What is Staking?

Staking is only possible via the proof-of-stake consensus mechanism, which is a specific method used by certain blockchains to select honest participants and verify new blocks of data being added to the network.

By forcing these network participants – known as validators or “stakers” – to purchase and lock away a certain amount of tokens, it makes it unattractive to act dishonestly in the network. If the blockchain was corrupted in any way through malicious activity, the native token associated with it would likely plummet in price, and the perpetrator(s) would stand to lose money.

The stake, then, is the validator’s “skin in the game” to ensure they act honestly and for the good of the network. In exchange for their commitment, validators receive rewards denominated in the native cryptocurrency. The bigger their stake, the higher chance they have to propose a new block and collect the rewards. After all, the more skin in the game, the more likely you are to be an honest participant.

The stake does not have to consist exclusively of one person’s coins. Most of the time, validators run a staking pool and raise funds from a group of token holders through delegation (acting on behalf of others) – lowering the barrier to entry for more users to participate in staking. Any holder can participate in the staking process by delegating their coins to stake pool operators who do all the heavy lifting involved with validating transactions on the blockchain.

Every blockchain has its own set of rules for validators. Ethereum’s blockchain, for example, requires each validator to stake at least 32 ether, which is worth around $45,000.

A few coins based on Proof-of-stake consensus where you can stake are Ethereum, Cardano, Solana and Polkadot etc.

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