Cryptocurrency staking, what is it and what is it used for?

A relatively new concept within the cryptocurrency ecosystem is staking, part of the functionalities used by cryptocurrencies that work with a system for creating new coins called “proof of participation,” which is the system responsible for verifying transactions made.

In summary, the savings system presented by the Staking of some cryptocurrencies consists of creating unique wallets where a specific amount of the token of the same cryptocurrency can be deposited. This retention of value allows the user to access the verification process of transactions, which is beneficial for the verifying user since each verification that the system can perform will reward them with some units of the same cryptocurrency.

What is Staking?

As mentioned above, Staking is part of the system for creating new currency units and only occurs in those cryptocurrencies that work under a protocol with a PoS (Proof of Stake) or Proof of Participation system since this function cannot be executed in cryptocurrencies like Bitcoin since it works with the Proof of Work protocol.

As Staking is structured right now, its standard operation in all cryptocurrencies consists of creating special storage that is responsible for storing the units of the cryptocurrency with which the Staking process is being carried out.

It should be noted that not all cryptocurrencies that allow storage through this functionality have a fixed amount of blocking; that is, each project has its minimum blocking to be part of the Staking process, and sometimes in some specialized platforms, they indicate the APR which is the indicator that shows us an approximate yield for our deposit in a given time.

Unlike mining processes such as Bitcoin, this system does not require sophisticated computer equipment nor very high amounts of electrical energy for its operation, which is one of the most significant advantages this model can offer us. Cryptocurrency creation.

What is cryptocurrency staking used for?

The creation of this system was created due to a rather significant need that was becoming a problem within the entire cryptocurrency ecosystem, and it could be said that in the world; and it is that the large amounts of energy consumed by the Proof of Work system have left a negative image as energy problems haunt the countries of the world, this problem being so severe that in 2021 the Chinese government prohibits the mining of cryptocurrencies and their transactions.

Mainly because of this problem, the Proof of Stake system was created, which does not require specialized computer equipment, nor does it consume the large amounts of energy that other forms of mining need.

The question enthusiasts had about this new protocol was if there are no miners, who will verify the transactions? And this is where this model is very innovative since it allows users to create special funds that enable them to be part of the verification process, for which this scheme was criticized a bit since it was believed that the advantage of cryptography was lost. Hard that offered the solution of mathematical problems through computer equipment.

As we have already mentioned, this verification system works thanks to storing cryptocurrencies in a particular deposit. The opportunity to receive a reward is directly related to the number of stored cryptocurrencies. A user or staker with a considerable amount of cryptocurrencies stored is more likely to execute a verification than another node with less crypto in its unique wallet.

How to get profit with Staking?

All the platforms that allow Staking operations work with different periods to carry out this practice; the time varies in each forum, as well as the different types of APR rates. That is why we can find platforms that allow Staking for a time indefinite or directly in predefined periods, which in most cases are reflected in days.

The profit in this practice depends entirely on the profitability of the currency and the APR rate used by the platform since, with this indicator, we will be able to know approximately how much the profitability of the Staking process will be in the time that is chosen, the higher the APR, the more yields we will obtain. Still, it is necessary to carry out an analysis of profits regarding the time of the process and the APR in each process.

Since not all processes handle the same APR percentage and a short process may have less APR than a long process, there is the possibility that if we repeat this straightforward process as many times as necessary to complete a long process, we will obtain more profit than perform a single extended function with higher APR.

At this point, we can conclude that the Staking process is a powerful functionality for those cryptocurrencies that work under the Proof of Participation protocol since it allows the verification of the transactions carried out in these networks and, at the same time, gives a benefit to the users—stakers for storing their cryptocurrencies and helping the network.

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Preguntas frecuentes

It all depends on the context under which it is evaluated; for example, if we take into account that to obtain profits from mining, we largely depend on acquiring expensive computer equipment, obtaining technical knowledge of the subject and bearing energy costs, the Staking is likely better than mining in this regard.

The more they don’t want to do it, the more they can’t; for example, Bitcoin works with the PoW protocol, and to perform staking in its blockchain, it requires that its protocol be PoS. Therefore, it would need to hard fork its blockchain and thus reform its structure.

Yes, even though it is not easy to carry out this change process, there are essential cryptocurrencies, such as Ethereum, currently planning the change to this process of creating new coins and, therefore, the verification process.