Before understanding what cold staking is, let us understand what is staking. Staking is a part of the proof of stake consensus mechanism used by cryptocurrency projects to validate transactions and record them on the blockchain. Proof of stake is one of the most commonly used consensus methods, the other most commonly used method is proof of work. Many of you would have heard these terms before.
Staking is essential to the Proof of Stake consensus mechanism used on the Stratis mainchain. Blocks are verified and mined by network participants who are willing to set aside a portion of their coins, effectively freezing them so they cannot be spent. In return, these participants are granted the right to verify transactions and earn bonuses paid in coins. The larger the number of coins a participant is willing to stake, the greater the chance that they will be chosen to mine the next block and earn the associated bonus.
While coins are being staked, they are frozen in a wallet. If the wallet is connected to the blockchain network it is referred to as a hot wallet and such an arrangement incurs some risk since the wallet is effectively online and therefore susceptible to attack. Conversely, if the wallet stores coins off-line (as is possible in the Stratis Core wallet, or a hardware wallet, or even a paper wallet), it is known as a cold wallet and the staking process is referred to as “Cold Staking”. Cold Staking is inherently safer than staking in an online hot wallet since coins are not susceptible to online attack while they are held in an off-line wallet.
If you are familiar with the concept of staking, you will be surprised to find out that it got even better! Besides easily getting a passive income with the Staking Pool feature, you can now be protected from hackers at a higher level.
As opposed to regular cryptocurrency staking, cold staking uses two wallets instead of one. A cold wallet that holds your cryptocurrencies and collects your earnings, and a hot wallet that does the staking.
This greatly improves the security of your funds, as the coins that generate your revenue are stored offline, and are harder to access by malicious parties.
Moreso, staking uses less energy than mining, so you get to increase your revenue while decreasing your costs – the best of both worlds.
