For a basic understanding of how it works, you can assume that staking crypto is the equivalent of putting money in a high interest savings account.
When you deposit money in a savings account, the bank takes that money and typically lends it out to others. In return for locking up that money with the bank, you receive a portion of the interest earned from lending.
In the same way, when you stake digital assets, you earn rewards calculated in percentage yields. These returns are typically much higher than any interest rate offered by banks.
Why Staking?
Staking can be considered as a less resource-intensive alternative to mining. It involves holding funds in a cryptocurrency wallet to support the security and operations of a blockchain network. Staking is part of the process that certain cryptocurrencies use to verify transactions.
It’s all part and parcel of a consensus mechanism called “proof-of-stake.”
This sees blocks of transactions added to a blockchain, an indelible string of “blocks” of transactions, by people who already hold a certain stake in that blockchain’s native currency.
In the case of proof-of-stake blockchains (such as NEAR), the process is called forging (or sometimes “minting”), and the people who do it are called validators or forgers rather than miners.
Proof-of-Stake
To understand better about staking, you will first get a clear idea of how Proof-of-Stake (POS) works.
POS is a consensus mechanism that allows transaction to be gathered into blocks, of which, when linked together makes a blockchain. In POS, the deposited coins are used to verify the transactions on the blockchain. The main concept is that participants are being able to lock coins at particular intervals, the protocol randomly assigns the right to one of the to validate the next block. The more coins locked up, the more probability you have and more chances.
How can you stake cryptocurrency?
You can stake cryptocurrencies like $NEAR in your NEAR Wallet’s “Staking” page.
Users also have the option to use the NEAR native DeFi marketplace Ref.Finance for staking.
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