What is Staking & How Does It Work?

Crypto staking is a method to generate passive income, and it can be thought of as the crypto world's counterpart of earning interest or dividends while hanging onto your underlying assets. Staking can be considered the equivalent of earning interest or dividends in the traditional financial world. Staking is beneficial for crypto investors, and one can get good returns. To understand its process, first, we need to understand what staking is and how It works.

What is staking?

Staking is a method that lets users earn cryptocurrency as compensation for using their existing holdings to vouch for the correctness of transactions on an underlying blockchain network. You can earn cryptocurrency by using your existing holdings for the authenticity of transactions.

Even though it may sound complex, average users can typically complete these steps immediately from their digital crypto wallets. Several cryptocurrency platforms and exchanges offer stock programs in which the crypto exchange manages the technical intricacies in exchange for a portion of the proceeds.

Staking a cryptocurrency generally results in higher returns than those that may be earned through a conventional savings account. However, there is a possibility of loss associated with staking. You will be rewarded in cryptocurrency, a highly speculative asset whose value can fluctuate anytime.

There will be situations when you must store your crypto for a predetermined or specific amount of time. In addition, you may be required to pay a penalty or charge in the form of a portion of the cryptocurrency that you have staked if the system does not function as anticipated.

How Does Staking Work?

When you do crypto staking, you're essentially keeping your cryptocurrencies on a blockchain and helping to verify transactions. This is a technique used by some blockchains to choose trustworthy participants and confirm new blocks of data that are added to the network. As a reward for your contribution, you earn block rewards in the form of crypto. If you're interested in investing your cryptocurrency, you have the option to stake it on blockchains that use the Proof-of-Stake (PoS) consensus mechanism. When you stake your coins, you have the opportunity to earn newly minted crypto coins as a reward.

When validators or "stakers" in the network are required to buy and hold a specific amount of coins or tokens, it prevents them from behaving dishonestly within the network. If someone intentionally tries to make changes or mess with the blockchain, the token linked to it would decrease in value, and the person responsible would risk losing the funds he staked.

The Proof-of-Work (PoW) mechanism needs miners to validate blocks on the network by finding suitable hashes. However, the PoS mechanism works differently. In this scenario, participants or stakers are required to keep a certain amount of cryptocurrency as collateral. The blockchain will select a staker based on the amount of cryptocurrency they hold and how much time they hold it. When the participant chooses to do so, they can include the most recent transaction details in the block, and in return, they receive rewards.

It's interesting to know why PoS requires its members to stake their assets or cryptos. The staked collateral serves as a protection mechanism to ensure that the validators act honestly and with integrity with the network.

 

The best staking wallet

Crypto wallets are the key components for crypto staking. Staking assets using digital crypto wallets is convenient and considered to be the most secure option. In the market, there are hundreds of crypto wallets that offer staking features. But one should choose the most secure crypto wallet so that you get complete protection for your investment.

Funex Wallet is one of the most known crypto wallets with the crypto staking function, and it is one of the rewarding programs because of its referral program. You can check out their website and application to learn more about the staking program. It is a custodial wallet that ensures that your cryptos are going to be completely safe. This wallet has a ton of features in it which attract users, and it has a huge community of active users. It is a multi-crypto wallet in which you can store more than 25 crypto coins.