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What is Crypto Staking?

Proof of stake is a type of consensus mechanism used to validate cryptocurrency transactions. With this system, owners of the cryptocurrency can stake their coins, which gives them the right to check new blocks of transactions and add them to the blockchain.

This method is an alternative to proof of work, the first consensus mechanism developed for cryptocurrencies. Since proof of stake is much more energy-efficient, it has gotten more popular as attention has turned to how crypto mining affects the planet.

Understanding proof of stake is important for those investing in cryptocurrency. Here's some info on to how it works.

How does proof of stake work?

The proof-of-stake model allows owners of a cryptocurrency to stake coins and create their own validator nodes. Staking is when you pledge your coins to be used for verifying transactions. Your coins are locked up while you stake them, but you can unstake them if you want to trade them.

When a block of transactions is ready to be processed, the cryptocurrency's proof-of-stake protocol will choose a validator node to review the block. The validator checks if the transactions in the block are accurate. If so, they add the block to the blockchain and receive crypto rewards for their contribution. However, if a validator proposes adding a block with inaccurate information, they lose some of their staked holdings as a penalty.

As an example, let's look at how this works with ATOM (CRYPTO:ATOM), a major cryptocurrency that uses proof of stake.

Anyone who owns ATOM can stake it by delegating to a validator node. When ATOM needs to verify blocks of transactions, its protocol selects a validator. The validator checks the block, adds it, and receives more ATOM for their work in processing the transaction.

Each proof-of-stake protocol works differently in how it chooses validators. There may be an element of randomization involved, and the selection process may also depend on other factors such as how long validators have been staking their coins.

Proof of stake vs. proof of work

Proof of stake and proof of work are the two most common types of consensus mechanisms cryptocurrencies use. Proof of work was the method of choice for early cryptocurrencies, including Bitcoin (CRYPTO:BTC), while proof of stake originated in 2012 with Peercoin (CRYPTO:PPC) and has become a common choice for altcoins such as ETH, Polkadot, RUNE, ATOM, REGEN, BITSONG, and many many more.

While some believe The biggest difference between Proof of Stake and Proof of Work is their energy usage, the real magic of Proof of stake VS. Proof of work is that Proof of Work contains economic incentives built around competition, and Proof of Stake contains economic incentives built around cooperation.

Proof of Work requires miners to compete to solve complex mathematical problems. The first miner to solve the problem gets to add a block of transactions and earn rewards. This results in mining devices around the world computing the same problems and using substantial energy. It also requires new and better equipment quite often, resulting in massive consumption of resources to build the equipment, not just the resources of the electricity it consumes.

Since proof of stake doesn't require validators to all solve complex equations, it's a much more eco-friendly way to verify transactions, and the lifespan of equipment necessary to secure the network is much longer.