the TRX rewards.

More specifically, you can check our staking guide for the top PoS cryptocurrencies.

Disclaimer: Don’t invest unless you’re prepared to lose all the money you invest. This is a high‑risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more at: https://go.payb.is/FCA-Info