Definition | Staking – Proof of Stake

the staking consists of immobilizing crypto-assets for a long period and being rewarded at the end of it. Although it is subject to risk, it is a fairly quiet means of investment, accessible to all budgets and generally profitable.

When we talk about staking in French, there may be some ambiguity. Indeed, this word is translated differently according to whether one speaks of the staking to designate the fact of immobilizing / blocking crypto-assets on a platform or on a wallet for several weeks or months. On the other hand, if we refer to the transaction validation method called proof of stake, this expression is usually translated as “proof of stake”. It might sound strange, but it is indeed the same term referred to in both cases.

The “proof of stake”

One of the characteristics of cryptocurrencies is that transactions are validated through a complex computer calculation. the Bitcoin and the cryptocurrencies that emerged in its wake use a system called the “ mining which leads miners to produce a proof of work or “proof of work”. Over the long term, this system has shown some weaknesses. While extremely reliable, it requires enormous computer power and therefore leads to very high power consumption and slow transaction processing. What’s more, the gas fees (commission taken by minors) can be very high.

To overcome these problems, the newer cryptocurrencies have generally adopted another validation system: the proof of stake / “proof of stake”. When a blockchain is based on a « proof of stake », the system chooses a limited number of stakeholders called validators. They must be permanently connected and are responsible for validating transactions. To have the possibility of being a validator, you must first agree to staker / block a significant amount of the currency in question. This is the logic: a validator would have no interest in rigging the system since he owns a large amount of this currency himself. For example, on the blockchain Avalancheit’s necessary staker a minimum of 2,000 Avax to be able to obtain validator status.

In order to prevent this approach from favoring only the largest investors, certain refinements have been made. For example, the approach pure proof of stake (pure proof of stake), adopted by Algo coin (from Algorand) selects validators randomly.

Advantage of proof of stake : validation in this way does not require the intervention of ultra-powerful computers. There are even small boxes called Stake Box at a cost of less than 100 euros which can play the role of validator of certain young currencies. And transaction processing is fast.

It is to highlight that Ethereumthe second of the cryptocurrencies, began its history based on the method of proof of work and that the version Ethereum 2.0 which is gradually being deployed is based on the method of proof of stake.

Staking, from the user’s point of view

Most cryptocurrency users do not particularly seek to use their computers to validate transactions. Above all, they seek to benefit from an attractive investment. the staking is one such method and it involves — as with validators discussed above — immobilizing some volume of crypto-assets for a certain duration. The difference is that there is no minimum investment required. It is possible to store the equivalent of 50 euros as well as 50,000 euros. the staking is therefore accessible to all budgets.

What is the logic at work for the staking cryptoassets? She is straightforward. Let’s take an example with a given currency. If you agree to acquire a certain number of Matic (Polygon) and consent to staker, you indicate by this that you have confidence in this currency since you will not touch your assets in Matic for a certain period. You therefore contribute to increasing the capitalization of the Matic and maintaining it over time. Others might want to acquire Matic because of this capitalization. As a reward for your trust in it, Polygon decrees that it will award you a certain number of additional Matic at the end of the staking.

The one who stake a currency is sometimes called a Holder.

The website Staking Rewards lists the main cryptocurrencies that can be the subject of staking. The 4^and table column reward indicates what is the gain that can be obtained annually.

For example, for e-Money NGM, this reward is 17.62%. In other words, if you stake 1 NGM, you will recover 17.62 NGM at the end of the year, more than 17 times your stake. And since the NGM is equal to 1 dollar at the time of this writing, assuming its price is more or less the same a year later, the dollar invested will have turned into 17.62 dollars. In reality, it should be much more because the staking This is so that interest can be « compounded ». One day after starting the staking, your NGM holding has increased slightly — the 17.62% reward has been pro-rated for that day. From the second day, you therefore have 1.04 NGM and the reward applies to this new asset.

Thus, the gain after one year will be more like 19%. If, on the other hand, the NGM sees its value multiply by 10 in one year, you would recover the equivalent of 10 x 19 dollars, or 190 dollars for the dollar that you invested. There is therefore a passive income that greatly exceeds those that we know in the everyday world. However, these gains are only hypothetical and involve some risk. It is also possible that the NGM will see its price collapse, in which case the 19 NGMs that are harvested at the end of a year could be worth less than the dollar invested.