Staking

Cryptocurrency staking refers to the process in which token holders lock up their tokens for a period of time in exchange for more tokens in the form of interest at the end of a fixed or dynamic period. There are a few separate types of staking structures that can vary greatly depending on the purpose they are serving for the protocol. Some forms of staking are used simply to give the participants rewards while others are used as fundamental aspects of consensus. The definitions below describe the variations.

PoS Staking - A form of staking that creates a consensus mechanism which can validate cryptocurrency transactions on a blockchain. Stakers are rewarded with a portion of the transaction fees for validating the blocks and securing the network. This method is in contrast to the Proof of Work consensus mechanism which was popularised by Bitcoin.

Delegated PoS Staking - This variation on PoS staking allows token holders to essentially vote by pool tokens together to delegate nodes which operate the validation system on the blockchain. Combining tokens and creating nodes, increased the probability of being selected to perform the necessary work to validate the network and earn the rewards. This simplifies the validation aspect of token holders who want rewards but don’t have either the time, resources or knowledge needed to operate a node themselves.

Soft Staking - This distinction within cryptocurrency staking refers to the time in which you can unstake the tokens. With soft staking, there are no set lock-up periods. Users can withdraw their tokens from the staking SmartContract at any time. This gives participants more flexibility but generally fewer rewards.

Hard Staking - The inverse of soft staking, this distinction within cryptocurrency staking has a set and defined time period in which a user must keep their tokens within the staking SmartContract in order to receive full rewards. In some cases, rewards can simply be “slashed” or reduced if users exit before the required time period is complete. In other cases, users are simply unable to exit until the time period is completed.