What is staking?
Staking (from the English stake - “rate”, “part of the profit”) - receiving passive income from cryptocurrencies on the PoS algorithm and its variations. The essence of the process is to keep coins in your wallet to obtain the right to participate in the extraction of cryptocurrency and make a profit.
What is the Proof-of-Stake (PoS) algorithm?
Proof-of-Stake (Proof of stake) is a consensus mechanism first implemented in 2012 in the PPCoin cryptocurrency (now known as PeerCoin). The idea is to use a “stake” as a resource that determines which particular node gets the right to mine the next block.
What is Delegated-proof-of-stake (DPoS)?
In 2013, Daniel Larimer developed the Delegated-proof-of-stake (DPoS), a type of PoS in which participants use their tokens to select validators who check and add blocks for a fee.
PoS Versions
The PoS protocol is rarely used in its pure form: most cryptocurrencies use hybrid modifications: Leased Proof-of-Stake / LPoS (leased proof of ownership), Proof-of-Stake-Velocity / PoSV (proof of speed), Proof of Space (proof based the amount of disk space), Proof of Storage (proof of the fact of storing the full volume of blocks) and others.
Dozens of cryptocurrencies use PoS and its variations: EOS, NEM, Lisk, Waves, Cardano, QTUM, Bitshares, Nxt, Stratis, OmiseGo and others.
How does staking work on PoS?
In the Proof-of-Stake mining algorithm, the validity of user transactions is verified taking into account the percentage of coins stored in his wallet. The algorithm, hashing the data on user transactions, confirms the truth of the operation and updates the records on the blockchain. On the PoS algorithm, the average level of production complexity and its profitability are inversely proportional to the number of tokens belonging to the owner of a particular pool or node.
Since the extraction of tokens on the PoS algorithm does not require the use of PC power, the pool participants are usually called not miners, as in the case of cryptocurrencies based on the PoW algorithm, but forgers (from the English forger - “blacksmith”). Their reward is limited by the commission for operations, and the amount of income is determined by the indicator of the “age” of the coin, which is obtained by multiplying the total number of coins by the duration of their storage by one forger. You can become a forger with a user who has the number of coins on his account, which varies depending on the network.
Coin mining on PoS does not require the installation of expensive equipment (ASIC-devices, cooling systems and autonomous power supply): a laptop or a stationary PC is enough for staking. Since forgers must have a large number of coins on their account in order to quickly dial the desired steak, they are combined into pools (masternodes) - high-speed services with a 24-hour network connection.
How does steaking work on DPoS?
In DPoS blockchains, each wallet with coins on the balance can vote for “delegates” - community representatives who have received the right to generate a block and receive an award in the form of transaction fees. The delegate’s authority is to configure the basic rules of the network, maintain stable operation of the blockchain and generate blocks. They receive transaction fees as a profit. Each member of the network can become a delegate, but only for a short time.
Users who are engaged in staking and have a chance to temporarily become delegates are called witnesses, as they are witnesses of transactions and at the same time network nodes. DPoS uses a reputation system and real-time voting to elect witnesses and delegates. Witnesses generate and distribute blocks, confirm transactions, keep coins in a steak and vote. Unlike delegates, they cannot configure basic network rules.
All coins in DPoS blockchains are divided into free (in circulation) and those in staking. Each person determines the size of the steak, and you can not spend it. With the help of such coins, you can become a witness, vote for delegates and take part in managing the network through smart contracts.
