Staking a cryptocurrency is a process that requires you to commit your crypto asset to support the blockchain and validate/confirm transactions.
The Long Explanation
Legacy blockchains like Bitcoin and Ethereum used a process known as the proof-of-work mechanism to validate trades. This process was both energy and time consuming, slowing down trades and coming at significant costs to users.
In time, a more efficient validation process was developed – the proof of stake mechanism. Today, staking is the way most cryptocurrencies validate their transactions and add new blocks to the blockchain.
For users of the network, this is a great way to earn passive income on assets they plan to hold for a while. To begin staking, an asset holder simply pledges their crypto assets to the cryptocurrency protocol. As you pledge more coins, your chances of becoming a validator increase.
Each time a new block is added to the blockchain, the block’s validator is rewarded with freshly minted cryptocurrency coins. The goal is to reward holders who provide support to the network’s activities. What the actual reward is differs from one cryptocurrency to another.
It should be noted, though, that staking isn’t free of risks. As crypto prices fluctuate wildly, the value of your staked assets may rise or plummet over time. If you’re staking an asset with a “lock-up period”, you won’t be able to access your assets until that time is up – regardless of market movements.
Because most crypto investors by themselves lack the capacity to stake really large amounts of an asset, staking pools are often created for multiple investors to stake together.
In order to stake your crypto coins, you would need to own a crypto that adopts the proof-of-stake mechanism. You’d also need to decide the amount you want to stake, and either become a validator (if you qualify), join existing validators, or stake via a crypto exchange.
Several NFT projects also allow holders to stake their NFT in exchange for altcoins.
For instance, a holder of illogics can stake their NFT and receive 10 $GOOP everyday per illogics staked. $GOOP can then be accrued to use in the illogics marketplace for raffle tickets and whitelist spots for other NFT projects. This acts as an attractive utility for the project.
While the NFT is staked, may be subject to a lock up period and may require a gas fee to be unstaked.
