What You Have to Know About Staking and Delegating
Blockchain technology is driven by several critical mechanisms. One of these is staking and delegating.
However, to properly understand these two concepts, it’s important to understand the Proof of Stake (PoS) mechanism better.
The Proof of Stake mechanism is a consensus mechanism algorithm that requires the participation node (miner) to stake tokens for continued participation in the network. It then rewards miners with mining power depending on the total stake amount. PoS is a low-energy approach and remains one of the most widely recognized alternatives to Proof of Work (PoW) today.
In a lot of PoS networks, two methods of staking tokens are recognized. These include staking and delegating.
Let’s consider both mechanisms in light of blockchain technology.
How Does Staking Work?
Staking is an investment approach within a blockchain network which was first formally introduced by Sunny King and Scott Nadal.
To better understand it, you can think of staking as buying stock and earning dividends on it. A particular value of the native network’s token is “staked”, the node becomes active as a validator who can work and earn block rewards.
With this investment approach, validators (also called stakers) are forced to comfort themselves and be honest because they tend to lose money for any malicious behavior. Within some PoS protocols, they suffer slashing- a mechanism in which the validator loses rewards for any misbehavior.
This reward and discipline approach for a PoS network helps to maintain security and retain decentralized control of the network.
Running as a validator is typically more rewarding, but it can be quite demanding because it requires greater personal commitment.
However, you don’t have to stake a validation node yourself if you can’t commit the effort. Validators can also pool value together to increase chances of winning, while also lowering the bar for anyone to participate in the pool. This engenders a fairer system where anyone can join the poo and earn rewards.
This is referred to as delegation.
How Does Delegation Work?
Delegation is widely-embraced within PoS protocols.
Delegation is a situation whereby anyone holding tokens earns block rewards by staking through an existing validation node. This means the holding participant (delegator) “delegates” their token to a staking partner (validator) who eventually earns a certain percentage of their block rewards.
How does this work?
Within the Proof of Stake consensus mechanism, more tokens increase the chances of a node being chosen to earn block rewards in a blockchain network. Therefore, as a user, you can delegate your holdings to boost the chances of another with reduced stakes to earn rewards.
This approach implies that the success of the validator here determines whether or not you earn rewards.
Even after delegation, you will retain ownership of the delegated tokens. However, these tokens will be inaccessible and locked up while they’re staked.
Conclusion
Staking and delegation are integral to the stability of the Proof of Stake consensus mechanism. You can stake and earn as a node validator or consider delegating to another. All in all, these mechanisms contribute to the general health of the blockchain network.
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