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Staking & Proof-of-stake

Last updated on June 6, 2022

Staking your token earns you an "interest"(reward) just like lending your asset earns you interest off of that loan.

When you transfer money through your bank, your bank validates that Bank account X has sent money to Bank account Y.

Cryptocurrencies are not transferred through banks. So, validation of cryptocurrency transfer happens through consensus mechanisms, one of which is known as Proof-of-stake.

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Proof-of-stake (PoS) requires a cryptocurrency to provide their tokens as collateral for validating a transaction. Providing your token as collateral for staking makes you a validator. Validators are then randomly chosen to validate a transaction. If the validator does not validate the transaction accurately, then their collateral will disappear(burned). This ensures that the validator is incentivized to validate new transactions accurately.

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