Cryptocurrency Staking Basics

In cryptocurrency staking is, from a user perspective, like being paid interest for holding a coin.

From a more technical perspective, Proof-of-Stake (PoS) is an alternative to the Proof-of-Work (PoW) mining model.

Instead of miners cracking cryptographic puzzles using computing power to verify transactions like they do with PoW, with PoS users with existing coins verify transactions in proportion to the amount of coins they have locked or “bound” in a staking wallet.

From a user perspective, all a person has to do is keep a certain amount of coins locked up for a certain length of time and they will earn newly minted coins (either the base coin, or a related coin). The length and minimum staking amount differ by which cryptocurrency we are discussing.

Without going into the details, in general with this method a person must stake a large amount of coins. Given this, people tend to join staking pools or more generally keep their coins on a platform that shares staking rewards.

A simple example of this is found with Binance. Binance offers staking rewards for some PoS coins including NEO, ONT, VET and NPXS. NEO produces GAS, ONT produces ONG, VET produces VTHO, and NPXS produces more NPXS.

Of course, there are more PoS coins than that, for example ADA has a staking system. So for ADA you would have to find a staking pool.

NOTE: There is no real risk to staking beyond these two points, 1. you have to keep your coins locked up, so you are vulnerable to price volatility, and 2. when it comes to staking pools you have to find a pool you can trust (any pool that is in charge of payouts requires you to trust a human at some level).

Author: Thomas DeMichele

Thomas DeMichele has been working in the cryptocurrency information space since 2015 when was created. He has contributed to MakerDAO, Alpha Bot (the number one crypto bot on Discord),...