What is Staking?
Staking is a strategy used across crypto and web3 that empowers users to participate in keeping a blockchain network honest and secure.
Locking up tokens is common across web3, and is often what’s happening when you see a reference to “staking” tokens. Users typically receive some sort of access, privilege, or reward over time in exchange for their lockup, and can withdraw their tokens as and when they wish.
There are already plenty of rewards programs in the world; imagine if you could lock up your airline miles and earn extra, or instead of a punch-hole card at your local coffee place, you lock up rewards tokens to get bags of coffee or a nice mug.
However, this form of depositing tokens for rewards on a DeFi platform isn’t actually staking.
Staking happens at the network level, and is all about securing the network.
Enter Ethereum’s Proof of Stake system. Anyone can choose to become a validator and lock up their ETH by depositing it into a smart contract—a program that runs on Ethereum’s blockchain.
With over 565,000 validators staking the standard 32 ETH each—more than $32 billion at today's rates—Ethereum's Proof of Stake (PoS) mechanism is the biggest example of staking in web3.
Why?
So, why does staking exist?
The thirty-second version: when Ethereum launched, it was a worldwide network of people running software on their computers (known as nodes) that synced the data of a shared database—a distributed ledger. These nodes would reach and maintain consensus about the current state of that database. The main challenge was security: how do you prevent a bad actor from gaining control over the database and changing it to suit themselves?
Ethereum initially solved this problem by using Proof of Work (PoW). PoW—a system still used by Bitcoin and other blockchain networks—requires solving extremely complex mathematical problems before any information can be added to the blockchain. You may know it as crypto ‘mining’.
PoW makes a potential attack on the network so mathematically complex that even attempting it would be financially unthinkable, since so many advanced computers would be required. Over time, PoW’s mathematical problems became harder, demanding ever more powerful computers to solve them. Powerful computers require, well… power; as complexity rose, so did the carbon footprint of the miners.
The computer equipment arms race and environmental challenge of PoW have now been negated by Proof of Stake (PoS). Under PoS, the network is secured by numerous parties depositing 32 ETH into a smart contract. The more tokens that are staked, the more expensive it become for a bad actor to attack the network. This deposit, or stake earns you the right to take part in building new blocks for the blockchain and to get rewarded in return. If you don’t play this role properly, though, some or all of your stake will be taken from you—a punishment known as “slashing”.
Shifting to PoS allowed Ethereum to maintain the security of its network and reduce carbon emissions by over 99.95%, compared with PoW.
Where do I stake?
Those able and ready to stake a full node (32 ETH) can solo stake by running a validator themselves at home, or use self-custodial staking solutions like Consensys Staking.
A more readily accessible option, especially if you don't have 32 ETH laying around (and most of us don’t), is liquid staking: the ability to deposit less than 32 ETH into a pool that is then used to initiate and maintain staking nodes.
Liquid staking provides the additional benefit of receiving, in return for your deposit, a liquid staking token. This token represents the amount of ETH you’ve staked, plus the rewards generated by your ETH; that makes it easy to keep track of your deposit for when you would like to withdraw your stake, or you can even use this token as collateral elsewhere in DeFi.
There are lots of protocols out there that offer liquid staking options, and it is important to do your research about them before putting your hard-earned ETH into one.
For this reason, MetaMask offers users the convenience of accessing vetted liquid staking providers directly through MetaMask Portfolio for an intuitive experience.
So now you understand that staking is a public good that helps secure a blockchain network, and there are various ways to get involved.
What is Staking?
01Staking is a fundamental mechanism to secure and maintain a blockchain network
02Networks employing Proof of Stake (PoS) systems like Ethereum are more secure and sustainable than those employing Proof of Work (PoW) systems
03Staking is a decentralized, public good that helps secure a network and enables me to get rewarded in return
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