The Basics of Staking in PoS Blockchains
Blockchains that use Proof-of-Stake as a consensus algorithm have gained a lot of notoriety in recent years. Both users and developers want blockchains that are as energy efficient, scalable, affordable as possible. Staking is a key component of how PoS networks function. The mechanics of PoS networks were explained in a previous lesson.
Let’s dive deeper into what staking is and how it works.
What is the staking process?
The process of staking involves pledging some amount of a network’s native tokens in a sort of “lockup,” although stakers can withdraw. If a staker acts maliciously, the network will punish them by taking their tokens and banning them from the network as a validator.
Staking a PoS blockchain in an honest way also benefits users as they have the opportunity to earn passive income as a reward for participating in the governance process of that network.
Many users reply on staking pools to stake their tokens. Staking pools earn rewards proportional to the tokens invested, even if the amount staked is a fraction of what is required to achieve validator status on the blockchain. Staking pools allow anyone to earn a passive income while still keeping tokens for long-term price appreciation. But pools are centralized, unlike staking with an individual node.
The minimum amount of tokens required to be a staking validator varies across different networks. But staking pools make it easier for even novice investors to lock their coins with a public staking pool operator to enjoy predictable and frequent rewards.
Steps to start staking in a PoS network.
For educational purposes, let’s explore the basic steps someone needs to follow to begin staking on a network like Ethereum, Oasis, or any others.
First, of course, a user needs to own some amount of the network’s native token.
Second, decide to stake with a pool (with any amount of money) or work to acquire the amount of tokens required to be a full validator. For example, in Ethereum, full validators need 32 ETH.
Third, if a staking pool is the better option, evaluate different pools based on reasonable fees, reliability, and general reputation from other users in social communities on Discord, Twitter, and elsewhere.
Or, if a full validator node is the better option, ensure that the necessary hardware and uninterrupted Internet access is available, as network validators must be online continuously.
PoS blockchains are an exciting alternative to Bitcoin and other PoW networks with different functions and features. The future of PoS networks is a promising one, and staking offers a unique way for anyone to potentially join the governance and data validation processes of these networks.