A general definition for crypto users or investors is: staking is the process of locking up cryptocurrency holdings in order to earn interest on them.
However, staking also has a function on the backend of the technology.
How Does it Work?
When cryptocurrency transactions occur, they are verified by nodes and the resulting data is stored on the blockchain network. Staking is another way to describe validating such transactions on a blockchain.
Depending on the type of cryptocurrency and the technology that supports it, these validation processes will be known as either “proof-of-stake” or “proof-of-work.” These processes help crypto networks achieve consensus, or confirmation that all of the transaction data adds up to what it should.
But achieving that consensus requires participants. That’s what staking is—investors who actively hold onto, or lock up their crypto holdings in their crypto wallet are participating in these networks’ consensus-taking processes. Stakers are, in essence, approving and verifying transactions on the blockchain.
For doing so, the networks reward those investors. The specific rewards will depend on the network.
A useful analogy for staking is depositing cash in a savings account. The depositor earns interest on their money while it’s in the bank, as a reward from the bank, who uses the money for other purposes (lending, etc.). Staking coins is, then, similar to earning interest.
How do I start staking?
Not all cryptocurrencies provide staking opportunities (e.g Bitcoin doesn’t) but many do! You can stake many well known coins such as Ethereum, Cardano, Solana, Terra etc.
Step 1 - Purchase the cryptocurrency. You must hold the cryptocurrency that you want to lock-up in order to earn rewards. You may need a digital wallet for this, such as a MetaMask or you may be able to purchase the coin on a central exchange such as Binance, Coinbase, KuCoin etc.
Step 2 - Find the relevant staking pool. This can be done with a simple search engine search. Search the coin name, followed by “staking”. (The staking is usually available on the website of the cryptocurrency too).
Step 3) Follow the instructions on the staking website that you have chosen. You might have to connect your digital wallet to the protocol, or if you are staking on a centralised exchange, it will likely recognise the amount of tokens that you hold and you will be able to deposit them on the same site.