Staking is the process of actively participating in transaction validation on a proof-of-stake (PoS) blockchain. You may think of staking as a less resource-intensive alternative to mining. On these blockchains, anyone with a minimum-required balance of a specific cryptocurrency can validate transactions and earn Staking rewards. Simply put, staking is the act of locking cryptocurrencies to receive a reward.
Some blockchain protocols allow participants to earn additional cryptocurrency by participating in the network's staking process. The most popular cryptocurrency to use proof-of-stake are Ethereum and Solana.
Proof of Stake chains produce and validate new blocks through the process of staking. Staking involves validators who lock up their coins, so they can be randomly selected by the protocol at specific intervals to create a block. Usually, participants that stake larger amounts have a higher chance of being chosen as the next block validator.
Most networks pay the staking reward in their particular staking currency, but some networks adopt a two-token system where the rewards are paid in a second token.
On a very practical level, staking just means keeping funds in a suitable wallet. This enables essentially anyone to perform various network functions in return for staking rewards.
Each blockchain network may use a different way of calculating staking rewards. Some are adjusted on a block-by-block basis, taking into account many factors. These can include:
For some other networks, staking rewards are determined as a fixed percentage. These rewards are distributed to validators as a sort of compensation for inflation.
*Please note: staked Ethereum cannot be unstaked until the Shanghai network upgrade, predicted to launch in 2023.
Crypto staking is considered to be much safer than crypto lending. While lending involves credit risks, staking rewards comes directly from the blockchain protocol. This generally means less counter-party risks, as your reward comes from the issuance of new coins, rather than trusting someone to pay back a loan.
Bitbuy partnered with an industry-leading crypto custodian and blockchain infrastructure provider. We hold all staked assets at a 1:1 ratio. You can see our latest Proof of Reserves audit here.
The biggest risk with staking is usually slashing, which means missed rewards as a result of infrastructure downtime or validator misbehaviour. To prevent slashing, Bitbuy has partnered with thoroughly vetted industry leading infrastructure providers like Figment, and have designed our systems and processes to greatly reduce the likelihood of a slashing event.
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