How does staking work?

Staking is probably one of the most important features related to blockchain networks relying on some form of a proof-of-stake consensus algorithm for transaction validation and network security. The key difference in staking from classic proof-of-work mining is that miners in PoW systems solve complex mathematical equations, while PoS relies on participants-so-called stakers-who lock up a certain amount of their cryptocurrency to support network operations.

In the process of staking, this chain first initiates when users stake a certain amount of their cryptocurrency, actually locking them up for some predefined time. The tokens that are staked in this process serve as collateral to ensure good behavior by the user, as bad behavior would make them lose their stake. A selection list of validators is done based on the amount of cryptocurrency staked. The more tokens a user staked, the higher his chances of getting selected as a validator.

Selected validators are chosen to review transactions on the blockchain and add them to the chain. In return, they are incentivized with new cryptocurrency. It is a distribution that goes proportionally, with higher stakes translating into larger returns through passive income.

While staking is not only more environmentally friendly compared to PoW, it also adds greater security and decentralization to a network since more users are incentivized to participate in it. Incentives are aligned, and the community gets involved in supporting long-term stability within blockchain ecosystems.

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~ Nesaty