Introduction

You can think of staking as a lower resource consumption alternative to mining. This scheme involves placing held funds into a cryptocurrency wallet, providing support for the security and operations of the blockchain network. Simply put, staking is the act of locking up cryptocurrency to earn rewards.

In most cases, you can stake your tokens directly from a cryptocurrency wallet such as Trust Wallet. On the other hand, many trading platforms provide users with equity staking services. Binance Staking allows you to earn rewards in an extremely simple way by simply staking your tokens on the exchange. We will introduce it in detail later.

To understand more about what staking is, you need to first understand how Proof of Stake (PoS) works. Proof-of-stake is a consensus mechanism that allows blockchains to operate in a more energy-efficient manner while maintaining a considerable degree of decentralization (at least in theory). Let’s take a deeper look at what Proof of Stake is and how staking works.

What is Proof of Stake (PoS)?

If you know how Bitcoin works, you are probably familiar with Proof of Work (PoW). Transactions can be collected into blocks through this mechanism. These blocks are then linked together to create a blockchain. Specifically, miners compete to solve complex mathematical puzzles, and whoever solves them first has the right to add the next block to the blockchain.

Proof-of-work has proven to be a very powerful mechanism for promoting consensus in a decentralized manner. The problem is that this mechanism involves a lot of arbitrary computation. The puzzles that miners compete to solve are just to maintain network security and have no other purpose. One might argue that in itself, this overcalculation is justifiable. At this point, you may be thinking: are there any other ways to maintain decentralized consensus without higher computational costs?

Would like to take a look at the Proof of Stake. The main idea is that participants can lock up tokens (their "stake") and within a specific time interval, the protocol will randomly assign the right to one of them to validate the next block. Generally, the probability of being selected is directly proportional to the number of tokens: the more tokens locked, the greater the chance.

In this way, the factors that determine which participants create blocks are not the same as using proof of work, so they The ability to solve hash challenges is the benchmark, but is determined by the number of staked tokens they hold.

Some may argue that staking to produce blocks improves the scalability of the blockchain. This is one of the reasons why the Ethereum network plans to move from Proof-of-Work to Proof-of-Stake in a set of technology upgrades collectively known as ETH 2.0.

Who created the proof of stake?

One of the early proof-of-stake debuts may be Peercoin, mentioned in a 2012 paper by Sunny King and Scott Nadal. They describe it as a "peer-to-peer cryptocurrency design derived from Satoshi Nakamoto's Bitcoin".

The Peercoin network was launched via a hybrid PoW/PoS mechanism, where Proof of Work is primarily used to mint the initial supply of tokens. But for the long-term sustainability of the network, this mechanism is not necessary and its importance gradually decreases. In fact, most networks rely on proof of stake for their security.

What is Delegated Proof of Stake (DPoS)?

An alternative version of this mechanism was developed by Daniel Larimer in 2014 and is called Delegated Proof of Stake (DPoS). This mechanism was initially used as part of the BitShares blockchain, but soon other networks adopted the model, including Steem and EOS, also created by Larimer.

Users can invest their token balances in the form of voting through DPoS, where voting rights are proportional to the number of tokens held. These votes are then used to elect representatives who will manage the blockchain on behalf of their constituents, ensure security, and achieve consensus. Typically, staking rewards are distributed to these elected representatives, who then distribute these rewards to voters in proportion to their individual contributions.

The DPoS model allows the use of a smaller number of validator nodes to achieve consensus. Therefore, this model tends to improve network performance. On the other hand, it may also lead to a lower degree of decentralization, as the network relies on a specific small set of validating nodes. These validator nodes handle the operations and overall governance of the blockchain. They participate in the process of reaching consensus and defining key governance parameters.

In short, DPoS allows users to demonstrate their influence over other participants in the network.

How does staking work?

As we have explored before, proof-of-work blockchains rely on mining to add new blocks to the blockchain. In contrast, proof-of-stake chains produce and verify new blocks through a staking process. Staking involves locking the tokens of certain validators so that the protocol can randomly select them to create a block within a specific time interval. Generally, participants who stake a larger amount are more likely to be elected as the next block validator.

This allows blocks to be produced without relying on specialized mining hardware such as application specific integrated circuits. While ASIC mining requires a significant investment in hardware, staking requires a direct investment in the cryptocurrency itself. So instead of competing for the next block through computational work, proof-of-stake validators are selected based on the number of tokens they stake. "Stake" (tokens held) is what incentivizes validators to maintain the security of the network. If they fail to do so, all their staked tokens may be at risk

Each proof-of-stake blockchain has a specific staking currency, and some networks use a dual-token system where rewards are paid in a second token.

On a very practical level, staking simply means placing funds in a suitable wallet. Basically, this allows anyone to perform various network functions in exchange for staking rewards. This also includes adding funds to the staking pool, which we’ll get to shortly.

How are equity pledge rewards calculated?

This issue cannot be explained clearly in a few words. Each blockchain network may use different methods to calculate staking rewards.

Some will be adjusted on a block-by-block basis, taking into account a variety of different factors. This may include:

• The number of tokens staked by the validator
• The length of time the validator has been actively staking
• The number of tokens staked to the network Total coins
• Inflation rate
• Other factors

For some other networks, staking rewards are determined as a fixed percentage. These rewards are distributed to validators as some compensation for inflation. Inflation encourages users to spend their coins rather than hold them for the long term, which may increase its usage as a cryptocurrency. But validators can use this model to accurately calculate the staking rewards they can expect.

Providing a reward schedule with predictability, rather than the probability of receiving a block reward, may seem beneficial to some. Since this is public information, it may incentivize more participants to participate in staking.

What is a pledge pool?

A staking pool is a group of token holders who pool their resources to increase their chances of validating blocks and receiving rewards. They will pool their staking power and share rewards in proportion to their contribution to the mining pool.

Setting up and maintaining a staking pool often requires a significant investment of time and expertise. Staking pools tend to be most efficient on networks where the barriers to entry (technical or financial) are relatively high. Therefore, many pool providers charge fees from the staking rewards distributed to participants.

In addition, mining pools can also bring greater flexibility to individual stakers. Usually, pledged interests must be locked for a fixed period of time, and the protocol usually sets a time for withdrawal or unbinding. Additionally, a substantial minimum balance will almost certainly be required to curb malicious behavior.

Most staking pools require a smaller minimum balance and do not add additional withdrawal time. Therefore, joining a staking pool rather than staking individually may be ideal for new users.

What is cold equity pledge?

Cold staking refers to the process of staking on a wallet that is not connected to the Internet. This can be done with a hardware wallet, but it can also be achieved using air-gapped software wallets.

Users can stake while holding funds securely offline through a network that supports cold staking. It’s worth noting that if stakeholders take their tokens out of cold storage, they will stop receiving rewards.

Cold staking is particularly useful for large stakeholders who want to support the network while ensuring maximum protection of their funds.

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How to Stake on Binance Platform

In a way, When you deposit your tokens onto the Binance platform, you add them to the staking pool. However, there are no fees and you get all the other benefits that come with holding your tokens on the Binance platform!

You only need to deposit your proof-of-stake tokens on the Binance platform, and all technical requirements will be taken care of. Staking rewards are typically distributed at the beginning of each month.

You can view previously allocated rewards for a given token under the "Historical Rewards" tab on each project's staking page.

Summary

Proof of stake and staking will provide a platform for any user who wishes to participate in blockchain consensus and governance Open up more avenues. Additionally, it is a very easy way to earn passive income by easily holding tokens. As staking becomes easier, the barriers to entry for the blockchain ecosystem become lower and lower.

However, it is important to keep in mind that staking is not without risks. Locking funds in smart contracts is extremely error-prone, so always do your own research and use a quality wallet such as Trust Wallet.

Be sure to check out our staking page to see which tokens support staking and start earning rewards today!