Crypto Explained: What Is Cryptocurrency Staking?

Crypto staking is a method that people can follow to lock some part of their cryptocurrencies as a way to contribute to a blockchain network. This is useful for the network, and also can allow cryptocurrency holders to generate value from cryptos that are simply in their possession, lying idle. People opting to try crypto staking will be required to agree to not withdraw their cryptocurrencies from this process until the end of their agreed time period. This helps the network also to get some advantages.

Since crypto staking as a concept is fairy new, not all blockchain platforms support it. This is used by cryptocurrencies that use a proof of stake model (rather than the proof of work model that Bitcoin and other early cryptocurrencies use). In the proof of stake model, new transactions have to be verified before being added to the blockchain and existing coins are used as validators to confirm blocks. 

When a new block is added to the blockchain, the validator is also rewarded with some of the new coins minted. This is a way by which people can earn "interest" from their cryptocurrency investments. However, there is risk involved as well because of the volatility of the crypto market — if your coins value started to drop, you can't sell them quickly, which could lead to some losses.

People can lose a part of their funds as a penalty if they violate agreed upon terms. Staking also comes along with some fees, which are deducted from the rewards. Some popular cryptocurrencies that support staking are Ether (after the ETH 2 upgrade for Ethereum), Cardano, Polkadot, and Solana. 

One of the advantages of crypto staking is that if many people get roped in it, the value of the most locked crypto token could increase substantially due to its limited supply. At the same time, the incentive benefits the blockchain as well as the user.

In addition, people choosing crypto staking, get voting rights that allows them to frame what happens to the cryptocurrencies, most locked in crypto staking. As per a report by CoinMedia.org, the entry process into crypto staking is user friendly, that may attract more people towards trying it out.

Cryptocurrency is an unregulated digital currency, not a legal tender and subject to market risks. The information provided in the article is not intended to be and does not constitute financial advice, trading advice or any other advice or recommendation of any sort offered or endorsed by NDTV. NDTV shall not be responsible for any loss arising from any investment based on any perceived recommendation, forecast or any other information contained in the article.