The term staking, as it relates to cryptocurrencies, denotes an integral part of proof of stake blockchains. Some examples for cryptocurrencies with a proof of stake model are Peercoin, Cardano and Tezos. Those individuals or companies who hold the largest amounts of these currencies have the highest chance of obtaining newly generated tokens.
With proof of stake blockchains, the operators of computers or “nodes” which process transactions must put down a “stake” or deposit in the blockchain’s native cryptocurrency. This must be transferred into a blocked wallet. This stake acts as collateral, and also shows that the node’s operator has a material interest in the blockchain.
Transactions are automatically given to computers to process based on the size of their stake. The more cryptocurrency a node stakes as collateral, the higher the chance of that node being given transactions to process is.
Operators of the computers which act as nodes or validators for the blockchain are rewarded with new coins whenever they process a transaction. The more cryptocurrency an operator can stake, the higher the chance of earning rewards is. In this way, operators compete for transactions by trying to stake more cryptocurrency than other operators.
In order to amass the large stakes required to compete for transactions on major proof of stake blockchains, many cryptocurrency service providers offer staking as a service.
By pooling your cryptocurrency with that of many other investors, these service providers can create large stakes and earn significant rewards. Rewards are then distributed to stakeholders, minus a cut which makes up the service provider’s fee.
A number of large Swiss cryptocurrency service providers, including Bitcoin Suisse and Sygnum Bank, offer staking of major proof of stake cryptocurrencies as a service.
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Proof of stake explained
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