OP 14 January, 2024 - 08:42 PM
(This post was last modified: 16 January, 2024 - 12:50 AM by IDaM. Edited 3 times in total.)
Staking is a way for people to lock up their cryptocurrencies or digital assets in order to earn rewards over time. Staking crypto is akin to depositing money in a bank. Banks need customer deposits to create loans for other people and businesses. To incentivize customer deposits, banks offer interest. Staking operates in a similar manner.
Staked cryptocurrencies are locked up in a project. The project then uses these staked coins to maintain its operations, such as validating transactions. And just like a bank pays interest on deposits, the crypto project gives rewards for staking cryptocurrencies. So, both banks and crypto networks use the assets they are given (money or crypto) to operate (create loans or validate transactions), and both offer incentives (interest or staking rewards) to encourage people to provide these assets.
The history of stakingThe original definition of staking describes a process of maintaining the operation of a blockchain network. People participate in the validation of transactions on a blockchain network by holding and locking up a certain quantity of that blockchain's cryptocurrency in a wallet. In exchange for this, they receive a reward. Over time, this narrow use case expanded into a more general definition to describe when people lock up a cryptocurrency or digital asset in return for a reward over time.
Cryptocurrency staking evolved as a response to the challenges faced by the original consensus mechanism, Proof of Work (PoW), which was introduced by Bitcoin. Let's walk through the historical progression that led to the concept of staking.
Staked cryptocurrencies are locked up in a project. The project then uses these staked coins to maintain its operations, such as validating transactions. And just like a bank pays interest on deposits, the crypto project gives rewards for staking cryptocurrencies. So, both banks and crypto networks use the assets they are given (money or crypto) to operate (create loans or validate transactions), and both offer incentives (interest or staking rewards) to encourage people to provide these assets.
The history of stakingThe original definition of staking describes a process of maintaining the operation of a blockchain network. People participate in the validation of transactions on a blockchain network by holding and locking up a certain quantity of that blockchain's cryptocurrency in a wallet. In exchange for this, they receive a reward. Over time, this narrow use case expanded into a more general definition to describe when people lock up a cryptocurrency or digital asset in return for a reward over time.
Cryptocurrency staking evolved as a response to the challenges faced by the original consensus mechanism, Proof of Work (PoW), which was introduced by Bitcoin. Let's walk through the historical progression that led to the concept of staking.
