What is Crypto Staking?

What is Crypto Staking?

When approaching the world of cryptocurrencies, the concept of staking often comes up. But what is staking, and why is it beneficial?

The Concept of Staking

Staking is the process of updating and securing the blockchain of Proof-of-Stake (PoS) cryptocurrencies, such as Ether or Solana. Unlike Proof-of-Work (PoW) protocols like Bitcoin, PoS protocols do not require substantial investments in hardware to update the blockchain by mining blocks. Instead, to perform this work, participants must pledge a sum of cryptocurrency as a guarantee of good conduct. Of course, as a job, staking is rewarded: PoS protocols issue cryptocurrency specifically for this purpose.

How Staking Works

The greater the amount of cryptocurrency staked as a guarantee, the more reliable the operator is considered, and thus, its involvement in updating the blockchain increases. The more work is done in validating transactions and finalizing new blocks, the higher the reward. This reward is proportional to the guarantee provided and is typically expressed as a percentage. It’s a bit like being a notary for the PoS system: one certifies that everything is in order and gets paid for it. The more participants involved in staking, the more secure and decentralized the network becomes.

The Reward

The advantage of staking comes from the reward. This earning serves as the incentive: instead of leaving cryptocurrency idle in a wallet, it can be put to work. Staking rewards are always more beneficial than simply holding cryptocurrency but vary based on market conditions.

Security and Risks

Staking is not without risks, primarily tied to dishonest behavior in transaction validation. If a participant acts dishonestly, their guarantee can be confiscated—this punishment is known as slashing. However, for those who operate correctly, the risk of losing funds is only theoretical. The usual risks associated with holding cryptocurrency, such as volatility, still prevail.

Staking vs. Mining

One common misconception is that staking is available for all cryptocurrencies, including Bitcoin, but this is not the case. Proof-of-Work (PoW) crypto-assets, like Bitcoin, require powerful hardware to update the blockchain. Mining is a high-cost activity, accessible to large investors only. Some services may offer Bitcoin staking, but they are actually providing financial products like lending, yielding, or farming, which involve lending cryptocurrency to a counterparty that may not return it. These are financial products, not paid work.

Why Staking is Important

Staking is not only a way to earn rewards from cryptocurrency but also plays a crucial role in keeping cryptocurrency networks secure and decentralized. By incentivizing participation, the blockchain can continue to operate smoothly, protected from fraud and attacks. In short, staking cryptocurrency is rewarded because it benefits everyone.

Staking as an Opportunity

Staking is an opportunity for those who want to put their cryptocurrency to work and earn rewards in return. When done with awareness, it represents a form of earning that, unlike mining, does not require expensive equipment or high energy consumption.

Staking with CheckSig

With CheckSig, staking is made simple. One can decide how much Ether or Solana to stake without worrying about the technical side, as CheckSig handles everything. Moreover, thanks to CheckSig’s insurance coverage and SOC1/SOC2 Type II attestations, staking can be done securely. Finally, by choosing CheckSig as tax withholding agent, one also resolves any issues related to tax compliance.