What is Staking ?



Simply put, staking is the process of buying and holding coins with the goal of receiving interest. It is done using a designated wallet on a network that uses the Proof of Stake consensus algorithm or some modification of it. Where staking differs from mining is in the fact that it doesn’t require a powerful machine, nor do you have to invest large sums of money to be competitive.

The more stakers there are in each coin’s blockchain, the higher the decentralization is and as a result, the network becomes more secure and provides equalized opportunities for everyone to earn an income. Some networks are hybrids and have chosen to use both Proof of Work (PoW) and Proof of Stake (PoS) as ways to reach an agreement to further increase speed and security.

There are pros and cons to each approach – that is why I’ve reviewed in detail the top available coins currently. You can find summarized info and links to individual reviews further down in the article. Before that, however, let’s discuss how PoS and PoW are dissimilar.

DIFFERENCES BETWEEN POS AND POW

I already cleared there are two main ways to reach an agreement in the blockchain – Proof of Stake (PoS) and Proof of Work (PoW). Proof of Work is about showing you have done the work. In the world of blockchain work refers to solving a complex mathematical problem. Whoever solves the task first gets to decide what is included in the block.

Proof of Stake, however, is about who has invested in the network. Unlike PoW where it’s easy to determine who validates the block – in PoS it’s a bit trickier to determine who validates the new block. Suffice to say, it’s a complicated reward algorithm that considers coins invested, time in the blockchain, total stakers in the blockchain and unfortunetly, luck is also a factor when determining who validates the block.

Having said all that, we can also make the distinction that while Proof of Work or mining involves an active participation, Proof of Stake or staking involves a more passive participation. It is also important to note, you can only stake coins in PoS networks, but you cannot stake coins in PoW only networks.

STAKING AND MASTERNODES DIFFERENCES

Although they have some similarities, staking and masternodes are two different things with different reward systems and responsibilities. When staking coins, you can do it with whatever amount you want (at least, in most cases). However, when it comes to masternodes, there is a minimum requirement of coins you need in order to host a masternode.

With staking you reserve the coins you have in your wallet and that’s it, masternodes, however, perform additional functions to the blockchain (such as InstantSend and PrivateSend). Setting up a staking ecosystem is easy, and I will discuss it below, while setting up a masternode is a cumbersome task and requires more technical knowledge and not everyone can do it.

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