What is staking ?
Proof of stake (PoS) is a type of consensus mechanism by which a cryptocurrency blockchain network achieves distributed consensus. In PoS-based cryptocurrencies, the creator of the next block is chosen via various combinations of random selection and wealth or age (i.e., the stake).
How does it work ?
A consensus mechanism can be structured in a number of ways. PoS and proof-of-work (PoW) are the two best known and in the context of cryptocurrencies also most commonly used. Incentives differ between the two systems of block generation. The algorithm of PoW-based cryptocurrencies such as bitcoin uses mining : the solving of computationally intensive puzzles to validate transactions and create new blocks. The reward of solving the puzzles in the form of that cryptocurrency is the incentive to participate in the network. The PoW mechanism requires a vast amount of computing resources, which consume a significant amount of electricity. With PoS there is no need for “hard work”. Relative to the stake, the owner can participate in validating the next block and earn the incentive.
What are the risks ?
There is no real risk in the Proof-of-Stake. Your tokens are simply blocked during the staking phase. You can stop the process at any time. The only risk is that the affected cryptocurrency will lose value.
|Cardano||ADA||3 to 21.90%|