Staking crypto is a protocol of locking up cryptocurrencies in order to earn rewards or interest. Cryptocurrencies generaly live on the blockchain, where transactions are verified and stored.
You can earn rewards while staking because your crypto is actually being utilized for a purpose. Some cryptocurrencies use a consensus mechanism known as Proof of Stake (PoS), which we’ve discussed here (LINK) before. PoS is a method to verify transactions without a bank, payment processor, or third party. Staking is another way to describe validating those transactions on a blockchain.
Staking serves a similar purpose to mining — it’s the process by which a network participant gets selected to add the latest batch of transactions to the blockchain. The user earns some crypto for doing so.
Other times, people can stake or lock up their crypto and earn rewards just for locking it up and not selling it. This can help to alleviate sell-pressure and add stabilization over a period of time.
Staking often requires a lockup, aka vesting, period, when your crypto can’t be moved for a period of time. This can be a drawback, as you won’t be able to trade staked tokens during this period even if prices shift. Before staking, it is important to DYOR on the project.
Staking can add a benefit of additional security and efficiency of various blockchain projects. By staking crypto, its users help make the blockchain less prone to attacks and bolster its ability to process transactions.