March 26, 2024

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Staking involves holding funds in a crypto wallets to support the operations of a blockchain network. In return, you  receive rewards, often as additional cryptocurrency tokens. If you want to earn more from your assets and become a more involved member of a community then learning the different types of staking in crypto is super important. 

Staking while a fairly new concept is one that has revolutionized the crypto landscape for the better!

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What is Staking?

Staking is a process where cryptocurrency holders lock up a certain amount of their crypto as collateral to help blockchain network operations. 

Your  participation helps validate transactions and secure the network as miners do in a Proof of Work system. 

However, instead of relying on computational power, Staking relies on the concept of Proof of Stake (PoS), where the probability of being chosen to validate transactions and earn rewards is proportional to the number of tokens held and staked by a participant.

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How does Staking Work?

Participants lock up a certain amount of cryptocurrency in a designated wallet or smart contract. These smart contracts are found on decentralized finance platforms such as UniSwap and can even be found on exchanges such as Cryptology.

This locked-up amount serves as collateral, demonstrating the participant's commitment to the network. Validators are then chosen based on various factors, including the amount of cryptocurrency they have staked. 

For example on the Ethereum network to become a validator you must first stake 32 ETH as a minimum to participate, although over the years some platforms have been able to lessen this total.

Once selected, validators validate transactions, create new blocks, and add them to the blockchain. In return the validators receive rewards in the form of crypto tokens.

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Types of Staking

There are a number of different staking types you can get stuck into. Depending on the user and their wants will depend on which type of investor/trader you are.

Here are the different types:

Delegated Proof of Stake (DPoS)

DPoS is a variation of the PoS consensus mechanism where token holders vote for a select number of delegates to validate transactions and secure the network on their behalf. These delegates, also known as "witnesses" or "delegators," are tasked with validating transactions and producing blocks.

Bonded Proof of Stake (BPoS)

BPoS is a staking mechanism where participants lock up their tokens as a form of security deposit, known as a bond, to become validators. If a validator behaves maliciously or fails to fulfill their duties, they risk losing a portion or all of their bond. 

Liquid Staking

Liquid Staking allows participants to stake their tokens while still maintaining their liquidity. Instead of locking up tokens in a smart contract, participants receive staking derivatives, such as staked tokens or tokens representing their staked position 

Offline Staking

Offline Staking enables participants to stake their tokens without always keeping their wallets connected to the internet. This mechanism improves security by reducing the risk of online attacks.

Custodial Staking

Custodial Staking involves entrusting a third party, such as a cryptocurrency exchange or staking service provider, with the custody of tokens for staking purposes. Users deposit their tokens into the service provider's custody, which then takes them on behalf of the user.

Non-custodial Staking

Non-custodial Staking allows users to retain complete control and ownership of their tokens while staking. Participants delegate their tokens to a validator or staking pool without transferring ownership, typically through smart contracts or dedicated staking platforms.

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Staking In Crypto Has Revolutionized Blockchain

Staking offers great opportunities for cryptocurrency holders to earn rewards while contributing largely to the security and efficiency of blockchain networks. 

The various types of staking mechanisms, such as DPoS, BPoS, liquid Staking, offline Staking, custodial Staking, and non-custodial Staking, offer a flexible approach to earning and validating networks. . 

To learn more about crypto, blockchain technology and everything in between visit the Cryptology Academy today!

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! Disclaimer

The information provided in this article is for educational and informational purposes only and should not be construed as financial, tax, or legal advice or recommendation. Dealing with virtual currencies involves significant risks, including the potential loss of your investment. We strongly recommend you obtain independent professional advice before making any financial decisions. The products and services offered by Cryptology may not be suitable for all users and may not be available in certain countries or jurisdictions. The promotional materials do not guarantee any specific outcomes or profits from virtual trading. Past performance is not indicative of future results. It is important to read and understand the risks, which are explained in our Risk Disclosure Statement

Tom F.

Tom is one of the content managers here at Cryptology. While still fresh in his career he has been able to firmly place himself within the world of crypto and content creation, producing work for a number of publications including esports.net and The Times of Malta newspaper.