Now that crypto is here to stay and most currencies are stable, many people are curious about how they can invest. There are a few things that every investor should know before jumping into the crypto market.
First off, what is staking? This is a process by which users can earn a percentage in cash rewards for holding tokens in their accounts. These tokens are put to multiple uses on a blockchain. Basically, staking is profit sharing and passive income from crypto investments via the Proof of Stake mechanism. An algorithm determines how these rewards are generated by the blockchain by validating transactions.
The PoS algorithm was set up in 2012 based on the idea that holding stakes in tokens can be used to decide which specific node would mine the next block.
There are multiple PoS versions like delegated PoS, leased PoS, PoS velocity and Proof of Storage to mention a few. Each version works differently to improve overall efficiency and also offer users the best possible process.
PoS staking lets users verify every transaction based on the coins that they have in their wallets. The PoS algorithm hashes data related to user transactions. After the transaction is verified, records in the blockchain are updated. The average level of difficulty in mining and profitability are inversely proportional.
Mining tokens using the algorithm doesn’t need any computing power. Participants in this process are called forgers and they earn commissions. This commission is limited to the number of transactions they conduct. Income is also determined by how old the token is and multiplied by the number of tokens. Users who have a set number of tokens in their account and can vary based on the network.