In recent years, the cryptocurrency industry has experienced a boom in the adoption of proof of stake (PoS) blockchain networks. The rise of PoS consensus mechanisms has made “staking” a popular activity in crypto. Participating in PoS networks, aka “staking crypto,” is an easy way to contribute to a blockchain network’s development.
Staking can be a difficult topic to understand. This guide is designed to make staking on CEX.IO as smooth and easy as possible.
What is staking?
Staking is the process of supporting a blockchain network’s operation. Where proof of work networks like Bitcoin require mining to keep the blockchain secure, proof of stake networks like EOS, Tezos, and Cosmos are low maintenance.
Staking is a process that allows users to earn crypto by pledging a portion of their holdings to the network. At a glance, staking appears to work like a savings account, where the bank pays you interest over time for storing funds. But staking works in a completely different way.
While the details vary between different PoS networks, staking usually allows users to contribute to the blockchain network, taking part in transaction validation and governance. The users responsible for confirming blocks of transactions are known as validators. Once a new block is added to the blockchain, new coins are “minted” into existence. The network will reward the validator and users who staked based on a predefined formula.
Note that not all cryptocurrencies support staking, only those where the blockchain uses PoS or similar consensus algorithms (i.e., delegated proof of stake). Bitcoin cannot be staked, for example, because it works using the proof of work (PoW) consensus algorithm. Bitcoin relies on mining instead of staking.
Blockchain networks that support staking include Cardano, Tezos, Polkadot, Solana.
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