Understanding Staking: How It Works

One of the key concepts in blockchain is staking, which enables a method of participation in a network's governance and operations. In this article, we will explore what blockchain staking is and how it works.

What is Staking? Staking is the process of participating in a proof-of-stake (PoS) or delegated proof-of-stake (DPoS) blockchain network by holding and "staking" a network's token. By staking these tokens, participants help maintain the network's security, integrity, and functionality. In return for their contribution, stakers (also referred to as delegators) receive rewards in the form of additional tokens.

1. Proof-of-Stake (PoS): In a PoS blockchain, validators or nodes are chosen to create new blocks and validate transactions based on the number of tokens they hold (and that are staked to them) and are willing to lock up as collateral. The more tokens participants stake to a specific validator, the higher the validator's chances of being selected. Stakers are required to hold their tokens in a designated wallet, and by doing so, they actively participate in the consensus mechanism and earn staking rewards.
2. Delegated Proof-of-Stake (DPoS): In a DPoS blockchain, token holders can elect a fixed number of delegates to validate transactions and secure the network on their behalf. Delegates, also known as "block producers" or "witnesses," are responsible for maintaining the blockchain's operations. Token holders can vote for their preferred delegates using their staked tokens. Elected delegates are then rewarded with tokens for their services, which they can share with their voters.

Staking provides interested ecosystem participants with a low-barrier path to participating in a decentralized blockchain. By delegating, you are:

1. Reinforcing Network Security: Staking enhances the security of the blockchain network by incentivizing participants to act honestly and discourage malicious behavior. Validators or delegates have a stake in the network's success, making them less likely to engage in activities that could harm the system.
2. Supporting Governance: Staking often grants participants the ability to participate in the governance of the blockchain network. They can vote on proposals, protocol upgrades, and decisions that impact the network's future direction.
3. Earning Rewards: Staking allows token holders to earn passive rewards by simply holding their tokens in a staking wallet and contributing to the blockchain network's operations.

While staking offers numerous benefits, it's essential to be aware of potential risks and considerations, such as:

1. Commissions: Validators set a commission rate, this is the commission they collect from your allocation of the staking rewards. Commissions can range from 0% - 100%.
2. Voting Power: Validators with a higher voting power have an increased chance of validating blocks and carry more weight in governance votes.
3. Slashing: Validators or delegates may face penalties, known as slashing, if they violate the network's rules or behave maliciously. Slashing can result in a reduction or loss of staked tokens. This penalty enforcement typically ranges from 1% to 20% based on configuration and includes a permanent ban for the most severe behavior. Delegators who pledge stake to the validator node will also be penalized, which incentivizes validators to protect their networks to maintain the blockchain’s stability.

A list of validators supporting a blockchain can commonly be found on the blockchain’s Explorer. For instance, Provenance Blockchain’s Explorer has a tab in the top navigation called Validators. By clicking this tab, you will find a list of all validators currently operating on the blockchain, along with their commission rate and voting power.

Staking allows participants to contribute to the security and operations of a blockchain network while earning rewards in return. By understanding the principles of staking and considering the associated risks, individuals can actively engage with the blockchain ecosystem, benefiting both themselves and the broader network.