In traditional banking, depositing money into your savings account means that the bank has the power to lend on that balance, with your savings balance acting as a guarantee. In most banks, the company can actually lend out 10x the money that is in a savings account. So if the balance is $1,000, the bank can lend out $10,000.
Within the digital realm of cryptocurrencies, the concept of staking acts similarly to bank savings accounts. By locking up the currency, your coins are granting the blockchain the ability to validate transactions Those staked coins become a stable part of the blockchain. Through proof of stake (PoS), one of the stakers is chosen to validate transactions being added to the blockchain. Those staked coins act like miners in proof of work (PoW) chains, making the process run quicker and more efficiently. Staking lowers the fees associated with creating new blocks. Less work is needed, lowering the cost of electricity and time.
Holding cryptocurrencies in a wallet is like having money in a checking account. Staking coins is similar to putting them into a savings account. That balance can earn rewards while being utilized by the network. Some blockchains offer an interest rate as high as 80,000% APY.
Getting started staking
Being a full fledged staker means tying up a generous amount of coins and having a computer dedicated to performing validations. Joining a staking pool is similar to joining a mining pool, where resources are shared and a validating computer is not necessary. The user chosen to serve as the next validator is the “lucky lottery ticket winner”, with each coin staked acting like a lottery ticket. Thus, the more coins staked, the more likely the user or pool will be to be chosen to validate the next transaction on the blockchain. In many chains, whoever validates the transaction generates the next lottery number, “choosing” the next validator. The validator of the transaction earns a transaction fee for the work completed.
Just like a savings account, the coins can (usually) be withdrawn at any point in time, and as with any interest based program, the more coins you have, the higher the reward. Some coins require a minimum investment that must be staked for a specific period of time. Some coins operate solely on the proof of work model do not provide the opportunity for staking.
Since the proof of stake model does not use as much energy as the proof of work model, it is quickly being viewed as the more environmentally friendly option for generating passive income through cryptocurrency. Being a staker is like owning stock in a company and receiving dividends. Stakers often receive voting rights and governance, and actively participate in the blockchain as it evolves.
Cryptocurrencies do have their instabilities, with values fluctuating daily. If the price of the coin were to drop dramatically from when it was purchased to when it was sold after being staked, the fiat amount earned through interest could effectively disappear.
Some of the coins available for staking are;
ETH2
ADA
DOT
NEO
XTZ
ATOM
ALGO
SOL
ONT
TIME
VET/VTHO
SHIB
Links above are provided when applicable for staking the coin through its founding website. Other pools for staking do exist and the links are shared to give access to references for further investigation.
Some of the avenues that provide staking access are;
Exodus
Ledger
Atomic Wallet
Binance
Guarda
AirGap
StakeBox
Kraken
One thing to note when choosing a staking or trading platform or a wallet is whether the platform is licensed in the US. While users can access KuCoin, it is important to note, it is not licensed for use within the United States.