Staking in Polkadot

When you hear about staking tokens what comes to your mind? Do you think it's a gamble or an investment?

Staking in cryptocurrency is the process of actively participating in transaction validation on a proof-of-stake (PoS) blockchain. It involves holding funds in a cryptocurrency wallet to support the operations of a blockchain network. In contrast to mining, which is used in proof-of-work (PoW) systems, staking does not require high-powered hardware or significant energy consumption.

Proof of Work

Bitcoin's consensus is based on proof-of-work (PoW) and to participate you have to solve a mathematical problem. The fastest and most accurate answer gets to validate the transactions and is rewarded tokens (Bitcoin in this case). This process requires a lot of computation which leads to consuming so much computer power. You are required to have fast CPUs and unlimited access to power and internet. This is not an easy task but it is very rewarding considering the current price of Bitcoin and that's why it's called mining, it's similar to the process of searching for diamonds or gold in a cave. But not everyone can afford a 12-core, 24-thread unlocked desktop processor.

Proof of Stake

Polkadot's consensus is based on proof-of-stake (PoS), it utilizes the ground-breaking technology Nominated-Proof-of-Stake (NPoS) more specifically. In PoS, validators are selected based on the number of coins they hold and are willing to "stake" in the network. NPos is a variation of the Proof-of-Stake consensus mechanism that aims to be more democratic, and therefore more fair, than its predecessor (which is PoS in this case). It allows token holders to nominate validators to represent them in the block validation process. Only nominated validators can participate in block formation and each individual nominator can appoint a specific number of validators.

There are two major roles:

1. Validator role: Validators constitute a significant part of the network, they help in securing the network and validating transactions in Polkadot. This role requires you to be technical and it has great rewards too. You don't need a CPU a very high-performant CPU, you do need unlimited internet and power. You can learn more about the responsibilities of becoming a validator here

2. Nominator role: This is a really accommodative role. You don't need to buy any extra computer or need to have access to 24/7 internet connection. You just need a wallet and some Polkadot tokens (DOT). In this role, there are different ways to stake your dot. You can do either of the following:

• Join a Nomination pool: The nomination process involves token holders selecting trustworthy and competent validators to secure the network. Nominators, who hold DOT tokens, have the ability to choose one or more validators they trust to validate transactions and produce blocks on their behalf. You can learn more here

• Open a nomination pool: Opening a nomination pool requires careful consideration and active engagement with the Polkadot network. You'll need a community and reputation as an expert nominator. By nominating validators, you contribute to the security and decentralization of the network while potentially earning rewards for your participation.

• Nominate directly: This is where token holders directly select and nominate validators to participate in the block production and verification process. Unlike nominating through a nominator, direct nomination involves individual token holders directly choosing the validators they trust to help secure the network. You can get started here

In essence, with a Polkadot wallet and some DOTs, you can start earning rewards from your PC.

Validators slashed when they misbehave and this affects your rewards too. You have to be careful when making your choice. Always choose experienced validators. Remember all investments require risks.

Polkadot has one of the most active development activities, apart from building innovative dApps you can also earn rewards passively and view them in real-time on the staking dashboard.