Staking is a relatively new term that appeared in the cryptocurrency world. But few people know what this actually means.
If you are wondering what is staking in cryptocurrency, you should know that it can be described as being bitcoin mining evolved. In order to stake, the user puts aside a part of the holdings on the native coin of the blockchain. How much is staked offers a higher probability of receiving the task of mining the next coin. Also, interest is available on some of the blockchains that use this technology.
One thing few people understand is that through staking, the process of mining cryptocurrency becomes better for nature. This is because we do not see all users scrambling to become the first to solve the problem to get the coin. Less electricity is thus used. In fact, it is one of the reasons why some people believe Ethereum has the potential of overtaking bitcoin.
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What Is Involved?
When crypto is staked, you actively offer a part of the wallet. You basically use this as collateral. The process means a fraction of the crypto wallet ends up locked. This is for a specific time frame. The collateral can be removed as stake. It is your money. However, in some cases, this cannot be an immediate process.
We should also highlight that with some of the blockchains that use staking, a minimum amount is needed for the process to be available. As an example, with the Ethereum blockchain, you need at least 32 ETH or you cannot become involved. Right now, this sums up to hundreds of thousands of dollars, which is not something possible for many. With other blockchains, accessibility is higher. For instance, with Cardano, you just need 1 ADA, which is very cheap right now.
Usually, you do not need to do much for staking to happen. It is very passive. There is no need to do too much through a manual process. You just set up the amount that you are going to stake.
Rewards
Obviously, staking is important because it offers rewards. We already highlighted the environment-related advantage above. This happens as there is just one unit that is using electricity to complete a needed task. There is no longer a competition happening for that specific task. In addition, tokens and crypto can be earned based on what you stake. You receive this as interest or because you complete the task.
The last thing we have to highlight is that staking is highly beneficial for the blockchain as a whole. More people end up doing it so the entire blockchain becomes faster. You can hold the coin and do so right on the blockchain as you are waiting for the price to go up. In some of the blockchains that use staking, you can also receive voting rights so your voice has an impact on what happens in the future. This is similar to what you would receive if you were to invest money in some companies.
