The process of keeping the owned cryptocurrencies locked in the wallet within a specified period of time without any spending and transfer is called “staking”. During the locked time, a certain amount of reward crypto money is earned from the locked cryptocurrencies. Although the types of staking may differ from each other, the main idea is to earn rewards for holding the cryptocurrencies in circulation. There are several consensus models on the blockchain. There are validating nodes that ensure the security of the blockchain network. These nodes need to reach a consensus of 51% to prove the accuracy of transactions made on the crap chain.
The first cryptocurrency, Bitcoin, uses the Proof of Work (PoW) consensus. PoW consensus needs enormous electrical power, large facilities, computer hardware to solve complex problems and generate profits for its miner. Therefore, it is quite expensive and the processing capacity is limited. With this mechanism, transactions can be verified even between foreigners from different parts of the world and it is prevented from spending the same money twice.
The consensus algorithm in which participants of the cryptocurrency holding network gain the right to create and validate blocks is called Poof of Stake. The concept of “Staking” is a mining method closely related to Proof of Stake (PoS). The PoS consensus was created as an alternative to the mining method on the PoW consensus. We can consider staking, which requires less resources, as an alternative to mining. In PoS mining, processing power is provided not depending on hardware or electrical power, but based on the cryptocurrency added to the circulation. However, mining earnings rates with PoS vary according to the balance in the wallet. Usually those with more digital assets or early backers will have higher levels of authority, but this will depend on the fundamental rules of the network. The higher the balance in the wallet, the higher the profit in this mining system, where profits are made with the right proportion. The reason the deposited crypto money is rewarded by staking is that the blockchain operates this digital value. With the PoS mechanism, all transactions become verifiable and security is ensured without intermediaries, that is, in a decentralized way.
A “Staking Pool” is the place where resources are collected when a group holding digital value pools resources to increase their chances of validating blocks and getting rewards. It takes a lot of time to set up and manage this pool, which requires expertise. Therefore, most pool providers may charge a certain fee over the rewards of the staking pool distributed to participants holding digital value, as well as provide some flexibility to individual staking participants. When the stake that needs to be locked in a fixed timeframe is unlocked or when funds can be withdrawn is determined by the protocol. The minimum balance is usually high to prevent erroneous or system-damaging behavior.