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What is Staking and how do I make money from it?

The cryptocurrency Blockchain as we know it right now, needs support and resources provided from its users to exist, staking is a way to contribute maintaining the blockchain and it provides rewards to its investors in a similar way as mining does with its nodes.

How staking works?

If miners submit their proof of work to the blockchain, the stakers have proof of stake. Both of these are ways to keep the system decentralised were no single user or group has the registry of all transactions since all users or nodes register the transactions in the blockchain.

The difference between proof of work (PoW) and proof of stake (PoS) is that in PoW systems, miners compete to solve complex mathematical problems to maintain the security of the blockchain for rewards, although this is a robust method, it is also very costly.

PoS systems enable its users to lock a part of their coins for an interval of time to participate on the chance to be chosen by the system to validate the next block. The probability of getting chosen is proportional to the number of coins that you have locked.

 A sustainable system

Detractors of using crypto assets as everyday money were focusing on the environmental impact that miners have, but since validators won’t have to use computing power to validate the next block the burden on the electrical system isn’t as heavy

Also, the relation between miners and mining pools is very much like the one that apple has with its users. Where the big next most profitable rig always come while the halving makes the older rigs obsolete. 

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This creates extra pollution as rigs are computers that can only be used for the specific task of mining and nothing else. For that reason, Ethereum is driving its project to greener pastures by slowly but surely, changing its inner system from PoW to PoS in a series of actualizations that are called ETH 2.0.

Delegated proof of Stake (DPoS)

This is an alternative from the regular proof of stake that involves the democratization of blockchain validators and rewards. This system works by their users voting on who will validate the next block.

Every individual vote’s power will be proportional to the number of coins that are locked, and the chosen validator will earn the reward and divide some of the earnings with the users that voted for him. The only concern about this system is that it will be less decentralized than the PoW or PoS.

How to start staking?

Exchanges and even some wallets have this option for the coins that use PoS or DPoS system, you just need to activate it. However, you must keep in mind that the reward varies depending of factors like inflation, fees, number of locked coins and others.

Similar to mining pools there are staking pools were users combine their crypto assets to augment their probability to be chosen as validators for a block. However, the most successful of these pools are the ones that have high entry requirements so it is not recommended for every user.