Staking

Staking is the process where a user actively participates in the operation of a blockchain network by "locking up" a certain number of their coins as collateral. By doing so, they help secure the network and validate transactions. This mechanism is the foundation of the Proof of Stake (PoS) consensus algorithm, which is an energy-efficient alternative to mining (Proof of Work). Users who participate in staking are rewarded for their contribution, typically in the form of new coins of that cryptocurrency.

The principle is similar to an interest-bearing savings account. The more coins a user stakes and the longer they hold them, the higher their chance of being selected to validate the next block of transactions and earn a reward. Staking is much more accessible than mining because it does not require expensive and powerful hardware, only the ownership of the specific cryptocurrency. The most prominent example of a cryptocurrency that transitioned to the Proof of Stake model is Ethereum. Users can stake either on their own or by joining a staking pool, which combines the funds of multiple users.