What is staking?
Staking is the participation in the Delegated Proof-of-Stake process by delegating a part of the balance to a block producer, to provide the right to partake in the block production process and to get rewards from it. The delegators are getting parts of the rewards which correspond to their stake.
Why do blockchains need staking?
Staking is a vital process for DPoS blockchains. It allows selecting the best block producers to do the work, ensures decentralization and minimizes the chances to ruin the network. Staking allows more block producers to be involved in the blockchain, and more network users to collect rewards.
Also, compared to mining, staking doesn’t require lots of energy and costly specialized hardware to run large blockchain networks with big transaction throughput.
How does staking affect decentralization?
Staking pays big role in the decentralization of blockchain. First, most of the DPoS coins select a predefined number of delegates to be involved in the process (20 to 100, depending on the coin), and all of them have equal chances to get rewards, compared to distributing this chance based on the staked balance itself. It means, that the 51% problem is not present in the DPoS blockchains, and taking part in the verification process requires only to have one of the top staking balances.
Second, the delegators have a choice, to whom they should delegate the stakes. Untrustful delegators who don’t completely follow the principles of decentralization, will lose their stakes fast to trustful and dependable validators. This provides an element of healthy competition, and in the end only the stable and powerful delegates, who are good for the blockchain, get selected.
Lastly, the big number of wallets that receive rewards provides balanced emission of new coins, and saves the whole network from inflation.
Why staking is safe?
While ‘delegation’ sounds like sending funds to someone, in reality this term corresponds to only freezing the stake in the wallet. Physically, all stakes remain on the delegator’s wallet, and can be unstaked at any time. The delegates have absolutely no control over the funds that are staked with them, and can’t send or sell them.
How staking can be profitable?
The DPoS is a process of transaction verification. Those, who take part in it, receive rewards from new coins emission and transaction fees. These rewards are shared with delegators, according to the size of their stakes.
If your stake forms 10% of the delegate’s staking balance, you will receive 10% of all delegate’s rewards, minus their commission.
How staking is different from mining?
Staking and mining essentially provide the same function of selecting random nodes to verify all upcoming transactions in return for rewards. However, mining does that by giving miners large amounts of mathematical work to solve the task. Hence, large networks with big competition between miners require very powerful and expensive specialized mining hardware, which also requires lots of power, cooling and maintenance.
The DPoS staking selects nodes who do the work using a social factor, and doesn’t require any special powerful hardware to run the network. Also, there is no mathematical work that takes time. Staking is cheaper, faster and more sustainable than mining.
What do I need to start staking?
Solo staking of PoS coins requires a powerful node setup with lots of storage and a stable Internet connection. Such a computer consumes a lot of electricity, needs cooling and software updates, and emits noise. For successful solo staking, the node should work 24/7 for months and years throughout.
The DPoS staking doesn’t require special hardware or software to start, and can be done from within any popular wallet of the coin you wish to start staking. The only thing you need is funds to form your staking balance. Once you have some coins and you have selected a delegate, stake your coins in your wallet with a couple of clicks, and that’s it, you are staking and collecting rewards!
How to select a staking service?
Finding a great staking service requires a bit of research, but pays off in more stable and correct reward payouts. Specialized websites that catalog and provide statistics for all staking services for the coin of your choice come in handy when you are searching for a reliable service for your staking needs. The things you should look for are low missed blocks number, big staking balance, correctness of rewards, and, of course, user reviews. The involvement of the staking services in the community of coins is also valuable. Do they develop any educational materials or tools for the coin? Are they helpful in the coins’ online communities, forums, Facebook page? Do they participate in the development of the projects? All that matters.