What is staking?

Bitcoin is a PoW Proof of work system, the block creation process is based on software using powerful mining hardware. In PoS the block creation process is also software based but there is no need for expensive mining hardware.

Staking is the process by which the next block creator is chosen. A block creator is the one in charge to validate a batch of transactions. In return, the block creator earns the block reward. Block creators are chosen based on the specifics of the coin algorithm, for example, this could be the number of coins held (the stake) and/or the amount of time the coins have been staked.

To stake, a PoS coin,  the staker needs to stake coins in a wallet and then leave that wallet connected to the internet. Staking requires the lock in a number of coins. The stake ensures that the staker has a stake in the network so he does not have an incentive to attack the network with his stake.

To mine PoW cryptocurrency (such as Bitcoin) only the mining hardware is needed. When staking a certain amount of coins will be locked, if all of them are used the staking process stops. Learn more on how to make a passive income from staking crypto currencies.

There are variations to staking

  • NXT uses “forging”
  • NEM uses or “harvesting”
  • Masternode coins are similar to staking

How to stake a coin?

  1. Choose a coin to be staked
  2. Understand the tokenomics of the coin Identify the software and hardware needs
  3. Test the system with a small amount
  4. Increase your stake incrementally

There are other types of Crypto passive income, read out the list of 22 cryptos that generate a passive income.

Staking is more environmentally friendly than PoW, because it uses less energy. PoW mining hardware becomes obsolete, because other more efficient hardware is created and losses value.

Not investment advice. Not financial advice. Consult your financial advisor. Not a recommendation to buy, sell or hold. The staff of this site may own these digital asset/s mentioned on this page. Investing is risky and you may lose all your capital. See full disclaimer.

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Author: Jim Reynolds
Jim Reynolds is passionate about finance, passive income and cryptocurrencies. He writes about his passions on NodesOfValue.com. He has worked in the tech and financial industry for a few decades. He holds a masters in business admin and a bachelors in IT. All his writings are not investment advice.

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