What is cryptocurrency staking in simple words and what are its features.
Stacking has emerged as an alternative way to support the blockchain network using less power consumption. In fact, it opposes the Proof-of-Work protocol, which requires significant computing power.
Since 2017-2018, Bitcoin began to be criticized for its high consumption of electricity and causing harm to the environment. The blockchain runs on a proof-of-work protocol that uses computational power to solve mathematical problems.
- When the correct answer is found, information about the transaction is added to the blockchain. Miners are rewarded for this.
Stacking works differently. It also requires confirmation of the validity of the block (transaction). However, for this, not miners are involved, but validators. These are the owners of a certain number of coins who have the right to decide on the reliability of the block. Validators also use hardware: GPUs. True, their power is needed in a much smaller volume than with the Proof-of-Work algorithm.
Nowadays, pure PoS consensus is rare. Investors do not want to risk using a large number of digital coins, as this increases the risk of losing funds when the price of a cryptocurrency falls. Therefore, more and more staking pools appear, where several users of the blockchain network are combined, or delegated proof of stake is performed.
The latter is a relatively new version of the protocol used to improve the security of the blockchain. DPoS allows the token holder to delegate verification rights to delegates. They, in turn, unite in a group and seek consensus among themselves.
- The use of alternative methods of working with PoS consensus allows small investors to democratize access to cryptocurrency staking opportunities.