Stakely Blog
November 17, 2021

What is staking and how it works? Find out the advantages of staking with Stakely

November 17, 2021

Staking is a mechanism adopted by blockchains that operates with Proof-of-Stake (PoS) consensus mechanism or one of its variations (DPoS, NPoS, LPoS...) to reach consensus. By staking, users contribute their tokens to the security of the network and in turn, earn a passive income.

How does staking work?

To understand what staking is, it is necessary to first understand how it works. Networks that support staking have the particularity of having validator nodes that, as their name suggests, have the task of validating transactions and new blocks produced on the blockchain. The validator nodes are chosen randomly according to the number of tokens they have in their wallets to provide security and consensus to the network where they operate. The more nodes that are active, the more decentralized the network will be.

Unlike Proof-of-Work (PoW), the PoS protocol, which is where staking comes into play, does not require any kind of hardware device (GPU or RIC) or extremely high costs to reach consensus, in fact, users simply delegate to validators of their choice.

Users never transfer their tokens to the validator’s wallet, actually, the tokens remain in the users' wallets. What these users do delegate, however, is their voting power to the validator to which they have chosen to delegate. In this way, the tokens will always remain safely in their wallet.

Once the validator starts validating new blocks, users will get their respective rewards, which will be proportional to the number of tokens delegated in staking.

On the other hand, the PoS protocol consumes less energy than the PoW protocol when validating new blocks within the blockchain, so this is a big plus for the PoS protocol in terms of the environment.

Where do the staking rewards come from?

For each validated block, the network delivers a certain amount of tokens as a reward. These rewards come from two main sources: fees and inflation.

On the one hand, a user pays a fee every time he or she makes a transaction, that will go to the validators who help secure the network. On the other hand, the validators, and therefore the users who delegate to them, receive staking rewards for each block that is validated on the network. These rewards come from the inflation of the network and are considered inflationary rewards; in short, for each block validated, the network mints new tokens to distribute among its validators.

There are protocols that are exceptions to the latter case, such as Terra and LTO, which lack inflation and use commissions to reward their users.

Advantages of staking

There are many advantages of staking, both for the users who delegate their tokens and for the network for which the node validates. The following are four of the main general advantages of staking:

  1. It is accessible to all users since no excessively expensive hardware intended for mining is needed to participate in the network consensus.

  2. It contributes to energy savings and is not as harmful to the environment. Users do not have to make excessive use of energy consumption, which translates into more profits and a cleaner ecosystem.

  3. It allows for greater scalability in the network in which it is implemented. The more nodes are validating for the network, the greater its decentralization is and the safest the network becomes.

  4. Users receive continuous rewards for the tokens staking. It is the perfect solution to profit from those assets you plan to hold. The nodes receive a small commission from these rewards in order to maintain the infrastructure.

By staking with Stakely, you also get additional staking advantages, including coverage under our innovative Staking Insurance program.

How to stake to earn rewards?

Each project has a different staking procedure, depending on the network in which they operate. At Stakely, we provide video tutorials about how and where to stake for each one of the projects we collaborate with, as well as a brief guide on each project page.

If you don't find what you are looking for, remember that you can consult the official project documentation and follow the staking instructions that you will find in their documents. In this case, it is important that you take into account certain key aspects that will help you take the step into the world of staking with more confidence and thus obtain better results:

  1. Research beforehand the processes and steps to follow for staking, as they may vary from one blockchain network to another.

  2. Make sure before staking that the validator you choose is trustworthy and offers additional services or benefits.

  3. Calculate the total reward you will receive based on your minimum investment and compare it between different validators.

  4. Make sure the validator you choose shares your concerns and thoughts. You delegate your voting power to validator nodes, thus they will use your voting power for future network proposals.

As you may have noticed, staking is an important figure in reaching consensus in blockchain networks that choose to use Proof-of-Stake. The exacerbated energy consumption and high costs to sustain PoW have caused large blockchain networks such as Ethereum to make the decision to migrate to PoS, which awaits a future in the blockchain networks.

Staking is also an easy and simple way for users who are just starting out in the world of cryptocurrencies to start earning rewards from the projects they trust. Win-win!

About Stakely

Stakely is a non-custodial staking services provider, that is to say, funds are still in your possession, you just delegate your trust to the node. Stakely currently operates nodes in different ecosystems, such as Ethereum, Solana, NEAR Protocol, Cosmos, Sui, and more.

Our website is designed to be easily accessible and intuitive, its design and its tutorials guide the user to stake easily. For this purpose, it counts on the proper documentation of the different mainnets where it participates. This breaks the traditional scheme by educating the user while staking their tokens, making them more aware of the process involved in delegating their assets.

Our goal is to operate and validate under the highest security standards by following an internally documented operation protocol, complying with due diligence in key control and carrying out continuous monitoring and managing a 24/7 alert system. The impenetrable security is one of the many advantages of staking with Stakely!

Our environmental commitment

At Stakely we advocate for a cleaner environment, therefore, the DPoS system we implement significantly reduces energy expenditure. We are sure that DPoS is the best way to take care of the planet while we carry out our work, without sacrificing at any time the environment where we operate on a daily basis, and above all without compromising the efficiency, security, or robustness of our task as high-performance node operators, while supporting the different blockchain networks where we participate.

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How does staking work?
Where do the staking rewards come from?
Advantages of staking
How to stake to earn rewards?
About Stakely
Our environmental commitment

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