There are lots of them, and most popular of the rest is staking.
How does staking work?
In a regular crypto network like Bitcoin, transactions are randomly processed by the mining node that is the first to solve a complex algorithm at the end of a timeframe.
In Proof of Staking protocol, miners are chosen randomly from a pool by holders of the digital coin.
You can become a part of the pool by staking a certain amount of coins that are prescribed by their terms and conditions.
What does actually staking mean?
Staking means holding a certain amount of coins on a unique wallet that used for staking.
The coins you deposit are locked for a certain period.
By depositing these coins to that wallet, you guarantee that you will not approve fraudulent transactions.
If you try to debase the system, you risk losing your coins.
For approving transactions, you will get a staking reward, similar to mining reward.
What is the difference between mining and staking?
In general, staking is similar to mining, but you do not need mining equipment.
You just need a certain amount of coins that is proposed by the rules, and you can start staking.
It is better for the environment since it doesn’t consume electricity as mining does.
The primary benefit of staking coins is that it removes the need for purchasing expensive hardware.
However, on the other side, there is a risk involved in staking as well.
Staking coins in a bound wallet has one drawback.
The coins are locked up for some time, and you are not able to manage them until they are at stake.
This may not be a problem while the value of the currency is rising, but it can lead to significant losses when the price is falling.
The amount earned through staking might not be enough to cover the price depreciation during a market decline.
Milos is an independent trader, with a background in journalism and publishing. Nomadic by nature, he’s lived in four different countries this decade. He’s fascinated by Blockchain technologies’ potential to reshape all aspects of our lives. Milos got into Bitcoin while completing his degree and hasn’t looked back since, writing about anything crypto-related. He is the co-founder of the Cryptoaims and he has a strong passion to educate people about this revolutionary technology.