STAKING. #YKF. POOL FARMING.

What Is Staking?

Staking is the process of actively participating in transaction validation (similar to mining) on a proof-of-stake (PoS) blockchain. On these blockchains, anyone with a minimum-required balance of a specific cryptocurrency can validate transactions and earn Staking rewards.

What is Proof of Stake (PoS)?

Proof of Work has proven to be a very robust mechanism to facilitate consensus in a decentralized manner. The problem is, it involves a lot of arbitrary computation. The puzzle the miners are competing to solve serves no purpose other than keeping the network secure. One could argue, this in itself makes this excess of computation justifiable. At this point, you might be wondering: are there other ways to maintain decentralized consensus without the high computational cost?

The main idea is that participants can lock coins (their “stake”), and at particular intervals, the protocol randomly assigns the right to one of them to validate the next block. Typically, the probability of being chosen is proportional to the amount of coins — the more coins locked up, the higher the chances.

Who created Proof of Stake?

One of the early appearances of Proof of Stake may be attributed to Sunny King and Scott Nadal in their 2012 paper for Peercoin. They describe it as a “peer-to-peer cryptocurrency design derived from Satoshi Nakamoto’s Bitcoin.”

The Peercoin network was launched with a hybrid PoW/PoS mechanism, where PoW was mainly used to mint the initial supply. However, it wasn’t required for the long-term sustainability of the network, and its significance was gradually reduced. In fact, most of the network’s security relied on PoS.

How does staking work?

As we’ve discussed before, Proof of Work blockchains rely on mining to add new blocks to the blockchain. In contrast, Proof of Stake chains produce and validate new blocks through the process of staking. Staking involves validators who lock up their coins so they can be randomly selected by the protocol at specific intervals to create a block. Usually, participants that stake larger amounts have a higher chance of being chosen as the next block validator.

This allows for blocks to be produced without relying on specialized mining hardware, such as ASICs. While ASIC mining requires a significant investment in hardware, staking requires a direct investment in the cryptocurrency itself. So, instead of competing for the next block with computational work, PoS validators are selected based on the number of coins they are staking. The “stake” (the coin holding) is what incentivizes validators to maintain network security. If they fail to do that, their entire stake might be at risk

While each Proof of Stake blockchain has its particular staking currency, some networks adopt a two-token system where the rewards are paid in a second token.

On a very practical level, staking just means keeping funds in a suitable wallet. This enables essentially anyone to perform various network functions in return for staking rewards. It may also include adding funds to a staking pool, which we’ll cover shortly.

How are staking rewards calculated?

There’s no short answer here. Each blockchain network may use a different way of calculating staking rewards.

Some are adjusted on a block-by-block basis, taking into account many different factors. These can include:

• how many coins the validator is staking
• how long the validator has been actively staking
• how many coins are staked on the network in total
• the inflation rate
• other factors

For some other networks, staking rewards are determined as a fixed percentage. These rewards are distributed to validators as a sort of compensation for inflation. Inflation encourages users to spend their coins instead of holding them, which may increase their usage as cryptocurrency. But with this model, validators can calculate exactly what staking reward they can expect.

A predictable reward schedule rather than a probabilistic chance of receiving a block reward may look favorable to some. And since this is public information, it might incentivize more participants to get involved in staking.

What is a staking pool?

A staking pool is a group of coin holders merging their resources to increase their chances of validating blocks and receiving rewards. They combine their staking power and share the rewards proportionally to their contributions to the pool.

Setting up and maintaining a staking pool often requires a lot of time and expertise. Staking pools tend to be the most effective on networks where the barrier of entry (technical or financial) is relatively high. As such, many pool providers charge a fee from the staking rewards that are distributed to participants.

Other than that, pools may provide additional flexibility for individual stakers. Typically, the stake has to be locked for a fixed period and usually has a withdrawal or unbinding time set by the protocol. What’s more, there’s almost certainly a substantial minimum balance required to stake to disincentivize malicious behavior.

Most staking pools require a low minimum balance and append no additional withdrawal times. As such, joining a staking pool instead of staking solo might be ideal for newer users.

How to stake on YokeFinance

In a way, you could think of holding your coins on YokeFinance as adding them to a staking pool. However, there are no fees, and you can also enjoy all the other benefits that holding your coins on YokeFinance brings!

The only thing you have to do is hold your PoS coins on YokeFinance, and all the technical requirements will be taken care of for you. The staking rewards are usually distributed at the start of each month.

You can check the previously distributed rewards for a given coin under the Historical Yield tab on each project’s staking page.

Closing thoughts

Proof of Stake and staking opens up more avenues for anyone wishing to participate in the consensus and governance of blockchains. What’s more, it’s an utterly easy way to earn passive income by simply holding coins. As it’s getting increasingly easy to stake, the barriers of entry to the blockchain ecosystem are getting lower.

It’s worth keeping in mind, though, that staking isn’t entirely without risk. Locking up funds in a smart contract is prone to bugs, so it’s always important to DYOR and use high-quality wallets, such as Trust Wallet.

Be sure to check out our staking page to see which coins are supported for staking and start earning rewards today!