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In the world of cryptocurrencies, is one of the most popular ways to obtain Tokens Compounding.
Every day I have to explain to more people what “Staking” is, so I am going to write an article for everyone to understand, children and not children too. also, the term of action of doing Stake or Staking becomes more popular on Crypto, so to explain it briefly and that is the idea of this article is that it be understood with simple words and clear examples. First, say that stake or staking is the same.
In the world of cryptocurrencies, the two most popular ways to obtain Tokens before being able to Stake were:
- Buy tokens
I am not going to elaborate on these two concepts but I will tell you that the action of mining Bitcoins is known as Proof of Work or PoW, which is the same as Proof of Work in English and that is summarized as the more you work on the network = more opportunity to mine a BTC, and to work more at any time you will need more power on the network, which you will get through more powerful hardware.
In PoW you cannot do Staking or Stake you do mining.
Stake & Staking
In the world of Cryptocurrencies where you can do Staking, you can obtain collectible digital tokens or coins in 3 popular ways:
Okay. So if you do Staking or Stake which is the same: you will get coins or tokens in exchange. It will be as if you were a miner but without having mining equipment or anything like that. You only need a wallet or access the command line to interact with the blockchain and start staking after activating it via commands.
We continue …
How does the Stake service work?
Blockchains to make Stake have wallets like all the others, they can be an app, website or a physical hardware device.
When you have a coin account on a Blockchain that allows you to Stake, this Stake action will be available as one more option in the wallets where you interact with your account.
But to finish talking about Staking I will explain how Stake works in general rules. You must remember that this guide is general and you must verify the functions of Staking with your respective community.
Ok, so far we know that:
You need to have an account and coins in that same account, tokens available as a positive balance to be able to do Staking. Coins should not leave your wallet or be transferred to accounts other than yours. I mean you won’t lose control and they will still be yours and under your power.
You decide to Stake to get coins in return. Without losing control over them.
Another very different thing is that there are external 3Party services that offer you to deposit your coins in their accounts, offering you the custody and staking service at the same time in some cases, you give up control of your coins in exchange for the same benefit as when you do Staking or in some cases the benefit may be less, but the risk will be much greater since you will not have direct control over your currencies, if not that it is controlled by other parties, it is like a normal bank would function, you give them the money to They keep it for you and they can offer you Staking programs or others if you don’t touch your capital for a certain time.
If I Stake Atoms, the Cosmos token, I will get reward Atoms in return.
If I Staking SOL, Solana’s coin, I will get SOL in return as a reward.
The amount of reward you will get will depend on the conditions of each network.
The amount of reward you will get will depend on the conditions of each network. All will apply the same rule of greater is the number of tokens you put to make Staking greater will be your reward for collaborating in securing the network. But this amount depends on the terms of each network and you can see them in the wallets to do the Stake or asking in the forums / chats of each community. It is your job.
Open an account corresponding to the Blockchain where you want to make Stake, Cosmos needs Atoms and Solana needs SOL, once you have the account and the wallet to make Staking, you deposit or transfer the Tokens or Coins in that account that is yours.
Hum, once you are prepared, informed and you know that investing in crypto can be dangerous (*), but you already know that life is like that and you have to live it, and you want to do staking, and that’s why you are still here.
Explain simple staking ,
Bob has 10 apples and Alice has 4 pears
Bob can stake with all his apples or with 1, Alice can stake with pears, whatever she wants, 4 or only 1.
Bob cannot stake with Pears because he does not have, Alice cannot stake with apples.
If Alice wants to stake apples, she will have to buy them or convince Bob to leave her some apples. But as that is another story.
We return to examples with coins and not fruits.
For example, if I have 100 SOL in the Solana account in the wallet, I can decide to Stake in Solana with 60 SOL of the 100 SOL that I have or any other amount, it does not have to be all the total, just what I want. If I have 100 SOL and I am doing Staking with 60 SOL my balance would still be 100 SOL but I can only transfer 40 SOL that is free and not doing Stake. In order to have the option to transfer the 60 SOL that I have doing Staking I have to stop staking (do Unstake) and then I can transfer them or start Staking again.
stop staking = Unstake
Also let’s say that if I have 60 SOL doing Staking, I can unstake with the amount I want for example; I have 60 SOL doing Staking and I stop doing Staking with 10 SOL so I will have 50 SOL doing Staking and the other 10 SOL will have them available to transfer.
A tip, if you have 10 Token, always remember to leave some to pay the fees for making the transaction and to be able to make more transactions.
Staking is logical if you think about it right?
It is a normal financial situation but it is managed by you, not a Bank.
A Bank is run by people, a group of people AkA a Bank manages thousands of accounts of different people. So you are able to manage your own stake without the need for a bank because you do not need to be a bank to manage your money, you need to be a bank to handle thousands of accounts from many users, but you, you should be responsible for manage your accounts and work with the banks at the same time, but not giving them 100% control of everything in the financial sector. It seems difficult to be your own bank, but it is not, you already bank yourself without realizing it every day, the bank only manages your money. You are your bank.
But it is your decision, you are an adult and this guide is to explain what the stake is and why others do it, everyone should know or explore their limits, this article is not to convince you to do staking.
Summary and we are done,
So you do Staking from your account and keeping control over your coins all the time, but you must stop staking to be able to transfer them again.
The coins you earn can be transferred, left in your account or put into Staking. Rewards are not due or lost, will be and will accumulate by the time you order them in your account associated with Staking.
But it is an action that can be automatic as in Tezos or you must do it manually as in Cosmos, there are also free online tools that allow you to know how much you have earned at all time present and futures projections.
How to start Staking?
You have an account with coins in a Blockchain that can be Stake and activate this option with the number of coins you want to stake and you can Staking it as long as you want to stake.
A clear example, It is like when in a Bank people said to make a fixed term that consisted or consists of putting a part of their savings to earn a certain amount of interest in exchange for putting that money to work a stipulated period of time in exchange for a Reward called fixed or variable interest in some cases, but if you withdraw it before the term you stipulated, you will recover the money with losses and not interest. Something like that and the Bank can explain better.
The big difference is that here at Staking, you are your own bank and you have control of your assets all the time. If you do not use custody services, of course.
To finish talking about what Staking encompasses, let's talk about what happens when Staking.
A Blockchain where Staking can be done is made up of a set of independent and decentralized Validators, the two best examples of the Blockchain where melea work as Validators and that are decentralized at the moment of writing this article are IRIS and Cosmos (Solana & eMoney is starting very well at what decentralization refers to after launching the main networks this past March.)
These Validators that work are validated blocks for that blockchain, Validators are your vehicle to Stake, if you decide to stake you must choose a Validator or make your own list of favorite validators or Stake in each and every one of the validators.
Validators are your vehicle to Stake
Each network has its rules or conditions about how many validators you can nominate or choose to delegate which is the same.
(I Nominate = I Delegate) =(I Staking)
You must see the staking conditions in each network or ask the community to know the conditions when choosing Validators.
So to Stake you need an account and choose a validator or the ones you want and can to start Staking.
Each network has a number of Validators that you can see in their corresponding explorers or dashboard, in those webs you can see the information of each Validator and their trajectory or statistics, the link to their website in addition to the account where you must delegate or nominate with your tokens to that validator and you will be able to see the commission that each validator has for working 24 hours every day while you do not have to worry about doing anything else.
The validator or validators that you choose must work in optimal conditions and comply with the rules and regulations that the network requires for the blockchain to function properly and be trusted. For example, if you are staking in the Cosmos network in a validator that commits a fault; such as the double signature, then you will also be penalized along with that validator because you are supporting that validator, that is, you decide to stake in this validator that commits a fault and you also deserve to be punished for choosing wrongly.
Code is law.
The penalty for double signing is 5% in Cosmos.
For example; If you are Staking with two validators.
Lets said one account has 105 Atoms and nominated 50 Atoms with melea Validator and 50 Atoms with Lizard Validator, I am staking with 100 Atoms in Total, let’s assume that the Lizard validator double signed but not melea and this will be the same as; with melea I still have 50 Atoms in Stake and In Lizard validator I have 47.5 Atoms after suffering the so-called slashes and losing 5% of my stake in that validator, due to the Lizard validator penalty that double signed and also affects me. The 50 Atoms Staking with melea is independent and does not suffer losses for other validators penalties. In the case of Cosmos, these penalized Atoms will burn and cease to exist.
So you must be cautious when choosing your list of validators, you will earn coins for doing Staking but you can lose part of your Stake when the validator you choose commits a fault, or not if never happens.
It is not usual for validators to commit penalties, I am not going to tell you any specific case but I have seen how it has happened in networks where I am present and it is something that you must keep in mind.
From melea Validator we encourage you that this is not an obstacle or generates fear when you decide to do Stake, there is a very little percentage of Validators who commit fouls and are penalized, for example from our Validation service that has been active since 2017 and after more than a year of Validation at Iris and also more than a year of validating for Cosmos, melea has never suffered any penalty for slashes and as a result, our delegates or nominators have never been penalized.
We invite you to choose more than one validator so as not to put all your risk of penalties on a single Validator.
If you decide to choose the validators with the highest amount of stake, you must be careful that these Validators that drag so many coins are a target of anyone who wants to attack the network and cause losses to it.
A good distribution of Stake over all the validators will help the network to succeed in the long term by being decentralized or can say that it failed in the attempt.
When melea is offering a Validation service it is putting its reputation on stake, for example, it is currently Validating for 5 Blockchains on Mainnet and for 6 or more Blockchains on Testnet. Regardless of the amount of auto stake we have, 100% of our Stake is always exposed, if we suffered a slashed event in any network, it would affect our reputation and cause loss of confidence, is the same ass loses our own stake, so having more auto stake does not make me better than other validators with less stake, but Running more validators on more networks at the same time shows that we have more Stake exposes on risk or more skin in the game than others running fewer validators or only one in a single network.
Surely at some point, you wonder …
Which is the best validator?
The one who works the most for the community is undoubtedly the best Validator. Since there are many who work for the community, you should get a list of validators, not a single Idol.
The one with the most coins is not the best validator
In short, you cannot say that the best people on earth are those with the most money, you cannot say it because it is a lie. The best people on earth are those who work to maintain the earth as a livable and viable place so that everyone can inhabit it for a longer time without destroying the earth in the short or long term for their own interests.
That is why in a Blockchain composed of validators, its best Validators are those who work more for the community and who respect it, they also work because this is a blockchain where its members of the community feel good and can all grow together. So you must choose your Validators well if you care about your coins and the community.
Many can tell you that the validators that most stakes put in their own nodes are the best, this is a fallacy.
The more I have, the more I am willing to lose by being first.
The less I have, the less I can lose in order to continue in the game.
So the less I have, the more opportunities to be left out, and the more work to do to stand out among the others I will have to do.
Draw your own conclusions, read, learn, educate yourself, make your own decisions and live its consequences.
The important thing is that you are not manipulated when chose your validators and you also want to keep the decentralization on the network like a real goal.
Well, choose your Validator well, check their web pages, write them an email, ask or see in the community what presence or work they are doing so that you are motivated to Staking in their validator nodes putting your stake at risk but with confidence.
I hope there is a clear understanding of what it means to stake or Stake and the responsibilities that come with choosing a validator and Staking with them.
I thought it would be 4 lines, fence how many words. I hope it is clear and easy for you to do Staking if you want.
(*) = (nothing dangerous has happened to me)