Chapter 9: Mining

An Advanced Look into What is Staking Crypto

Interesting Fact:

Did you know that staking is an integral part of many renowned blockchains?

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11 minutes

In this section, we’re going to talk about what is staking crypto, how does one participate in it, and is staking crypto safe and worth it, to begin with.

The connection between crypto and staking is like the connection between kickflips and skating. They just go together, and, if you really want to understand DeFi, you can’t avoid tackling this concept, as well. Since you’re reading this section, you’re on the right path!

Crypto staking is a source of much confusion. Questions like “is staking crypto worth it?”, or “is staking crypto safe?” are all over online crypto forums. It’s a puzzling mechanism, and it’s a good sign that people are willing to learn and understand it better. And so, today, this confusion ends, because I’m here to explain things!

In this section, we’re going to answer the questions of what is staking crypto, is it safe, what’s the main risk of staking crypto, and many other staking-related questions in more depth (though, you can find a more basic approach here). By the end of your reading, you’ll have all of the knowledge to form an opinion of your own, whether staking is an attractive concept to you or not!!

Let’s do this!

What is Staking Crypto? (Rewards & Risks Explained SIMPLY)

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Video Explainer: An Advanced Look into What is Staking Crypto

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What is Staking Crypto?

When explaining what is staking crypto, many articles, videos, and tutorials tend to compare it to depositing money in interest-accumulating accounts in traditional banks. Even though there are some similarities between these two practices, it would be a mistake to think that crypto staking is a DeFi equivalent of depositing money in a regular bank savings account. You’ll soon see why.

Let’s begin by defining what is staking crypto.

What is staking crypto: How does it work?

Staking in crypto refers to the process of either holding or locking up a certain amount of crypto assets in a specially-designated crypto wallet. It’s done in order to support the operations of a blockchain network, to make it run smoothly and securely.

In many cases, those who choose to stake their assets are known as validators. By staking, they get assigned a responsibility, and, if they carry it out correctly, they get rewarded by receiving transaction fees. So, what is this responsibility?

Validators, well… Validate the authenticity and accuracy of the transaction records, making sure only the correct data is being encrypted into the blockchain. Thus, as validators validate transactions, they are responsible for the creation of new blocks, as well. So, overall, validators are busy with maintaining the network's integrity, security and functionality.

Here’s a down-to-earth example. Imagine you’re a second-hand bookshop owner. Your job consists of finding pre-read books, and reselling them. So, whenever a new package of books arrives, you add them to your lists, and then sort in bookshelves.

You can see these books as transactions, and the owner as the validator, who not only logs in and validates them in a ledger, but also arranges them in an order, thus continuously forming the blockchain.

But, the whole process does not simply rely on the good faith of the validators. Any attempt at behaving maliciously, for example, trying to validate wrong transaction data, or tampering with the existing blockchain transaction history, could result in validators losing their staked assets.

What is staking crypto: Good and bad validators.

Yet, if they do their job the right way, they get paid. The amount of profit that validators receive from staking differs, as it depends on such factors as the staked amount, duration of staking, and the network's inflation rate. And it varies from blockchain to blockchain, too!

But, essentially, staking entails a responsibility that’s vital to the existence of many blockchains, such as the Ethereum network. To them, it serves as an alternative to mining processes that ensure the safety and functionality of other blockchain networks, such as the Bitcoin network.

As you see, staking isn’t simply locking your funds away, in order to receive interest rates later on, as it would be with traditional banking and savings accounts. Staking is the backbone of many important blockchains!

But, in order to get a grasp of crypto staking, we have to look at the bigger picture. And it’s all about understanding what is “Proof-of-Stake,” a consensus mechanism that creates the need for staking.

Proof-of-Stake

Blockchains that run on Proof-of-Stake are directly dependent on staking. But let’s take a deeper look at these overly-technical terms.

A consensus mechanism is like a set of rules that lay out how a blockchain operates. Consensus mechanisms vary from blockchain to blockchain, yet they all have the same purpose - to ensure that all network participants reach an agreement on how the blockchain is supposed to be running without relying on a central authority.

What is staking crypto: Proof-of-Stake.

Let’s consider checkers. It’s a classical game with its own rules. Those who want to play checkers, they will follow the rules. An agreement to follow these rules is a consensus reached by the players.

So, in order to actively interact with a blockchain network, participants make a choice whether their idea of how a blockchain should work aligns with the principles of the consensus mechanism. If they agree, they accept the rules. In other words, they reach a consensus.

So, you can view consensus mechanisms as an agreement on how a blockchain should operate. Among the most prominent consensus mechanisms are Proof-of-Work and, the already mentioned, Proof-of-Stake, or simply, PoS.

As I've said before, staking is an inseparable part of blockchains that run on Proof-of-Stake. So, what makes it so different?

At its core, Proof-of-Stake is a consensus process that enables a network of validators to stake native tokens of a certain blockchain so they could become able to validate and create new blocks. Validators get block rewards for their work.

In Proof-of-Work, for example, the right to validate and create new blocks is reserved to crypto miners. They invest in their crypto mining rigs to max out the output of computational power that they can create. By doing so, they increase their chances of winning the “race” of getting the right to validate blockchain data. You could say that the main principle of PoW is competition.

What is staking crypto: Proof-of-Work.

By the way, if you want to learn more about crypto mining, be sure to check out this section. Understanding mining will make it easier to understand the role of staking!

In PoS, on the contrary, people, who choose to stake their assets, become eligible to get randomly assigned the right to validate and create blocks. Of course, the higher the stake, the higher the chances of being selected to validate new transactions, and thus, receive rewards. Therefore, one could say that in PoS, the main principle is not competition, but a lottery.

It’s important to note that PoS is generally viewed as substantially more energy-efficient than PoW, since it doesn’t require all of the network’s validators to compete, and thus, use colossal amounts of electricity.

By the way, when it comes to PoS, there’s also something known as DPoS, or Delegated-Proof-of-Stake. It’s a popular modification of the standard PoS consensus mechanism. In DPoS, you can delegate your coins to other validators who manage high-performance computers, which are known as nodes, and ensure they run smoothly. This means you don't need to set up your own node to participate in staking.

Ways of Staking Crypto

Having explained all that, it’s safe to say that staking plays a major role in the DeFi world.

PoS blockchains simply need stakers, not only to survive, but to run properly. So, it’s only natural that staking comes in many shapes and sizes, among which the most important are traditional staking (by setting up a node), and a more beginner-friendly way of doing it, centralized exchange-based staking.

Up to this point, I’ve described the function of staking, and that it takes to lock away one’s asset in order to become a validator. But, sometimes, it can get tricky.

For example, in order to become an independent validator on the Ethereum network, a network participant has to lock away 32 ETH. And that’s not some pocket money. Not everyone has that much!

What is staking crypto: Ethereum.

Therefore, such concepts as “collective nodes” have been developed. It is just what it sounds like. A node, run by a collective of people, who share the rewards amongst themselves. The main principles here are similar to the ones of collective mining. Be sure to check out this section to learn more!

Staking is accessible to both industry pros, and rookies. Because you can participate in staking by going the full way - setting up a node and becoming a full validator, or, going the easier way, by simply opting in for staking services provided by wallets, exchanges, and so on.

By the way, what, actually, is a “node”?

A node is a computer set up for the purpose of supporting the blockchain. Now, having a node all set up, network participants can choose to stake their crypto assets. After having staked the required amount, they become full, independent validators.

But setting up your own node is a lot of work, and certainly not everyone possesses the necessary knowledge to set up a node on their own. Therefore easier, more user-friendly ways of staking have been introduced.

What is staking crypto: CEX-based staking.

Centralized crypto exchanges realized that simple access to staking would be a sought-after service. So, they created something that’s now known as “CEX-based staking.” It involves staking cryptocurrency on a centralized exchange platform.

These CEXs act as intermediaries between the PoS blockchains and less tech-savvy network participants. This service facilitates the process of becoming a staker, allowing those who are interested in earning rewards by staking their cryptocurrencies directly on a platform provided by the CEX.

Risks of Staking Crypto

As you can see, staking does play a major role in crypto. Yet, as always, there are two sides to a coin, and there’s a reason why questions like “is staking crypto safe?” are being asked. But the risk of staking crypto comes in more subtle ways.

The most important risk comes from crypto being volatile. To stake crypto means to lock it away. Taking into consideration how quickly the value of certain cryptos changes, there’s no guarantee that once you take back your staked assets, they’re gonna be as valuable as they were the day you chose to stake them.

What is staking crypto: Crypto market.

One more risk of staking crypto is seen from the security angle. In some cases, staking your coins means locking them on an external platform. In case of a security breach, your staked coins could be exposed to malicious actors. Therefore it’s important to choose a trustworthy platform before staking your coins, or, simply, go for staking options which would not require you to stake the assets on an external platform.

One more risk comes from the relationship between the crypto industry and regulatory affairs. As already mentioned, staking takes time, since it involves locking away one’s crypto. During that period of time, unexpected changes in laws and regulations may be passed, which could be detrimental to certain tokens, blockchains, or staking, as such.

So, no matter how good of a crypto staking calculator you’d use before making a decision, the question of “is staking crypto worth it?” cannot be answered in a few words. The rewards are real, and there’s a reason why staking is so popular. Yet, the risks are also always there.

Wrapping Up

By now, I’ve explained what is staking crypto, what is PoS, addressed the question “is staking crypto safe”, as well as the risks that are associated with it. Thus, this brings us to the end of this section. I hope that you found value in it, and that crypto staking will no longer cause confusion to you. To learn more about the DeFi world as a whole, check out other sections in this Crypto 101 Handbook.

Ethereum in “Proof-of-Work vs Proof-of-Stake,” what is the difference between the two mechanisms, and everything in between.<\/p>\nLet’s get to it!<\/em><\/p>\n<h2>Definitions<\/h2>\nIn order to begin understanding what is “Proof-of-Stake vs Proof-of-Work” , we need to take a step back, and understand this: both Proof-of-Stake and Proof-of-Work are consensus mechanisms<\/strong>. So, what’s that?<\/em><\/p>\nA consensus mechanism is like a rulebook that describes the way a blockchain is supposed to work<\/strong>. It maps out the right way to validate transactions, and in what order they should be added to the blockchain. By doing so, it ensures that every network participant receives the same information; therefore, no malicious actions, tampering, or cheating could take place.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Proof-of-Stake vs Proof-of-Work: A consensus mechanism.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//what-is-proof-of-stake-vs-proof-of-work-01.jpg/" alt=\"What is Proof-of-Stake vs Proof-of-Work: A consensus mechanism.\" width=\"1000\" height=\"566\"><\/p>\nYou can see it as the road traffic rules. Every driver, agrees upon the rules and knows what to expect when driving down the road. To continue with the comparison, you could say that the UK, for example, runs on a different “consensus mechanism<\/em>,” when it comes to the traffic. The British all drive on the left, yet an organized system still prevails. That’s all thanks to the “consensus mechanism<\/em>”!<\/p>\nAdhering to a shared set of rules is important because it keeps the blockchain’s integrity, and makes it secure<\/strong>. All of this is achieved without the need for a central authority, all thanks to a consensus mechanism.<\/p>\nDifferent blockchains have different cryptocurrencies<\/strong>. And the set of rules that these blockchains follow are, in many cases, different. Proof-of-Work and Proof-of-Stake are two different sets of rules, since they both are different consensus mechanisms. There are many others<\/strong>, but these two are the most prominent ones, since two of the most well-known and widely-used cryptocurrencies, <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin, and <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-ethereum/">Ethereum, run on them.<\/p>\n<h2>Core Principles<\/h2>\nOkay, that was the fundamental theory when it comes to consensus mechanisms, blockchain, “Proof-of-Work vs Proof-of-Stake” debate, and everything in between. Now, it’s time to address their core principles. By doing so, we’re gonna see their main differences, as well.<\/p>\nLet’s begin with Proof-of-Work<\/strong>, or, as it’s commonly known, PoW.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Proof-of-Stake vs Proof-of-Work: PoW.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//what-is-proof-of-stake-vs-proof-of-work-02.jpg/" alt=\"What is Proof-of-Stake vs Proof-of-Work: PoW.\" width=\"1000\" height=\"508\"><\/p>\nPoW is almost synonymous with “computational power<\/em>,” since it entirely relies on it. PoW participants, also known as miners<\/strong>, use their own resources, such as computational power, and energy, in order to contribute to the network’s security and functionality.<\/p>\nBy investing into special devices and mining machinery, miners get to participate in validating transactions, and creating new blocks<\/strong>. The blockchain is literally created out of the computational power that these miners provide it with. That’s why such Bitcoin ambassadors, like Michael Saylor, like to call this coin “Digital Energy<\/em>,” since it’s literally electricity transformed into a digital currency.<\/p>\nTherefore, miners compete against each other<\/strong> by investing into more powerful mining rigs, so they could end up producing more computational power, and thus, increasing their chances of being the ones who’ll get the opportunity to validate transactions, and continue building the blockchain.<\/p>\nIf they succeed, they get incentivized by receiving rewards. These rewards come in cryptocurrency that’s native to the chain that these miners are contributing to.<\/p>\nYou could think of mining as a very complex online multiplayer game<\/strong>. Every miner, in this case - gamer, connects to the server to compete in an intense everyone vs everyone<\/em> game. Last man standing wins, and, thus, earns the reward. But, all of the other gamers had to invest their time, energy, and computational power to participate in the game, nevertheless!<\/p>\nQuite naturally, miners want to succeed and receive the reward, since it’s the only way of making returns on their investments. And, as it’s designed in PoW’s architecture, the participants with the most computational power stand the most chances to “win” the race of getting to validate the new block<\/strong>.<\/p>\nTherefore, you could conclude that one of PoW’s core principles is competition<\/strong>. It’s just a single word, yet it helps so much when it comes to understanding the “what is Proof-of-Stake vs Proof-of-Work” question.<\/p>\nNow, Proof-of-Stake<\/strong>, or PoS, in short, solely relies on staking, thus the word “stake<\/em>” in “Proof-of-Stake.”<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Proof-of-Stake vs Proof-of-Work: PoS.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//what-is-proof-of-stake-vs-proof-of-work-04.jpg/" alt=\"What is Proof-of-Stake vs Proof-of-Work: PoS.\" width=\"1000\" height=\"579\"><\/p>\nStaking is a process of locking up a certain amount of your own cryptocurrency in the blockchain<\/strong>. This works as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-collateral/">collateral that keeps the stakers accountable, and incentivizes them to do their job properly. This “job<\/em>” is the same as that of miners on a PoW network - to validate new transaction data, to add it to existing blocks, and, when they get full, to create new blocks.<\/p>\nSo, in PoS, stakers are the ones that make sure the blockchain keeps its integrity, is secure, and functional.<\/p>\nPoS does not rely on computational power<\/strong> as much as PoW does. In this consensus mechanism, it’s not computational power that decides who’s gonna be one to validate transactions, and create new blocks, but it’s the number of coins that stakers have staked on the network.<\/p>\nLet’s illustrate it with a simple example<\/em>. If you want to win the jack pot, you have to buy yourself a lottery ticket. The more tickets you buy - the more chances you have of becoming the lucky one. So, the more you stake, the more chances you have of becoming the “lucky one<\/em>” to get the chance to validate transactions and receive rewards.<\/p>\nAnd, just like with PoW, in case of successfully validating a transaction, validators receive rewards. In case they try to act maliciously, they’d risk losing their staked assets<\/strong>. Therefore, all of the network’s participants feel safe, since such acts are punished. It’s an effective way of repelling actors with potentially malicious intentions.<\/p>\nIf PoW encourages competition among its validators, PoS goes the opposite way. It doesn’t rely on sheer computational power, but more on chance<\/strong>. And by “chance<\/em>”, I mean the fact that PoS validators, in most cases, get selected through a randomized process. The system randomly chooses “the winner<\/em>” among the stakers.<\/p>\nBut, the higher the staked amount, the higher the chances of being chosen. Yet, no matter how much computational power these validators may own and be able to produce, this will not increase their chances of getting to validate the transaction, and, thus, receive the reward.<\/p>\nSo, instead of competition, PoS applies the “lottery<\/strong>” method.<\/p>\n<h2>Security<\/h2>\nTo continue solving the “what is Proof-of-Stake vs Proof-of-Work” puzzle, the question of security must be addressed<\/strong>. Both of the consensus mechanisms have their advantages and disadvantages when it comes to this question.<\/p>\nIn order to properly understand it, it’s important to understand a concept  of what’s known as a “51% attack<\/strong>.”<\/p>\nIn PoW, the network is powered by the computational power that comes from all the network participants. But, what if someone set up a mining rig so powerful that it could provide more than half of the entire network’s computational power?<\/em><\/p>\nThis would mean that they could, hypothetically, take over the control of the block creation<\/strong>, and, essentially, choose what data to validate. To put it shortly, this would allow this actor to manipulate the blockchain.<\/p>\nSo, a 51% attack (also known as a majority attack) is a scenario in which a single entity or a group of malicious actors gains control of more than 50% of the total computational power<\/strong>. This would allow such an “attacker<\/em>” to manipulate transactions, reverse them, and, essentially, mess everything up.<\/p>\nSo, how susceptible is PoW to such an attack?<\/em><\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Proof-of-Stake vs Proof-of-Work: 51% attack PoW.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//what-is-proof-of-stake-vs-proof-of-work-05.jpg/" alt=\"What is Proof-of-Stake vs Proof-of-Work: 51% attack PoW.\" width=\"1000\" height=\"621\"><\/em><\/p>\nIt depends on the size of the network. For example, the most important PoW blockchain is the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin network<\/strong><\/a>. And, in order to execute a successful 51% attack on the Bitcoin network would be… Very expensive<\/em>.<\/p>\nIn order to set up a mining rig that could overtake the network, would require an astronomical amount of computational resources, specialized hardware, and electricity<\/strong>. The cost of conducting such an operation is so high, that it simply makes it not worth it, since the possibility of failure is always there.<\/p>\nThis would mean that the attacker would have invested all that money into setting up the required gear, and simply not achieving the goal. Therefore, the size of a network works as a deterrent.<\/p>\nNow, what about PoS?<\/em><\/p>\nWhen it comes to Proof-of-Stake, owning the largest <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-mining-farm/">crypto mining farm<\/strong><\/a> in the world would not increase anyone’s chances of obtaining the majority of the network’s computational power. The danger comes in a different shape.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Proof-of-Stake vs Proof-of-Work: 51% attack PoS.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//what-is-proof-of-stake-vs-proof-of-work-06.jpg/" alt=\"What is Proof-of-Stake vs Proof-of-Work: 51% attack PoS.\" width=\"1000\" height=\"555\"><\/p>\nIn this consensus mechanism, an attacker would have to become the largest staker in the entire network. And by largest, I mean that the attacker would have to acquire more than 50% of the total amount of cryptocurrency that’s staked on the blockchain<\/strong>. They would have to stake more than the rest of the stakers combined.<\/p>\nBut, there are mechanisms put in place to mitigate the risk of it.<\/p>\nFirst of all, it would be costly<\/strong>. The more stakers there are, the costlier it becomes for a hypothetical attacker to accumulate more than 50% of the entirety of the staked coins.<\/p>\nThen, if, in a hypothetical scenario, an attacker manages to obtain that many coins, they would still face the risk of failure<\/strong>. In such a case, the PoS malicious activity deterrents would get activated and confiscate all of the coins from the attacker.<\/p>\nAnd finally, if the attacker, nevertheless, would manage to pull the attack off, the news about such an event would destroy the cryptocurrency’s image<\/strong>, and people would start selling it, thus, reducing its value. The attacker would end up with way less in their hands, than they had to invest, in order to succeed on a mission like this.<\/p>\nSo, to sum this chapter up, while both PoW and PoS networks are theoretically vulnerable to 51% attacks, the chances of them actually taking place are low. It depends on the size of the network, so, if we’re talking about the main cryptocurrencies, the chances of witnessing a 51% attack are very low.<\/p>\n<h2>Criticism<\/h2>\nFinally, it’s time to address what are the main points of criticism<\/strong> of both of these consensus mechanisms. Let’s take a look at PoW first.<\/p>\nAs I’ve mentioned above, Proof-of-Work is fueled by competition. And this competition leads to some objective problems that are concerning not only to the crypto industry, but also to the rest of the world.<\/p>\nSince PoW requires miners to compete over who’s gonna be the first one to get the right to validate transactions and create new blocks, this results in a colossal increase in global energy consumption levels<\/strong>. The electricity that it consumes is often produced by burning fossil fuels. Which, of course, increases the carbon footprint that the crypto industry leaves on the planet. Critics emphasize this as something wasteful, unsustainable, and damaging<\/strong>.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Proof-of-Stake vs Proof-of-Work: Environmental footprint of PoW.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//what-is-proof-of-stake-vs-proof-of-work-07.jpg/" alt=\"What is Proof-of-Stake vs Proof-of-Work: Environmental footprint of PoW.\" width=\"1000\" height=\"485\"><\/p>\nIn the context of climate change, one should not be surprised that both local and global authorities are about to get more and more strict about such matters. Therefore, PoW blockchains may face regulatory issues in the long turn<\/strong>. This would be detrimental to cryptocurrencies that depend on this mechanism.<\/p>\nProof-of-Stake manages to avoid this PR crisis, when it comes to environmental impact, since the amount of energy that it requires is almost incomparably smaller. Yet, PoS is under fire for another reason. Critics argue that PoS is way more susceptible to the problem of centralization than PoW is<\/strong>.<\/p>\nThere are more ways for network participants to obtain a significant amount of coins in PoS than it is in PoW. For example, upon the launch of a blockchain, the Initial Coin Distribution takes place, and blockchain contributors, supporters and investors receive their promised shares of the coins.<\/p>\nThis automatically increases their influence on the blockchain<\/strong>, and puts them in an unbalanced relationship with the other network participants. Thus, such actors could continue accumulating their crypto wealth, which would furtherly lead to the centralization of power in the hands of a few network participants.<\/p>\nThese participants aren’t always individuals. Sometimes, they can be corporations, crypto exchanges, and so on<\/strong>. Thus, the momentum of furtherly increasing their wealth, and, therefore, their influence over the blockchain, always remains high.<\/p>\nThis is why critics argue that PoS is way more prone to ignoring the tenets of decentralization<\/strong> and treating all network participants in an unfair manner, which contradicts the initial idea of a <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-peer-to-peer-p2p/">Peer-to-Peer network system<\/strong><\/a>.<\/p>\n<h2>Wrapping Up<\/h2>\nAs you can see, the question of “what is Proof of Stake vs Proof of Work” debate is very real. It encapsulates two very different approaches<\/strong> to how the optimal blockchain is supposed to work. And this debate is not going to end anytime soon. The opposing sides differ in regards to their goals, values, and the overall vision of the perfect blockchain project.<\/p>\nOf course, there are more consensus mechanisms out there<\/strong>, and it’s safe to say that many more will be introduced eventually. Special problems require special solutions. But sometimes, these solutions create new, not-seen-before problems. Therefore, we can summarize that the great debate of which consensus mechanism is the best, is far from over.<\/p>","definition":"Did you know that the core principle of Proof-of-Work is competition, while the core principle of Proof-of-Stake is luck?","status":"published","meta_title":"Proof-Of-Stake VS Proof-Of-Work: What is the Difference?","meta_description":"Trying to figure out what is the difference between Proof-of-Stake VS Proof-of-Work? Great, you'll find out all you need to know right here!","meta_keywords":"what is proof of stake vs proof of work, blockchain proof of work vs proof of stake","modified_content":"In this section, we’re going to address what is the “Proof-of-Stake vs Proof-of-Work” debate all about<\/strong>.<\/p>\nWhen it comes to the matters of a blockchain, “Proof-of-Work vs Proof-of-Stake” is a question you simply cannot avoid. In the previous sections, I’ve covered the definitions of both of these mechanisms, but this subject requires a bit more looking-into.<\/p>\nThere’s a reason why this debate is such a fierce one<\/strong>. And it can get really intense, since, as you’re about to see, both sides have strong arguments and advantages that cannot be reconciled. I’ll explain them to you in this section, and you’ll see how tough it can get when it comes to choosing a side!<\/p>\nSo, in this section, I’m going to dissect the question of “what is Proof-of-Stake vs Proof-of-Work.” You’ll be able to understand what changed when it comes to mining <a href=https://www.bitdegree.org/"//crypto//buy-ethereum-eth/">Ethereum in “Proof-of-Work vs Proof-of-Stake,” what is the difference between the two mechanisms, and everything in between.<\/p>\nLet’s get to it!<\/em><\/p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 suggested-comparisons pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//images//compare-crypto-exchanges.gif/"/n alt=\"Proof of Work vs Proof of Stake: Which is Better? (ANIMATED)\"\n title=\"Proof of Work vs Proof of Stake: Which is Better? (ANIMATED)\" class=\"border-0\">\n Video Explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: Proof-of-Work VS Proof-of-Stake: The Differences That Matter<\/h4>\n Reading is not your thing? Watch the \"Proof-of-Work VS Proof-of-Stake: The Differences That Matter\" video explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"position-relative youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"6YMO1b6iNqE\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"><\/div>\n Proof of Work vs Proof of Stake: Which is Better? (ANIMATED)<\/p>\n <img data-srcset=\"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/proof-of-work-vs-proof-of-stake-which-is-better-animated.jpg?tr=w-420 500w,\n https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/proof-of-work-vs-proof-of-stake-which-is-better-animated.jpg?tr=w-760 1000w\"\n alt=\"Proof of Work vs Proof of Stake: Which is Better? (ANIMATED)\"\n title=\"Proof of Work vs Proof of Stake: Which is Better? (ANIMATED)\"\n class=\"p-0 lazyload\">\n <img class=\"play-button lazyload\" data-target=\"#video-modal\"\n data-src=\"https:\/\/assets.bitdegree.org\/crypto\/assets\/video-button.png?tr=w-85\"\n alt=\"Proof of Work vs Proof of Stake: Which is Better? (ANIMATED)\">\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener noindex\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <\/i>\n <\/div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE<\/h4>\n ON YOUTUBE<\/span>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <\/i>\n <\/button>\n <div id=\"iframe\"><\/div>\n <\/div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener noindex\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//crypto-subscribe.jpg/" alt=\"Subscribe\">\n <\/div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n SUBSCRIBE \n ON YOUTUBE<\/span>\n <\/p>\n <\/div>\n <\/div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease<\/h4>\n New explainer videos every week!<\/span>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n<\/div>\n<h2>Definitions<\/h2>\nIn order to begin understanding what is “Proof-of-Stake vs Proof-of-Work” , we need to take a step back, and understand this: both Proof-of-Stake and Proof-of-Work are consensus mechanisms<\/strong>. So, what’s that?<\/em><\/p>\nA consensus mechanism is like a rulebook that describes the way a blockchain is supposed to work<\/strong>. It maps out the right way to validate transactions, and in what order they should be added to the blockchain. By doing so, it ensures that every network participant receives the same information; therefore, no malicious actions, tampering, or cheating could take place.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Proof-of-Stake vs Proof-of-Work: A consensus mechanism.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//what-is-proof-of-stake-vs-proof-of-work-01.jpg/" alt=\"What is Proof-of-Stake vs Proof-of-Work: A consensus mechanism.\" width=\"1000\" height=\"566\"><\/p>\nYou can see it as the road traffic rules. Every driver, agrees upon the rules and knows what to expect when driving down the road. To continue with the comparison, you could say that the UK, for example, runs on a different “consensus mechanism<\/em>,” when it comes to the traffic. The British all drive on the left, yet an organized system still prevails. That’s all thanks to the “consensus mechanism<\/em>”!<\/p>\nAdhering to a shared set of rules is important because it keeps the blockchain’s integrity, and makes it secure<\/strong>. All of this is achieved without the need for a central authority, all thanks to a consensus mechanism.<\/p>\nDifferent blockchains have different cryptocurrencies<\/strong>. And the set of rules that these blockchains follow are, in many cases, different. Proof-of-Work and Proof-of-Stake are two different sets of rules, since they both are different consensus mechanisms. There are many others<\/strong>, but these two are the most prominent ones, since two of the most well-known and widely-used cryptocurrencies, <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin, and <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-ethereum/">Ethereum, run on them.<\/p>\n<h2>Core Principles<\/h2>\nOkay, that was the fundamental theory when it comes to consensus mechanisms, blockchain, “Proof-of-Work vs Proof-of-Stake” debate, and everything in between. Now, it’s time to address their core principles. By doing so, we’re gonna see their main differences, as well.<\/p>\nLet’s begin with Proof-of-Work<\/strong>, or, as it’s commonly known, PoW.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Proof-of-Stake vs Proof-of-Work: PoW.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//what-is-proof-of-stake-vs-proof-of-work-02.jpg/" alt=\"What is Proof-of-Stake vs Proof-of-Work: PoW.\" width=\"1000\" height=\"508\"><\/p>\nPoW is almost synonymous with “computational power<\/em>,” since it entirely relies on it. PoW participants, also known as miners<\/strong>, use their own resources, such as computational power, and energy, in order to contribute to the network’s security and functionality.<\/p>\nBy investing into special devices and mining machinery, miners get to participate in validating transactions, and creating new blocks<\/strong>. The blockchain is literally created out of the computational power that these miners provide it with. That’s why such Bitcoin ambassadors, like Michael Saylor, like to call this coin “Digital Energy<\/em>,” since it’s literally electricity transformed into a digital currency.<\/p>\nTherefore, miners compete against each other<\/strong> by investing into more powerful mining rigs, so they could end up producing more computational power, and thus, increasing their chances of being the ones who’ll get the opportunity to validate transactions, and continue building the blockchain.<\/p>\nIf they succeed, they get incentivized by receiving rewards. These rewards come in cryptocurrency that’s native to the chain that these miners are contributing to.<\/p>\nYou could think of mining as a very complex online multiplayer game<\/strong>. Every miner, in this case - gamer, connects to the server to compete in an intense everyone vs everyone<\/em> game. Last man standing wins, and, thus, earns the reward. But, all of the other gamers had to invest their time, energy, and computational power to participate in the game, nevertheless!<\/p>\nQuite naturally, miners want to succeed and receive the reward, since it’s the only way of making returns on their investments. And, as it’s designed in PoW’s architecture, the participants with the most computational power stand the most chances to “win” the race of getting to validate the new block<\/strong>.<\/p>\nTherefore, you could conclude that one of PoW’s core principles is competition<\/strong>. It’s just a single word, yet it helps so much when it comes to understanding the “what is Proof-of-Stake vs Proof-of-Work” question.<\/p>\nNow, Proof-of-Stake<\/strong>, or PoS, in short, solely relies on staking, thus the word “stake<\/em>” in “Proof-of-Stake.”<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Proof-of-Stake vs Proof-of-Work: PoS.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//what-is-proof-of-stake-vs-proof-of-work-04.jpg/" alt=\"What is Proof-of-Stake vs Proof-of-Work: PoS.\" width=\"1000\" height=\"579\"><\/p>\nStaking is a process of locking up a certain amount of your own cryptocurrency in the blockchain<\/strong>. This works as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-collateral/">collateral that keeps the stakers accountable, and incentivizes them to do their job properly. This “job<\/em>” is the same as that of miners on a PoW network - to validate new transaction data, to add it to existing blocks, and, when they get full, to create new blocks.<\/p>\nSo, in PoS, stakers are the ones that make sure the blockchain keeps its integrity, is secure, and functional.<\/p>\nPoS does not rely on computational power<\/strong> as much as PoW does. In this consensus mechanism, it’s not computational power that decides who’s gonna be one to validate transactions, and create new blocks, but it’s the number of coins that stakers have staked on the network.<\/p>\nLet’s illustrate it with a simple example<\/em>. If you want to win the jack pot, you have to buy yourself a lottery ticket. The more tickets you buy - the more chances you have of becoming the lucky one. So, the more you stake, the more chances you have of becoming the “lucky one<\/em>” to get the chance to validate transactions and receive rewards.<\/p>\nAnd, just like with PoW, in case of successfully validating a transaction, validators receive rewards. In case they try to act maliciously, they’d risk losing their staked assets<\/strong>. Therefore, all of the network’s participants feel safe, since such acts are punished. It’s an effective way of repelling actors with potentially malicious intentions.<\/p>\nIf PoW encourages competition among its validators, PoS goes the opposite way. It doesn’t rely on sheer computational power, but more on chance<\/strong>. And by “chance<\/em>”, I mean the fact that PoS validators, in most cases, get selected through a randomized process. The system randomly chooses “the winner<\/em>” among the stakers.<\/p>\nBut, the higher the staked amount, the higher the chances of being chosen. Yet, no matter how much computational power these validators may own and be able to produce, this will not increase their chances of getting to validate the transaction, and, thus, receive the reward.<\/p>\nSo, instead of competition, PoS applies the “lottery<\/strong>” method.<\/p>\n<h2>Security<\/h2>\nTo continue solving the “what is Proof-of-Stake vs Proof-of-Work” puzzle, the question of security must be addressed<\/strong>. Both of the consensus mechanisms have their advantages and disadvantages when it comes to this question.<\/p>\nIn order to properly understand it, it’s important to understand a concept  of what’s known as a “51% attack<\/strong>.”<\/p>\nIn PoW, the network is powered by the computational power that comes from all the network participants. But, what if someone set up a mining rig so powerful that it could provide more than half of the entire network’s computational power?<\/em><\/p>\nThis would mean that they could, hypothetically, take over the control of the block creation<\/strong>, and, essentially, choose what data to validate. To put it shortly, this would allow this actor to manipulate the blockchain.<\/p>\nSo, a 51% attack (also known as a majority attack) is a scenario in which a single entity or a group of malicious actors gains control of more than 50% of the total computational power<\/strong>. This would allow such an “attacker<\/em>” to manipulate transactions, reverse them, and, essentially, mess everything up.<\/p>\nSo, how susceptible is PoW to such an attack?<\/em><\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Proof-of-Stake vs Proof-of-Work: 51% attack PoW.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//what-is-proof-of-stake-vs-proof-of-work-05.jpg/" alt=\"What is Proof-of-Stake vs Proof-of-Work: 51% attack PoW.\" width=\"1000\" height=\"621\"><\/em><\/p>\nIt depends on the size of the network. For example, the most important PoW blockchain is the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin network<\/strong><\/a>. And, in order to execute a successful 51% attack on the Bitcoin network would be… Very expensive<\/em>.<\/p>\nIn order to set up a mining rig that could overtake the network, would require an astronomical amount of computational resources, specialized hardware, and electricity<\/strong>. The cost of conducting such an operation is so high, that it simply makes it not worth it, since the possibility of failure is always there.<\/p>\nThis would mean that the attacker would have invested all that money into setting up the required gear, and simply not achieving the goal. Therefore, the size of a network works as a deterrent.<\/p>\nNow, what about PoS?<\/em><\/p>\nWhen it comes to Proof-of-Stake, owning the largest <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-mining-farm/">crypto mining farm<\/strong><\/a> in the world would not increase anyone’s chances of obtaining the majority of the network’s computational power. The danger comes in a different shape.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Proof-of-Stake vs Proof-of-Work: 51% attack PoS.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//what-is-proof-of-stake-vs-proof-of-work-06.jpg/" alt=\"What is Proof-of-Stake vs Proof-of-Work: 51% attack PoS.\" width=\"1000\" height=\"555\"><\/p>\nIn this consensus mechanism, an attacker would have to become the largest staker in the entire network. And by largest, I mean that the attacker would have to acquire more than 50% of the total amount of cryptocurrency that’s staked on the blockchain<\/strong>. They would have to stake more than the rest of the stakers combined.<\/p>\nBut, there are mechanisms put in place to mitigate the risk of it.<\/p>\nFirst of all, it would be costly<\/strong>. The more stakers there are, the costlier it becomes for a hypothetical attacker to accumulate more than 50% of the entirety of the staked coins.<\/p>\nThen, if, in a hypothetical scenario, an attacker manages to obtain that many coins, they would still face the risk of failure<\/strong>. In such a case, the PoS malicious activity deterrents would get activated and confiscate all of the coins from the attacker.<\/p>\nAnd finally, if the attacker, nevertheless, would manage to pull the attack off, the news about such an event would destroy the cryptocurrency’s image<\/strong>, and people would start selling it, thus, reducing its value. The attacker would end up with way less in their hands, than they had to invest, in order to succeed on a mission like this.<\/p>\nSo, to sum this chapter up, while both PoW and PoS networks are theoretically vulnerable to 51% attacks, the chances of them actually taking place are low. It depends on the size of the network, so, if we’re talking about the main cryptocurrencies, the chances of witnessing a 51% attack are very low.<\/p>\n<h2>Criticism<\/h2>\nFinally, it’s time to address what are the main points of criticism<\/strong> of both of these consensus mechanisms. Let’s take a look at PoW first.<\/p>\nAs I’ve mentioned above, Proof-of-Work is fueled by competition. And this competition leads to some objective problems that are concerning not only to the crypto industry, but also to the rest of the world.<\/p>\nSince PoW requires miners to compete over who’s gonna be the first one to get the right to validate transactions and create new blocks, this results in a colossal increase in global energy consumption levels<\/strong>. The electricity that it consumes is often produced by burning fossil fuels. Which, of course, increases the carbon footprint that the crypto industry leaves on the planet. Critics emphasize this as something wasteful, unsustainable, and damaging<\/strong>.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is Proof-of-Stake vs Proof-of-Work: Environmental footprint of PoW.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//images//what-is-proof-of-stake-vs-proof-of-work-07.jpg/" alt=\"What is Proof-of-Stake vs Proof-of-Work: Environmental footprint of PoW.\" width=\"1000\" height=\"485\"><\/p>\nIn the context of climate change, one should not be surprised that both local and global authorities are about to get more and more strict about such matters. Therefore, PoW blockchains may face regulatory issues in the long turn<\/strong>. This would be detrimental to cryptocurrencies that depend on this mechanism.<\/p>\nProof-of-Stake manages to avoid this PR crisis, when it comes to environmental impact, since the amount of energy that it requires is almost incomparably smaller. Yet, PoS is under fire for another reason. Critics argue that PoS is way more susceptible to the problem of centralization than PoW is<\/strong>.<\/p>\nThere are more ways for network participants to obtain a significant amount of coins in PoS than it is in PoW. For example, upon the launch of a blockchain, the Initial Coin Distribution takes place, and blockchain contributors, supporters and investors receive their promised shares of the coins.<\/p>\nThis automatically increases their influence on the blockchain<\/strong>, and puts them in an unbalanced relationship with the other network participants. Thus, such actors could continue accumulating their crypto wealth, which would furtherly lead to the centralization of power in the hands of a few network participants.<\/p>\nThese participants aren’t always individuals. Sometimes, they can be corporations, crypto exchanges, and so on<\/strong>. Thus, the momentum of furtherly increasing their wealth, and, therefore, their influence over the blockchain, always remains high.<\/p>\nThis is why critics argue that PoS is way more prone to ignoring the tenets of decentralization<\/strong> and treating all network participants in an unfair manner, which contradicts the initial idea of a <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-peer-to-peer-p2p/">Peer-to-Peer network system<\/strong><\/a>.<\/p>\n<h2>Wrapping Up<\/h2>\nAs you can see, the question of “what is Proof of Stake vs Proof of Work” debate is very real. It encapsulates two very different approaches<\/strong> to how the optimal blockchain is supposed to work. And this debate is not going to end anytime soon. The opposing sides differ in regards to their goals, values, and the overall vision of the perfect blockchain project.<\/p>\nOf course, there are more consensus mechanisms out there<\/strong>, and it’s safe to say that many more will be introduced eventually. Special problems require special solutions. But sometimes, these solutions create new, not-seen-before problems. Therefore, we can summarize that the great debate of which consensus mechanism is the best, is far from over.<\/p>","youtube_video":{"id":90,"channel_id":1,"sort":22,"video_title":"Proof of Work vs Proof of Stake: Which is Better? (ANIMATED)","description":"What is Proof of Stake VS Proof of Work debate all about? \n\nWhen it comes down to the questions about blockchain, \u201cProof of Stake VS Proof of Work\u201d is a debate you simply must understand. \n\nIn this video, I\u2019ll cover the concept of a consensus mechanism, and get into the differences between Proof of Stake and Proof of Work. In addition to the theoretical side of these questions, I\u2019ll provide real-life examples of what blockchains employ these consensus mechanisms, and what are their advantages and drawbacks. \n\nWhich consensus mechanism do you prefer? Which one do you think has more chances of becoming (or remaining) the industry standard in the near future? Be sure to let us know in the comments below.\n\nVideo Time Table:\n\n0:00 Introduction to Proof of Work vs Proof of Stake\n0:57 Meaning of Proof of Work & Proof of Stake\n2:13 Core Principles\n6:02 Security\n9:02 Criticism\n11:04 Wrap-up: Proof of Work vs Proof of Stake\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps:\/\/twitter.com\/crypto_xplained \n\n#ProofofStake #ProofofWork #MiningBitcoin","video_id":"6YMO1b6iNqE","duration":716,"view_count":254,"thumbnail_url":"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/proof-of-work-vs-proof-of-stake-which-is-better-animated.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2023-07-04T14:18:06.000000Z","created_at":"2023-07-04T23:00:12.000000Z","updated_at":"2024-01-09T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}}}" :prev-section="{"id":606,"chapter_id":9,"order":2,"featured_image_id":3220,"youtube_video_id":87,"author_id":1,"created_at":"2023-06-01T12:02:03.000000Z","updated_at":"2023-12-29T17:06:58.000000Z","slug":"what-is-a-mining-pool","title":"Mining Pools: Is Collective Mining Better Than Solo Mining?","content":"In this section, we’re going to talk about what is a mining pool in crypto, how important are they, and how does a mining pool work<\/strong>, to begin with.<\/p>\nMining pools are like another chapter in the book of crypto mining. In the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-crypto-mining/">previous section<\/strong><\/a>, I explained what crypto mining is, as such. Now, having discussed that, we can move on and venture into more complex topics, such as what is a mining pool, how to setup a mining pool, or simply, how to join a mining pool that’s already out there.<\/p>\nMining pools are subject to fierce debates. On the one hand, they’re a natural result of the constantly intensifying competition in the crypto mining industry<\/strong>, on the other hand, certain crypto mining pools have become so huge, that some consider them a threat to<\/strong> <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-decentralization/">decentralization, that’s supposed to be almost synonymous with DeFi.<\/p>\nIn this section, we’re going to take a deeper look into the theory and practice of crypto mining pools, as well as answer the questions of what is a mining pool, how to setup a mining pool, and why they are so important.<\/p>\nLet’s dive into it!<\/em><\/p>\n<h2>Different Types of Mining<\/h2>\nSo, just like with many things in life, crypto mining is something that can be done in different ways. It’s like going out for lunch. You can go alone, or you can go together with your co-workers. You’ll see what I mean in a minute.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Miners.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-01.jpg/" alt=\"What is a mining pool: Miners.\" width=\"1000\" height=\"580\" \/><\/p>\nBut before we get into specifics, let’s speedrun the definition of what is crypto mining.<\/p>\nSo, cryptocurrency mining is an inseparable process of many important blockchains, such as the <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin network, as it ensures the network's efficiency and security. It consists of<\/strong> validating and verifying transactions that take place on the blockchain, and adding them to the blockchain's public ledger<\/strong>.<\/p>\nCrypto miners use specialized hardware and software to solve complex mathematical problems, known as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-hash/">hashes, that secure the network. They receive rewards for doing so.<\/p>\nAnd, as I’ve already mentioned, crypto miners can venture into this adventure alone, or they can join a crypto miner collective, which is also known as a crypto mining pool. Let’s define the difference between these two approaches.<\/p>\n<h2>Individual Mining (Solo Mining)<\/h2>\nSo, first of all, let’s talk about individual mining<\/strong>, which is also known as “solo mining<\/em>.” Let’s rely on a very simple real-life example.<\/p>\nImagine going on a beach with a metal detector. You may go on exploring, and eventually stumble upon a lost watch, some coins, or similar stuff. But, as it has happened before to some lucky people, you may find a long-lost buried Roman treasure, waiting for some random metal detector hobbyist to unearth it.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Solo mining.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-03.jpg/" alt=\"What is a mining pool: Solo mining.\" width=\"1000\" height=\"596\" \/><\/p>\nHere’s the catch. You found it on your own<\/strong>. It’s yours. You invested into the necessary gear, you found the time, and you went for it. That’s an investment. And, as a result, whatever you may find, will be yours. Founders keepers<\/em>, after all.<\/em><\/p>\nThe same applies to individual mining. It involves a single miner investing and using their own resources in this activity, and, therefore, reaping the fruit of their labor for themselves<\/strong>. These resources are your own money, the required mining hardware and software, computing power, electricity, and time.<\/p>\nIndividual miners run their mining equipment independently and, as a result, receive the full rewards. Of course, this happens only in cases when they’re the ones to successfully mine a new block, and receive the block reward.<\/p>\nBut, as the industry grew, mining became a rather competitive concept<\/strong>. This resulted in individual mining becoming  expensive, risky, and not-that-profitable anymore, as it used to be.<\/p>\nOf course, this is only true when talking about mining such coins as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin. There are other coins that rely on mining, and mining them remains less risky and more profitable, even to this day.<\/p>\nBut, receiving the block reward for mining a new coin is way more valuable and profitable, when the block reward is literally newly-mined Bitcoin. Therefore, many miners chose collaboration, instead of confrontation.<\/p>\nAs the saying goes: “If you want to go fast - go alone. But if you want to go far - go together<\/em>.”<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: If you want go fast - go alone; If you want to go far - go together.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-04.jpg/" alt=\"What is a mining pool: If you want go fast - go alone; If you want to go far - go together.\" width=\"1000\" height=\"581\" \/><\/p>\nTherefore, many individual crypto miners decided to combine their powers<\/strong>, which significantly increased their chances of successfully finding the hash, mining a new block, and receiving the reward. They form, or join, a mining pool.<\/p>\nThe downside of this is simple. The reward will have to be shared<\/strong> among those who together constitute the mining pool. But the logic here is obvious - even though the rewards will have to be shared, the chances of receiving them are higher. Therefore, you may receive less, but this should happen more often.<\/p>\n<h2>Mining Pools<\/h2>\nSo, mining pools<\/strong> are the opposite of solo mining. It’s literally just collective mining<\/strong>.<\/p>\nLet’s get back to the previously mentioned metal detector analogy. Imagine going out to search for hidden treasures on some random beach. But this time, you’re going with a friend.<\/p>\nHowever, there’s a minor, yet important detail. Your friend lends you one of his metal detectors, since you don’t have one of your own. So, you go out, the stars align in your favor, and you find a lost, yet still running, Rolex watch that’s worth at least $20K.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Crypto mining pool.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-02.jpg/" alt=\"What is a mining pool: Crypto mining pool.\" width=\"1000\" height=\"541\" \/><\/p>\nEven though you may be the one who found it, it’s a result of collective activity. And you’re most definitely sharing the profit that comes from selling the Rolex. If it wasn’t for your friend who gave you the necessary equipment, you probably wouldn’t have found the watch.<\/p>\nSo, in its dry technical definition, collective mining involves multiple miners combining their computational power and other resources<\/strong> to significantly increase their chances of successfully mining new blocks, and receiving rewards.<\/p>\nThe rewards are distributed among the participants based on their contributions<\/strong>, since different crypto mining pool participants contribute unequal amounts of resources.<\/p>\n<h2>Reward Distribution Methods in Mining Pools<\/h2>\nBut, as it’s always the case with anything crypto-related, things always get more complex. Distributing miners’ rewards is no easy task. Therefore, it’s important to take a look at the architectural principles that are integrated into different kinds of mining pools.<\/p>\nIn order for a mining pool to run smoothly, and for the distributional mechanism to make no mistakes, mining pools must rely on certain organizational principles<\/strong>. Therefore the question of “how to set up a mining pool<\/em>” is technical and complex and, thus, requires a deep understanding of this technology.<\/p>\nApart from the technological aspect, the organizational one is also of paramount importance. Mining pools rely on coordinators<\/strong> who oversee the sophisticated block reward distribution processes.<\/p>\nMost mining pools apply one of the following reward distribution methods. The first one is called “PPS<\/strong>”, which stands for “Pay-Per-Share<\/strong>,” while the other one is Pay-Per-Last-N-Shares<\/strong>, or “PPLNS<\/strong>,” in short.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: PPS and PPLNS.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-07.jpg/" alt=\"What is a mining pool: PPS and PPLNS.\" width=\"1000\" height=\"603\" \/><\/p>\nThe PPS method is a reward distribution model where miners receive a fixed payout for each share they contribute to the mining pool<\/strong>, regardless of whether the share ultimately leads to finding the right hash, which would lead to block creation.<\/p>\nThis “share<\/em>” refers to the individual miner’s contribution to the mining effort. In this case, you can view this method as rewarding the employee with a regular salary. The obvious pro of this method is the stability of the income that miners receive.<\/p>\nOften, you’d see that many prominent pools use a “PPS+<\/strong>” reward distribution method. It means that the whole distribution principle is the same, but it’s just a little bit enhanced. Such reward systems incorporate transaction fees into the reward calculation<\/strong>. These fees come from blocks that miners contribute to.<\/p>\nThe Pay-Per-Last-N-Shares method, on the other hand, takes a different approach. In PPLNS mining pools, miners get rewarded every time the mining pool succeeds at creating a new block. In such cases, they get rewarded according to the number of shares that miners contributed to this success<\/strong>. The “N” in “PPLNS” here stands for this number.<\/em><\/p>\nSo, essentially, in PPLNS, miners who contribute more, get more rewards.<\/p>\n<h2>How to Join a Mining Pool<\/h2>\nBy now, we have laid out the theoretical background behind what is a mining pool. Let’s take a look at some real-life examples<\/strong>, and how to join a mining pool.<\/p>\nAmong some of the world’s biggest mining pools are such names as Foundry USA, AntPool, F2Pool, and <a href=https://www.bitdegree.org/"//crypto//goon//binance/" target=\"_blank\" rel=\"nofollow noindex noopener\">Binance<\/a> Pool<\/strong>. These giant pools control a lot of the computational power, and, as a result, they have a lot of influence over the network. For example, Slush Pool<\/strong> has over 200,000 registered users, and mines several different cryptocurrencies.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Foundry USA, AntPool, F2Pool, and Binance Pool.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-08.jpg/" alt=\"What is a mining pool: Foundry USA, AntPool, F2Pool, and Binance Pool.\" width=\"1000\" height=\"562\" \/><\/p>\nAnd, if you take a look at AntPool<\/strong>, you can see that this mining pool offers both reward distribution methods to their users, be it PPS+, or PPLNS. It depends on a person's preferences and financial situation. So, the options are not strictly limited.<\/p>\nNow, the answer to the question of “how to join a mining pool<\/em>” is rather intuitive. After setting up a crypto mining rig, a person has to check whether their hardware is compatible with the mining algorithm used by a particular mining pool. Then, everything goes the usual way<\/strong>.<\/p>\nTo put it simply, it consists of creating an account, connecting to the pool, setting up a <a href=https://www.bitdegree.org/"//crypto//best-cryptocurrency-wallet/">crypto wallet<\/strong><\/a>, monitoring the process, setting up a payout method, and, ultimately, withdrawing your earnings. Of course, this is an oversimplification of the entire process.<\/em><\/p>\n<h2>Mining Pool vs. Mining Farm<\/h2>\nFinally, there is one more aspect of this topic that requires addressing. It’s the difference between the two seemingly-similar, yet different concepts. I’m talking about “mining pools<\/strong>” and “mining farms<\/strong>.” They refer to two different things; therefore, it’s important not to confuse them.<\/p>\nBy now, “what is a mining pool” is something that I’ve already answered. But, to put it in the shortest possible way, it’s combined computational power in an effort to increase the chances of earning block rewards.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Mining farm.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-09.jpg/" alt=\"What is a mining pool: Mining farm.\" width=\"1000\" height=\"574\" \/><\/p>\nNow, a mining farm refers not to the fact of a collective mining effort, but to the physical location of where a large number of mining rigs are located<\/strong>. It can be huge, yet set up by a solo miner.<\/p>\nSimilarly, a<\/strong> single crypto mining pool can consist of many crypto farms<\/strong> that would all be collectively trying to fetch that block reward.<\/p>\n<h2>Wrapping Up<\/h2>\nAlright, we’ve reached the end of the section! Crypto mining pools are a deep subject, and, hopefully, I’ve answered many questions that may have bothered you. To learn more about the crypto world as a whole, make sure to check out other chapters in this Crypto 101 Handbook<\/strong>.<\/p>","definition":"Did you know that a mining pool and a mining farm are two different concepts?","status":"published","meta_title":"What is a Mining Pool and How to Join One?","meta_description":"Want to become a part of the crypto mining community? Here, you'll find out what is a mining pool, how does it work, and how to join one!","meta_keywords":"what is a mining pool, how does mining pool work, how to setup a mining pool, how to join a mining pool","modified_content":"In this section, we’re going to talk about what is a mining pool in crypto, how important are they, and how does a mining pool work<\/strong>, to begin with.<\/p>\nMining pools are like another chapter in the book of crypto mining. In the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-crypto-mining/">previous section<\/strong><\/a>, I explained what crypto mining is, as such. Now, having discussed that, we can move on and venture into more complex topics, such as what is a mining pool, how to setup a mining pool, or simply, how to join a mining pool that’s already out there.<\/p>\nMining pools are subject to fierce debates. On the one hand, they’re a natural result of the constantly intensifying competition in the crypto mining industry<\/strong>, on the other hand, certain crypto mining pools have become so huge, that some consider them a threat to<\/strong> <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-decentralization/">decentralization, that’s supposed to be almost synonymous with DeFi.<\/p>\nIn this section, we’re going to take a deeper look into the theory and practice of crypto mining pools, as well as answer the questions of what is a mining pool, how to setup a mining pool, and why they are so important.<\/p>\nLet’s dive into it!<\/em><\/p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 suggested-comparisons pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//images//compare-crypto-exchanges.gif/"/n alt=\"What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)\"\n title=\"What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)\" class=\"border-0\">\n Video Explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: Mining Pools: Is Collective Mining Better Than Solo Mining?<\/h4>\n Reading is not your thing? Watch the \"Mining Pools: Is Collective Mining Better Than Solo Mining?\" video explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"position-relative youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"KVNkSCqWxJQ\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"><\/div>\n What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)<\/p>\n <img data-srcset=\"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-a-crypto-mining-pool-is-it-worth-it-beginner-friendly.jpg?tr=w-420 500w,\n https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-a-crypto-mining-pool-is-it-worth-it-beginner-friendly.jpg?tr=w-760 1000w\"\n alt=\"What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)\"\n title=\"What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)\"\n class=\"p-0 lazyload\">\n <img class=\"play-button lazyload\" data-target=\"#video-modal\"\n data-src=\"https:\/\/assets.bitdegree.org\/crypto\/assets\/video-button.png?tr=w-85\"\n alt=\"What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)\">\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener noindex\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <\/i>\n <\/div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE<\/h4>\n ON YOUTUBE<\/span>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <\/i>\n <\/button>\n <div id=\"iframe\"><\/div>\n <\/div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener noindex\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//crypto-subscribe.jpg/" alt=\"Subscribe\">\n <\/div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n SUBSCRIBE \n ON YOUTUBE<\/span>\n <\/p>\n <\/div>\n <\/div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease<\/h4>\n New explainer videos every week!<\/span>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n<\/div>\n<h2>Different Types of Mining<\/h2>\nSo, just like with many things in life, crypto mining is something that can be done in different ways. It’s like going out for lunch. You can go alone, or you can go together with your co-workers. You’ll see what I mean in a minute.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Miners.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-01.jpg/" alt=\"What is a mining pool: Miners.\" width=\"1000\" height=\"580\" \/><\/p>\nBut before we get into specifics, let’s speedrun the definition of what is crypto mining.<\/p>\nSo, cryptocurrency mining is an inseparable process of many important blockchains, such as the <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin network, as it ensures the network's efficiency and security. It consists of<\/strong> validating and verifying transactions that take place on the blockchain, and adding them to the blockchain's public ledger<\/strong>.<\/p>\nCrypto miners use specialized hardware and software to solve complex mathematical problems, known as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-hash/">hashes, that secure the network. They receive rewards for doing so.<\/p>\nAnd, as I’ve already mentioned, crypto miners can venture into this adventure alone, or they can join a crypto miner collective, which is also known as a crypto mining pool. Let’s define the difference between these two approaches.<\/p>\n<h2>Individual Mining (Solo Mining)<\/h2>\nSo, first of all, let’s talk about individual mining<\/strong>, which is also known as “solo mining<\/em>.” Let’s rely on a very simple real-life example.<\/p>\nImagine going on a beach with a metal detector. You may go on exploring, and eventually stumble upon a lost watch, some coins, or similar stuff. But, as it has happened before to some lucky people, you may find a long-lost buried Roman treasure, waiting for some random metal detector hobbyist to unearth it.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Solo mining.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-03.jpg/" alt=\"What is a mining pool: Solo mining.\" width=\"1000\" height=\"596\" \/><\/p>\nHere’s the catch. You found it on your own<\/strong>. It’s yours. You invested into the necessary gear, you found the time, and you went for it. That’s an investment. And, as a result, whatever you may find, will be yours. Founders keepers<\/em>, after all.<\/em><\/p>\nThe same applies to individual mining. It involves a single miner investing and using their own resources in this activity, and, therefore, reaping the fruit of their labor for themselves<\/strong>. These resources are your own money, the required mining hardware and software, computing power, electricity, and time.<\/p>\nIndividual miners run their mining equipment independently and, as a result, receive the full rewards. Of course, this happens only in cases when they’re the ones to successfully mine a new block, and receive the block reward.<\/p>\nBut, as the industry grew, mining became a rather competitive concept<\/strong>. This resulted in individual mining becoming  expensive, risky, and not-that-profitable anymore, as it used to be.<\/p>\nOf course, this is only true when talking about mining such coins as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin. There are other coins that rely on mining, and mining them remains less risky and more profitable, even to this day.<\/p>\nBut, receiving the block reward for mining a new coin is way more valuable and profitable, when the block reward is literally newly-mined Bitcoin. Therefore, many miners chose collaboration, instead of confrontation.<\/p>\nAs the saying goes: “If you want to go fast - go alone. But if you want to go far - go together<\/em>.”<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: If you want go fast - go alone; If you want to go far - go together.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-04.jpg/" alt=\"What is a mining pool: If you want go fast - go alone; If you want to go far - go together.\" width=\"1000\" height=\"581\" \/><\/p>\nTherefore, many individual crypto miners decided to combine their powers<\/strong>, which significantly increased their chances of successfully finding the hash, mining a new block, and receiving the reward. They form, or join, a mining pool.<\/p>\nThe downside of this is simple. The reward will have to be shared<\/strong> among those who together constitute the mining pool. But the logic here is obvious - even though the rewards will have to be shared, the chances of receiving them are higher. Therefore, you may receive less, but this should happen more often.<\/p>\n<h2>Mining Pools<\/h2>\nSo, mining pools<\/strong> are the opposite of solo mining. It’s literally just collective mining<\/strong>.<\/p>\nLet’s get back to the previously mentioned metal detector analogy. Imagine going out to search for hidden treasures on some random beach. But this time, you’re going with a friend.<\/p>\nHowever, there’s a minor, yet important detail. Your friend lends you one of his metal detectors, since you don’t have one of your own. So, you go out, the stars align in your favor, and you find a lost, yet still running, Rolex watch that’s worth at least $20K.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Crypto mining pool.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-02.jpg/" alt=\"What is a mining pool: Crypto mining pool.\" width=\"1000\" height=\"541\" \/><\/p>\nEven though you may be the one who found it, it’s a result of collective activity. And you’re most definitely sharing the profit that comes from selling the Rolex. If it wasn’t for your friend who gave you the necessary equipment, you probably wouldn’t have found the watch.<\/p>\nSo, in its dry technical definition, collective mining involves multiple miners combining their computational power and other resources<\/strong> to significantly increase their chances of successfully mining new blocks, and receiving rewards.<\/p>\nThe rewards are distributed among the participants based on their contributions<\/strong>, since different crypto mining pool participants contribute unequal amounts of resources.<\/p>\n<h2>Reward Distribution Methods in Mining Pools<\/h2>\nBut, as it’s always the case with anything crypto-related, things always get more complex. Distributing miners’ rewards is no easy task. Therefore, it’s important to take a look at the architectural principles that are integrated into different kinds of mining pools.<\/p>\nIn order for a mining pool to run smoothly, and for the distributional mechanism to make no mistakes, mining pools must rely on certain organizational principles<\/strong>. Therefore the question of “how to set up a mining pool<\/em>” is technical and complex and, thus, requires a deep understanding of this technology.<\/p>\nApart from the technological aspect, the organizational one is also of paramount importance. Mining pools rely on coordinators<\/strong> who oversee the sophisticated block reward distribution processes.<\/p>\nMost mining pools apply one of the following reward distribution methods. The first one is called “PPS<\/strong>”, which stands for “Pay-Per-Share<\/strong>,” while the other one is Pay-Per-Last-N-Shares<\/strong>, or “PPLNS<\/strong>,” in short.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: PPS and PPLNS.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-07.jpg/" alt=\"What is a mining pool: PPS and PPLNS.\" width=\"1000\" height=\"603\" \/><\/p>\nThe PPS method is a reward distribution model where miners receive a fixed payout for each share they contribute to the mining pool<\/strong>, regardless of whether the share ultimately leads to finding the right hash, which would lead to block creation.<\/p>\nThis “share<\/em>” refers to the individual miner’s contribution to the mining effort. In this case, you can view this method as rewarding the employee with a regular salary. The obvious pro of this method is the stability of the income that miners receive.<\/p>\nOften, you’d see that many prominent pools use a “PPS+<\/strong>” reward distribution method. It means that the whole distribution principle is the same, but it’s just a little bit enhanced. Such reward systems incorporate transaction fees into the reward calculation<\/strong>. These fees come from blocks that miners contribute to.<\/p>\nThe Pay-Per-Last-N-Shares method, on the other hand, takes a different approach. In PPLNS mining pools, miners get rewarded every time the mining pool succeeds at creating a new block. In such cases, they get rewarded according to the number of shares that miners contributed to this success<\/strong>. The “N” in “PPLNS” here stands for this number.<\/em><\/p>\nSo, essentially, in PPLNS, miners who contribute more, get more rewards.<\/p>\n<h2>How to Join a Mining Pool<\/h2>\nBy now, we have laid out the theoretical background behind what is a mining pool. Let’s take a look at some real-life examples<\/strong>, and how to join a mining pool.<\/p>\nAmong some of the world’s biggest mining pools are such names as Foundry USA, AntPool, F2Pool, and <a href=https://www.bitdegree.org/"//crypto//goon//binance/" target=\"_blank\" rel=\"nofollow noindex noopener\">Binance<\/a> Pool<\/strong>. These giant pools control a lot of the computational power, and, as a result, they have a lot of influence over the network. For example, Slush Pool<\/strong> has over 200,000 registered users, and mines several different cryptocurrencies.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Foundry USA, AntPool, F2Pool, and Binance Pool.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-08.jpg/" alt=\"What is a mining pool: Foundry USA, AntPool, F2Pool, and Binance Pool.\" width=\"1000\" height=\"562\" \/><\/p>\nAnd, if you take a look at AntPool<\/strong>, you can see that this mining pool offers both reward distribution methods to their users, be it PPS+, or PPLNS. It depends on a person's preferences and financial situation. So, the options are not strictly limited.<\/p>\nNow, the answer to the question of “how to join a mining pool<\/em>” is rather intuitive. After setting up a crypto mining rig, a person has to check whether their hardware is compatible with the mining algorithm used by a particular mining pool. Then, everything goes the usual way<\/strong>.<\/p>\nTo put it simply, it consists of creating an account, connecting to the pool, setting up a <a href=https://www.bitdegree.org/"//crypto//best-cryptocurrency-wallet/">crypto wallet<\/strong><\/a>, monitoring the process, setting up a payout method, and, ultimately, withdrawing your earnings. Of course, this is an oversimplification of the entire process.<\/em><\/p>\n<h2>Mining Pool vs. Mining Farm<\/h2>\nFinally, there is one more aspect of this topic that requires addressing. It’s the difference between the two seemingly-similar, yet different concepts. I’m talking about “mining pools<\/strong>” and “mining farms<\/strong>.” They refer to two different things; therefore, it’s important not to confuse them.<\/p>\nBy now, “what is a mining pool” is something that I’ve already answered. But, to put it in the shortest possible way, it’s combined computational power in an effort to increase the chances of earning block rewards.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is a mining pool: Mining farm.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-a-mining-pool-09.jpg/" alt=\"What is a mining pool: Mining farm.\" width=\"1000\" height=\"574\" \/><\/p>\nNow, a mining farm refers not to the fact of a collective mining effort, but to the physical location of where a large number of mining rigs are located<\/strong>. It can be huge, yet set up by a solo miner.<\/p>\nSimilarly, a<\/strong> single crypto mining pool can consist of many crypto farms<\/strong> that would all be collectively trying to fetch that block reward.<\/p>\n<h2>Wrapping Up<\/h2>\nAlright, we’ve reached the end of the section! Crypto mining pools are a deep subject, and, hopefully, I’ve answered many questions that may have bothered you. To learn more about the crypto world as a whole, make sure to check out other chapters in this Crypto 101 Handbook<\/strong>.<\/p>","youtube_video":{"id":87,"channel_id":1,"sort":25,"video_title":"What is a Crypto Mining Pool? Is it Worth it? (Beginner-Friendly)","description":"What is a mining pool? And how does a mining pool work?\n\nIn this video, I explain the theory behind the crypto mining pools. Not only are they not the same as \u201ccrypto mining farms,\u201d but there are even more layers and nuances when it comes to crypto mining pools. I address all of that, and provide clear examples, and comparisons so everyone can understand it clearly.\n\nEducating oneself about crypto mining pools, their setups, and differences, will allow you to immerse yourself in the crypto online space more freely, since the unfamiliar terminology will become clear to you.\n\nHave you ever considered joining a crypto mining pool? Would you like to? If you\u2019ve got any insights, questions, or comments, be sure to let me know in the comments. \n\nVideo Time Table:\n\n0:00 Introduction to What is a Mining Pool\n1:03 Different Types of Mining\n1:58 Individual Mining\n4:06 Mining Pools\n5:06 Reward Distribution Methods\n6:59 How to Join a Mining Pool\n8:14 Mining Pool vs Mining Farm\n8:56 Wrap-up: What is a Mining Pool?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps:\/\/twitter.com\/crypto_xplained\n\n#MiningPool #CryptoMining #MiningBitcoin","video_id":"KVNkSCqWxJQ","duration":563,"view_count":229,"thumbnail_url":"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-a-crypto-mining-pool-is-it-worth-it-beginner-friendly.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2023-06-23T14:48:43.000000Z","created_at":"2023-06-23T23:00:10.000000Z","updated_at":"2024-01-09T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}}}" :model="{"id":607,"chapter_id":9,"order":3,"featured_image_id":3275,"youtube_video_id":88,"author_id":1,"created_at":"2023-06-02T06:17:44.000000Z","updated_at":"2023-12-29T17:24:10.000000Z","slug":"what-is-staking-crypto","title":"An Advanced Look into What is Staking Crypto","content":"In this section, we’re going to talk about what is staking crypto, how does one participate in it, and is staking crypto safe and worth it<\/strong>, to begin with.<\/p>\nThe connection between crypto and staking is like the connection between kickflips and skating. They just go together, and, if you really want to understand DeFi, you can’t avoid tackling this concept, as well. Since you’re reading this section, you’re on the right path!<\/p>\nCrypto staking is a source of much confusion. Questions like “is staking crypto worth it?<\/em>”, or “is staking crypto safe?<\/em>” are all over online crypto forums. It’s a puzzling mechanism, and it’s a good sign that people are willing to learn and understand it better. And so, today, this confusion ends, because I’m here to explain things!<\/strong><\/p>\nIn this section, we’re going to answer the questions of what is staking crypto, is it safe, what’s the main risk of staking crypto, and many other staking-related questions in more depth<\/strong> (though, you can find a more basic approach <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-staking-in-crypto/">here). By the end of your reading, you’ll have all of the knowledge to form an opinion of your own, whether staking is an attractive concept to you or not!!<\/p>\nLet’s do this!<\/em><\/p>\n<h2>What is Staking Crypto?<\/h2>\nWhen explaining what is staking crypto, many articles, videos, and tutorials tend to compare it to depositing money in interest-accumulating accounts in traditional banks. Even though there are some similarities between these two practices, it would be a mistake to think that crypto staking is a DeFi equivalent of depositing money in a regular bank savings account<\/strong>. You’ll soon see why.<\/p>\nLet’s begin by defining what is staking crypto.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: How does it work?\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-01.jpg/" alt=\"What is staking crypto: How does it work?\" width=\"1000\" height=\"579\" \/><\/p>\nStaking in crypto refers to the process of either holding or locking up a certain amount of crypto assets in a specially-designated <a href=https://www.bitdegree.org/"//crypto//best-cryptocurrency-wallet/">crypto wallet<\/a><\/strong>. It’s done in order to support the operations of a blockchain network, to make it run smoothly and securely.<\/p>\nIn many cases, those who choose to stake their assets are known as validators<\/strong>. By staking, they get assigned a responsibility, and, if they carry it out correctly, they get rewarded by receiving transaction fees. So, what is this responsibility?<\/em><\/p>\nValidators, well… Validate the authenticity and accuracy of the transaction records<\/strong>, making sure only the correct data is being encrypted into the blockchain. Thus, as validators validate transactions, they are responsible for the creation of new <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-block/">blocks, as well. So, overall, validators are busy with maintaining the network's integrity, security and functionality.<\/p>\nHere’s a down-to-earth example<\/em>. Imagine you’re a second-hand bookshop owner. Your job consists of finding pre-read books, and reselling them. So, whenever a new package of books arrives, you add them to your lists, and then sort in bookshelves. <\/p>\nYou can see these books as transactions, and the owner as the validator, who not only logs in and validates them in a ledger, but also arranges them in an order, thus continuously forming the blockchain.<\/p>\nBut, the whole process does not simply rely on the good faith of the validators. Any attempt at behaving maliciously<\/strong>, for example, trying to validate wrong transaction data, or tampering with the existing blockchain transaction history, could result in validators losing their staked assets<\/strong>.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: Good and bad validators.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-02.jpg/" alt=\"What is staking crypto: Good and bad validators.\" width=\"1000\" height=\"629\" \/><\/p>\nYet, if they do their job the right way, they get paid. The amount of profit that validators receive from staking differs, as it depends on such factors as the staked amount, duration of staking, and the network's inflation rate. And it varies from blockchain to blockchain, too!<\/p>\nBut, essentially, staking entails a responsibility that’s vital to the existence of many blockchains, such as the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-ethereum/">Ethereum network<\/strong><\/a>. To them, it serves as an alternative to mining processes that ensure the safety and functionality of other blockchain networks, such as the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin network<\/strong><\/a>.<\/p>\nAs you see, staking isn’t simply locking your funds away, in order to receive interest rates later on, as it would be with traditional banking and savings accounts. Staking is the backbone of many important blockchains<\/strong>!<\/p>\nBut, in order to get a grasp of crypto staking, we have to look at the bigger picture. And it’s all about understanding what is “Proof-of-Stake<\/strong>,” a consensus mechanism that creates the need for staking. <\/p>\n<h2>Proof-of-Stake<\/h2>\nBlockchains that run on Proof-of-Stake are directly dependent on staking<\/strong>. But let’s take a deeper look at these overly-technical terms.<\/p>\nA consensus mechanism is like a set of rules that lay out how a blockchain operates<\/strong>. Consensus mechanisms vary from blockchain to blockchain, yet they all have the same purpose - to ensure that all network participants reach an agreement on how the blockchain is supposed to be running without relying on a central authority.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: Proof-of-Stake.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-03.jpg/" alt=\"What is staking crypto: Proof-of-Stake.\" width=\"1000\" height=\"586\" \/><\/p>\nLet’s consider checkers. It’s a classical game with its own rules. Those who want to play checkers, they will follow the rules. An agreement to follow these rules is a consensus reached by the players.<\/p>\nSo, in order to actively interact with a blockchain network, participants make a choice whether their idea of how a blockchain should work aligns with the principles of the consensus mechanism. If they agree, they accept the rules. In other words, they reach a consensus.<\/p>\nSo, you can view consensus mechanisms as an agreement on how a blockchain should operate<\/strong>. Among the most prominent consensus mechanisms are <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-proof-of-work-pow/">Proof-of-Work and, the already mentioned, Proof-of-Stake, or simply, PoS.<\/p>\nAs I've said before, staking is an inseparable part of blockchains that run on Proof-of-Stake. So, what makes it so different?<\/em><\/p>\nAt its core, Proof-of-Stake is a consensus process that enables a network of validators to stake native tokens<\/strong> of a certain blockchain so they could become able to validate and create new blocks<\/strong>. Validators get block rewards for their work.<\/p>\nIn Proof-of-Work, for example, the right to validate and create new blocks is reserved to crypto miners<\/strong>. They invest in their <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-mining-rig/">crypto mining rigs<\/strong><\/a> to max out the output of computational power that they can create. By doing so, they increase their chances of winning the “race<\/em>” of getting the right to validate blockchain data. You could say that the main principle of PoW is competition.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: Proof-of-Work.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-04.jpg/" alt=\"What is staking crypto: Proof-of-Work.\" width=\"1000\" height=\"607\" \/><\/p>\nBy the way, if you want to learn more about crypto mining, be sure to check out this section. Understanding mining will make it easier to understand the role of staking! <\/p>\nIn PoS, on the contrary, people, who choose to stake their assets, become eligible to get randomly assigned the right to validate and create blocks<\/strong>. Of course, the higher the stake, the higher the chances of being selected to validate new transactions, and thus, receive rewards. Therefore, one could say that in PoS, the main principle is not competition, but a lottery<\/strong>.<\/p>\nIt’s important to note that PoS is generally viewed as substantially more energy-efficient<\/strong> than PoW, since it doesn’t require all of the network’s validators to compete, and thus, use colossal amounts of electricity.<\/p>\nBy the way, when it comes to PoS, there’s also something known as DPoS, or Delegated-Proof-of-Stake<\/strong>. It’s a popular modification of the standard PoS consensus mechanism. In DPoS, you can delegate your coins to other validators<\/strong> who manage high-performance computers, which are known as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-node/">nodes, and ensure they run smoothly. This means you don't need to set up your own node to participate in staking.<\/p>\n<h2>Ways of Staking Crypto<\/h2>\nHaving explained all that, it’s safe to say that staking plays a major role in the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-defi/">DeFi world<\/strong><\/a>.<\/p>\nPoS blockchains simply need stakers, not only to survive, but to run properly. So, it’s only natural that staking comes in many shapes and sizes, among which the most important are traditional staking <\/strong>(by setting up a node<\/em>), and a more beginner-friendly way of doing it, <a href=https://www.bitdegree.org/"//crypto//best-cryptocurrency-exchange/">centralized exchange<\/a>-based staking<\/strong>.<\/p>\nUp to this point, I’ve described the function of staking, and that it takes to lock away one’s asset in order to become a validator. But, sometimes, it can get tricky.<\/p>\nFor example, in order to become an independent validator on the Ethereum network, a network participant has to lock away 32 <a href=https://www.bitdegree.org/"//crypto//buy-ethereum-eth/">ETH. And that’s not some pocket money. Not everyone has that much!<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: Ethereum.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-05.jpg/" alt=\"What is staking crypto: Ethereum.\" width=\"1000\" height=\"529\" \/><\/p>\nTherefore, such concepts as “collective nodes<\/em>” have been developed. It is just what it sounds like. A node, run by a collective of people, who share the rewards amongst themselves. The main principles here are similar to the ones of collective mining<\/strong>. Be sure to check out <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-mining-pool/">this section<\/strong><\/a> to learn more!<\/p>\nStaking is accessible to both industry pros, and rookies. Because you can participate in staking by going the full way - setting up a node and becoming a full validator<\/strong>, or, going the easier way, by simply opting in for staking services provided by wallets, exchanges<\/strong>, and so on.<\/p>\nBy the way, what, actually, is a “node<\/em>”?<\/p>\nA node is a computer set up for the purpose of supporting the blockchain<\/strong>. Now, having a node all set up, network participants can choose to stake their crypto assets. After having staked the required amount, they become full, independent validators.<\/p>\nBut setting up your own node is a lot of work, and certainly not everyone possesses the necessary knowledge to set up a node on their own. Therefore easier, more user-friendly ways of staking have been introduced.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: CEX-based staking.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-06.jpg/" alt=\"What is staking crypto: CEX-based staking.\" width=\"1000\" height=\"534\" \/><\/p>\nCentralized crypto exchanges realized that simple access to staking would be a sought-after service. So, they created something that’s now known as “CEX-based staking<\/em>.” It involves staking cryptocurrency on a centralized exchange platform<\/strong>.<\/p>\nThese CEXs act as intermediaries between the PoS blockchains and less tech-savvy network participants. This service facilitates the process of becoming a staker, allowing those who are interested in earning rewards by staking their cryptocurrencies directly on a platform provided by the CEX.<\/p>\n<h2>Risks of Staking Crypto<\/h2>\nAs you can see, staking does play a major role in crypto. Yet, as always, there are two sides to a coin, and there’s a reason why questions like “is staking crypto safe<\/em>?” are being asked. But the risk of staking crypto comes in more subtle ways.<\/p>\nThe most important risk comes from crypto being volatile<\/strong>. To stake crypto means to lock it away. Taking into consideration how quickly the value of certain cryptos changes, there’s no guarantee that once you take back your staked assets, they’re gonna be as valuable as they were the day you chose to stake them.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: Crypto market.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-07.jpg/" alt=\"What is staking crypto: Crypto market.\" width=\"1000\" height=\"613\" \/><\/p>\nOne more risk of staking crypto is seen from the<\/strong> security angle<\/strong>. In some cases, staking your coins means locking them on an external platform. In case of a security breach, your staked coins could be exposed to malicious actors. Therefore it’s important to choose a trustworthy platform before staking your coins, or, simply, go for staking options which would not require you to stake the assets on an external platform.<\/p>\nOne more risk comes from the relationship between the crypto industry and regulatory affairs<\/strong>. As already mentioned, staking takes time, since it involves locking away one’s crypto. During that period of time, unexpected changes in laws and regulations may be passed, which could be detrimental to certain tokens, blockchains, or staking, as such.<\/p>\nSo, no matter how good of a crypto staking calculator<\/strong> you’d use before making a decision, the question of “is staking crypto worth it?<\/em>” cannot be answered in a few words. The rewards are real, and there’s a reason why staking is so popular. Yet, the risks are also always there. <\/p>\n<h2>Wrapping Up<\/h2>\nBy now, I’ve explained what is staking crypto, what is PoS, addressed the question “is staking crypto safe”, as well as the risks that are associated with it. Thus, this brings us to the end of this section. I hope that you found value in it, and that crypto staking will no longer cause confusion to you. To learn more about the DeFi world as a whole, check out other sections in this Crypto 101 Handbook<\/strong>.<\/p>","definition":"Did you know that staking is an integral part of many renowned blockchains?","status":"published","meta_title":"What is Staking Crypto About and How Does It Work?","meta_description":"Want to understand what is staking crypto about, is staking crypto safe, and what are the risks of staking crypto? You'll find it all here!","meta_keywords":"what is staking crypto, is staking crypto worth it, is staking crypto safe, risk of staking crypto, crypto staking calculator","modified_content":"In this section, we’re going to talk about what is staking crypto, how does one participate in it, and is staking crypto safe and worth it<\/strong>, to begin with.<\/p>\nThe connection between crypto and staking is like the connection between kickflips and skating. They just go together, and, if you really want to understand DeFi, you can’t avoid tackling this concept, as well. Since you’re reading this section, you’re on the right path!<\/p>\nCrypto staking is a source of much confusion. Questions like “is staking crypto worth it?<\/em>”, or “is staking crypto safe?<\/em>” are all over online crypto forums. It’s a puzzling mechanism, and it’s a good sign that people are willing to learn and understand it better. And so, today, this confusion ends, because I’m here to explain things!<\/strong><\/p>\nIn this section, we’re going to answer the questions of what is staking crypto, is it safe, what’s the main risk of staking crypto, and many other staking-related questions in more depth<\/strong> (though, you can find a more basic approach <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-staking-in-crypto/">here). By the end of your reading, you’ll have all of the knowledge to form an opinion of your own, whether staking is an attractive concept to you or not!!<\/p>\nLet’s do this!<\/em><\/p>\n<div class=\"container\">\n <div class=\"row justify-content-center\">\n <div class=\"col-md-10 suggested-comparisons pb-3 mb-4\">\n <div class=\"d-flex flex-row\">\n <div class=\"text-center\">\n <div class=\"img-block-yt\">\n <img src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//images//compare-crypto-exchanges.gif/"/n alt=\"What is Staking Crypto? (Rewards & Risks Explained SIMPLY)\"\n title=\"What is Staking Crypto? (Rewards & Risks Explained SIMPLY)\" class=\"border-0\">\n Video Explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"col-xs-10 col-sm-10 col-md-10 text-left py-3 yt-info\">\n <h4 class=\"mb-1\">Video Explainer: An Advanced Look into What is Staking Crypto<\/h4>\n Reading is not your thing? Watch the \"An Advanced Look into What is Staking Crypto\" video explainer<\/p>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div class=\"col-12 col-md-11 px-3\">\n <div class=\"wrapper mb-0\">\n <div class=\"position-relative youtube mb-4 bg-transparent p-0 video-modal-popup\" data-toggle=\"modal\"\n data-target=\"#video-modal\" data-id=\"2c0I_7a9Za0\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"><\/div>\n What is Staking Crypto? (Rewards & Risks Explained SIMPLY)<\/p>\n <img data-srcset=\"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-staking-crypto-rewards-risks-explained-simply.jpg?tr=w-420 500w,\n https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-staking-crypto-rewards-risks-explained-simply.jpg?tr=w-760 1000w\"\n alt=\"What is Staking Crypto? (Rewards & Risks Explained SIMPLY)\"\n title=\"What is Staking Crypto? (Rewards & Risks Explained SIMPLY)\"\n class=\"p-0 lazyload\">\n <img class=\"play-button lazyload\" data-target=\"#video-modal\"\n data-src=\"https:\/\/assets.bitdegree.org\/crypto\/assets\/video-button.png?tr=w-85\"\n alt=\"What is Staking Crypto? (Rewards & Risks Explained SIMPLY)\">\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <div class=\"row justify-content-center text-center\">\n <div>\n <a href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n class=\"btn yt-promo mb-2\" target=\"_blank\" rel=\"nofollow noopener noindex\">\n <div class=\"row justify-content-center align-items-center mx-0 text-center\">\n <div class=\"col-4 col-md-4\">\n <\/i>\n <\/div>\n <div class=\"col-8 col-md-8 text-center yt-promo-text\">\n <h4 class=\"m-0 text-white\">SUBSCRIBE<\/h4>\n ON YOUTUBE<\/span>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n<div class=\"modal fade\" id=\"video-modal\" tabindex=\"-1\" role=\"dialog\">\n <div class=\"modal-dialog modal-dialog-centered modal-lg\" role=\"document\">\n <div class=\"modal-content\">\n <div class=\"modal-body p-0\">\n <button type=\"button\" class=\"video-modal-close close\" data-dismiss=\"modal\" aria-label=\"Close\">\n <\/i>\n <\/button>\n <div id=\"iframe\"><\/div>\n <\/div>\n <a class=\"text-decoration-none\"\n href=https://www.bitdegree.org/"https:////www.youtube.com//c//CryptoFinallyExplained?sub_confirmation=1\%22\n rel=\"nofollow noopener noindex\" target=\"_blank\">\n <div class=\"modal-footer p-0 d-block bg-white\">\n <div class=\"row justify-content-center m-0\">\n <div class=\"col-3 col-md-4 col-lg-2 p-0\">\n <img class=\"w-100 h-100\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//assets//crypto-subscribe.jpg/" alt=\"Subscribe\">\n <\/div>\n <div class=\"col-9 col-md-8 col-lg-2 px-0 d-flex\">\n <div class=\"modal-subscribe w-100\">\n SUBSCRIBE \n ON YOUTUBE<\/span>\n <\/p>\n <\/div>\n <\/div>\n <div class=\"col-12 col-md-12 col-lg-8 p-0 text-center d-flex justify-content-center align-items-center\">\n <div class=\"modal-subscribe-text\">\n <h4 class=\"m-0\">Understand crypto with ease<\/h4>\n New explainer videos every week!<\/span>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n <\/div>\n<\/div>\n<h2>What is Staking Crypto?<\/h2>\nWhen explaining what is staking crypto, many articles, videos, and tutorials tend to compare it to depositing money in interest-accumulating accounts in traditional banks. Even though there are some similarities between these two practices, it would be a mistake to think that crypto staking is a DeFi equivalent of depositing money in a regular bank savings account<\/strong>. You’ll soon see why.<\/p>\nLet’s begin by defining what is staking crypto.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: How does it work?\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-01.jpg/" alt=\"What is staking crypto: How does it work?\" width=\"1000\" height=\"579\" \/><\/p>\nStaking in crypto refers to the process of either holding or locking up a certain amount of crypto assets in a specially-designated <a href=https://www.bitdegree.org/"//crypto//best-cryptocurrency-wallet/">crypto wallet<\/a><\/strong>. It’s done in order to support the operations of a blockchain network, to make it run smoothly and securely.<\/p>\nIn many cases, those who choose to stake their assets are known as validators<\/strong>. By staking, they get assigned a responsibility, and, if they carry it out correctly, they get rewarded by receiving transaction fees. So, what is this responsibility?<\/em><\/p>\nValidators, well… Validate the authenticity and accuracy of the transaction records<\/strong>, making sure only the correct data is being encrypted into the blockchain. Thus, as validators validate transactions, they are responsible for the creation of new <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-block/">blocks, as well. So, overall, validators are busy with maintaining the network's integrity, security and functionality.<\/p>\nHere’s a down-to-earth example<\/em>. Imagine you’re a second-hand bookshop owner. Your job consists of finding pre-read books, and reselling them. So, whenever a new package of books arrives, you add them to your lists, and then sort in bookshelves. <\/p>\nYou can see these books as transactions, and the owner as the validator, who not only logs in and validates them in a ledger, but also arranges them in an order, thus continuously forming the blockchain.<\/p>\nBut, the whole process does not simply rely on the good faith of the validators. Any attempt at behaving maliciously<\/strong>, for example, trying to validate wrong transaction data, or tampering with the existing blockchain transaction history, could result in validators losing their staked assets<\/strong>.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: Good and bad validators.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-02.jpg/" alt=\"What is staking crypto: Good and bad validators.\" width=\"1000\" height=\"629\" \/><\/p>\nYet, if they do their job the right way, they get paid. The amount of profit that validators receive from staking differs, as it depends on such factors as the staked amount, duration of staking, and the network's inflation rate. And it varies from blockchain to blockchain, too!<\/p>\nBut, essentially, staking entails a responsibility that’s vital to the existence of many blockchains, such as the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-ethereum/">Ethereum network<\/strong><\/a>. To them, it serves as an alternative to mining processes that ensure the safety and functionality of other blockchain networks, such as the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-bitcoin/">Bitcoin network<\/strong><\/a>.<\/p>\nAs you see, staking isn’t simply locking your funds away, in order to receive interest rates later on, as it would be with traditional banking and savings accounts. Staking is the backbone of many important blockchains<\/strong>!<\/p>\nBut, in order to get a grasp of crypto staking, we have to look at the bigger picture. And it’s all about understanding what is “Proof-of-Stake<\/strong>,” a consensus mechanism that creates the need for staking. <\/p>\n<h2>Proof-of-Stake<\/h2>\nBlockchains that run on Proof-of-Stake are directly dependent on staking<\/strong>. But let’s take a deeper look at these overly-technical terms.<\/p>\nA consensus mechanism is like a set of rules that lay out how a blockchain operates<\/strong>. Consensus mechanisms vary from blockchain to blockchain, yet they all have the same purpose - to ensure that all network participants reach an agreement on how the blockchain is supposed to be running without relying on a central authority.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: Proof-of-Stake.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-03.jpg/" alt=\"What is staking crypto: Proof-of-Stake.\" width=\"1000\" height=\"586\" \/><\/p>\nLet’s consider checkers. It’s a classical game with its own rules. Those who want to play checkers, they will follow the rules. An agreement to follow these rules is a consensus reached by the players.<\/p>\nSo, in order to actively interact with a blockchain network, participants make a choice whether their idea of how a blockchain should work aligns with the principles of the consensus mechanism. If they agree, they accept the rules. In other words, they reach a consensus.<\/p>\nSo, you can view consensus mechanisms as an agreement on how a blockchain should operate<\/strong>. Among the most prominent consensus mechanisms are <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-proof-of-work-pow/">Proof-of-Work and, the already mentioned, Proof-of-Stake, or simply, PoS.<\/p>\nAs I've said before, staking is an inseparable part of blockchains that run on Proof-of-Stake. So, what makes it so different?<\/em><\/p>\nAt its core, Proof-of-Stake is a consensus process that enables a network of validators to stake native tokens<\/strong> of a certain blockchain so they could become able to validate and create new blocks<\/strong>. Validators get block rewards for their work.<\/p>\nIn Proof-of-Work, for example, the right to validate and create new blocks is reserved to crypto miners<\/strong>. They invest in their <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-mining-rig/">crypto mining rigs<\/strong><\/a> to max out the output of computational power that they can create. By doing so, they increase their chances of winning the “race<\/em>” of getting the right to validate blockchain data. You could say that the main principle of PoW is competition.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: Proof-of-Work.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-04.jpg/" alt=\"What is staking crypto: Proof-of-Work.\" width=\"1000\" height=\"607\" \/><\/p>\nBy the way, if you want to learn more about crypto mining, be sure to check out this section. Understanding mining will make it easier to understand the role of staking! <\/p>\nIn PoS, on the contrary, people, who choose to stake their assets, become eligible to get randomly assigned the right to validate and create blocks<\/strong>. Of course, the higher the stake, the higher the chances of being selected to validate new transactions, and thus, receive rewards. Therefore, one could say that in PoS, the main principle is not competition, but a lottery<\/strong>.<\/p>\nIt’s important to note that PoS is generally viewed as substantially more energy-efficient<\/strong> than PoW, since it doesn’t require all of the network’s validators to compete, and thus, use colossal amounts of electricity.<\/p>\nBy the way, when it comes to PoS, there’s also something known as DPoS, or Delegated-Proof-of-Stake<\/strong>. It’s a popular modification of the standard PoS consensus mechanism. In DPoS, you can delegate your coins to other validators<\/strong> who manage high-performance computers, which are known as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//crypto-terms//what-is-node/">nodes, and ensure they run smoothly. This means you don't need to set up your own node to participate in staking.<\/p>\n<h2>Ways of Staking Crypto<\/h2>\nHaving explained all that, it’s safe to say that staking plays a major role in the <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-defi/">DeFi world<\/strong><\/a>.<\/p>\nPoS blockchains simply need stakers, not only to survive, but to run properly. So, it’s only natural that staking comes in many shapes and sizes, among which the most important are traditional staking <\/strong>(by setting up a node<\/em>), and a more beginner-friendly way of doing it, <a href=https://www.bitdegree.org/"//crypto//best-cryptocurrency-exchange/">centralized exchange<\/a>-based staking<\/strong>.<\/p>\nUp to this point, I’ve described the function of staking, and that it takes to lock away one’s asset in order to become a validator. But, sometimes, it can get tricky.<\/p>\nFor example, in order to become an independent validator on the Ethereum network, a network participant has to lock away 32 <a href=https://www.bitdegree.org/"//crypto//buy-ethereum-eth/">ETH. And that’s not some pocket money. Not everyone has that much!<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: Ethereum.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-05.jpg/" alt=\"What is staking crypto: Ethereum.\" width=\"1000\" height=\"529\" \/><\/p>\nTherefore, such concepts as “collective nodes<\/em>” have been developed. It is just what it sounds like. A node, run by a collective of people, who share the rewards amongst themselves. The main principles here are similar to the ones of collective mining<\/strong>. Be sure to check out <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//learn//what-is-a-mining-pool/">this section<\/strong><\/a> to learn more!<\/p>\nStaking is accessible to both industry pros, and rookies. Because you can participate in staking by going the full way - setting up a node and becoming a full validator<\/strong>, or, going the easier way, by simply opting in for staking services provided by wallets, exchanges<\/strong>, and so on.<\/p>\nBy the way, what, actually, is a “node<\/em>”?<\/p>\nA node is a computer set up for the purpose of supporting the blockchain<\/strong>. Now, having a node all set up, network participants can choose to stake their crypto assets. After having staked the required amount, they become full, independent validators.<\/p>\nBut setting up your own node is a lot of work, and certainly not everyone possesses the necessary knowledge to set up a node on their own. Therefore easier, more user-friendly ways of staking have been introduced.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: CEX-based staking.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-06.jpg/" alt=\"What is staking crypto: CEX-based staking.\" width=\"1000\" height=\"534\" \/><\/p>\nCentralized crypto exchanges realized that simple access to staking would be a sought-after service. So, they created something that’s now known as “CEX-based staking<\/em>.” It involves staking cryptocurrency on a centralized exchange platform<\/strong>.<\/p>\nThese CEXs act as intermediaries between the PoS blockchains and less tech-savvy network participants. This service facilitates the process of becoming a staker, allowing those who are interested in earning rewards by staking their cryptocurrencies directly on a platform provided by the CEX.<\/p>\n<h2>Risks of Staking Crypto<\/h2>\nAs you can see, staking does play a major role in crypto. Yet, as always, there are two sides to a coin, and there’s a reason why questions like “is staking crypto safe<\/em>?” are being asked. But the risk of staking crypto comes in more subtle ways.<\/p>\nThe most important risk comes from crypto being volatile<\/strong>. To stake crypto means to lock it away. Taking into consideration how quickly the value of certain cryptos changes, there’s no guarantee that once you take back your staked assets, they’re gonna be as valuable as they were the day you chose to stake them.<\/p>\n<img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"What is staking crypto: Crypto market.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//optimized//what-is-staking-crypto-07.jpg/" alt=\"What is staking crypto: Crypto market.\" width=\"1000\" height=\"613\" \/><\/p>\nOne more risk of staking crypto is seen from the<\/strong> security angle<\/strong>. In some cases, staking your coins means locking them on an external platform. In case of a security breach, your staked coins could be exposed to malicious actors. Therefore it’s important to choose a trustworthy platform before staking your coins, or, simply, go for staking options which would not require you to stake the assets on an external platform.<\/p>\nOne more risk comes from the relationship between the crypto industry and regulatory affairs<\/strong>. As already mentioned, staking takes time, since it involves locking away one’s crypto. During that period of time, unexpected changes in laws and regulations may be passed, which could be detrimental to certain tokens, blockchains, or staking, as such.<\/p>\nSo, no matter how good of a crypto staking calculator<\/strong> you’d use before making a decision, the question of “is staking crypto worth it?<\/em>” cannot be answered in a few words. The rewards are real, and there’s a reason why staking is so popular. Yet, the risks are also always there. <\/p>\n<h2>Wrapping Up<\/h2>\nBy now, I’ve explained what is staking crypto, what is PoS, addressed the question “is staking crypto safe”, as well as the risks that are associated with it. Thus, this brings us to the end of this section. I hope that you found value in it, and that crypto staking will no longer cause confusion to you. To learn more about the DeFi world as a whole, check out other sections in this Crypto 101 Handbook<\/strong>.<\/p>","youtube_video":{"id":88,"channel_id":1,"sort":24,"video_title":"What is Staking Crypto? (Rewards & Risks Explained SIMPLY)","description":"What is staking crypto? Is staking crypto worth it? Is it safe? \n\nCrypto staking is an inseparable part of DeFi. For newcomers, it may look confusing, but choosing to skip learning about crypto staking would be a mistake. \n\nIn this video, I\u2019ll talk about what is staking crypto, what\u2019s the risk of staking crypto, and what are the different types and ways of participating in this process. In addition to crypto staking, I\u2019ll explain what is \u201cProof-of-Stake,\u201d and how it is different from \u201cProof-of-Work.\u201d \n\nHave you ever considered staking your assets? Would you like to? Would you like to become a validator on a blockchain? If yes, then on which blockchain? Be sure to let us know in the comment section below!\n\nVideo Time Table:\n\n0:00 Introduction to What is Staking Crypto\n1:04 What Does Staking Crypto Mean?\n3:33 What is Proof-of-Stake?\n6:08 Ways of Staking Crypto\n8:09 Risks of Staking Crypto\n9:31 Wrap-up: What is Staking Crypto?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps:\/\/twitter.com\/crypto_xplained \n\n#StakingCrypto #CryptoStaking #StakingRewards","video_id":"2c0I_7a9Za0","duration":601,"view_count":372,"thumbnail_url":"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-staking-crypto-rewards-risks-explained-simply.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2023-06-28T14:50:14.000000Z","created_at":"2023-06-28T23:00:09.000000Z","updated_at":"2024-01-09T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}},"featured_image":{"id":3275,"uuid":"3eb6132d-e922-4c3c-983b-5bf602d03bb2","name":"what-is-staking-crypto-featured-image.jpg","url":"https:\/\/assets.bitdegree.org\/images\/what-is-staking-crypto-featured-image.jpg","path":"images\/what-is-staking-crypto-featured-image.jpg","mime_type":"image\/jpeg","disk":"digitalOceanSpaces","size":104668,"width":1024,"height":576,"custom_properties":null,"created_at":"2023-06-29T07:01:40.000000Z","updated_at":"2023-06-29T07:01:40.000000Z"}}" :chapter-list="[{"id":1,"title":"Blockchain","slug":"blockchain","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-blockchain.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/blockchain-101.jpg","rating":100,"sections":[{"chapter_id":1,"order":1,"slug":"what-is-blockchain","title":"What is the Blockchain?","status":"published","modified_content":null},{"chapter_id":1,"order":2,"slug":"decentralized-blockchain","title":"Anonymous & Decentralized Blockchains: The Cornerstone of Crypto","status":"published","modified_content":null},{"chapter_id":1,"order":3,"slug":"blockchain-transaction","title":"What is a Blockchain Transaction in Crypto?","status":"published","modified_content":null},{"chapter_id":1,"order":4,"slug":"crypto-fees","title":"The Different Types of Crypto Fees Explained","status":"published","modified_content":null},{"chapter_id":1,"order":5,"slug":"what-is-bridging-in-crypto","title":"The Key Notion Behind the Concept of Bridging in Crypto","status":"published","modified_content":null},{"chapter_id":1,"order":6,"slug":"types-of-blockchains","title":"Different Types of Blockchains: What to Look Out For?","status":"published","modified_content":null}]},{"id":2,"title":"Cryptocurrencies","slug":"cryptocurrencies","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-cryptocurrencies.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/cryptocurrencies-101.jpg","rating":100,"sections":[{"chapter_id":2,"order":1,"slug":"what-is-a-cryptocurrency","title":"What is a Cryptocurrency?","status":"published","modified_content":null},{"chapter_id":2,"order":2,"slug":"how-does-cryptocurrency-work","title":"How Does Cryptocurrency Work?","status":"published","modified_content":null},{"chapter_id":2,"order":3,"slug":"is-cryptocurrency-a-good-investment","title":"Is Cryptocurrency a Good Investment? The Pros & Cons","status":"published","modified_content":null},{"chapter_id":2,"order":4,"slug":"coin-vs-token","title":"Coin VS Token: How Do They Differ?","status":"published","modified_content":null},{"chapter_id":2,"order":5,"slug":"what-are-stablecoins","title":"What are Stablecoins, Altcoins & Wrapped Coins?","status":"published","modified_content":null},{"chapter_id":2,"order":6,"slug":"what-is-a-bitcoin","title":"Bitcoin: the Pioneer of the Crypto World","status":"published","modified_content":null},{"chapter_id":2,"order":7,"slug":"what-is-ethereum","title":"The Ultimate Blockchain for dApp Creation: Ethereum","status":"published","modified_content":null},{"chapter_id":2,"order":8,"slug":"what-is-cardano-in-crypto","title":"What is Cardano and What is It Used For?","status":"published","modified_content":null},{"chapter_id":2,"order":9,"slug":"what-is-shiba-inu-coin","title":"Shiba Inu: the Dogecoin Killer","status":"published","modified_content":null},{"chapter_id":2,"order":10,"slug":"what-is-solana-in-crypto","title":"Is Solana an Improved Version of Ethereum?","status":"published","modified_content":null},{"chapter_id":2,"order":11,"slug":"what-is-polkadot-in-crypto","title":"The Bridge Between Blockchains: Polkadot","status":"published","modified_content":null},{"chapter_id":2,"order":12,"slug":"what-is-polygon-in-crypto","title":"Polygon: the Essential Scaling Solution for Ethereum","status":"published","modified_content":null},{"chapter_id":2,"order":13,"slug":"what-is-luna-crypto","title":"The Bumpy Road of Terra (LUNA)","status":"published","modified_content":null},{"chapter_id":2,"order":14,"slug":"what-is-fantom-crypto","title":"Is Fantom (FTM) Yet Another Ethereum Killer?","status":"published","modified_content":null},{"chapter_id":2,"order":15,"slug":"what-is-aave-crypto","title":"Aave: Crypto Lending Trailblazer","status":"published","modified_content":null},{"chapter_id":2,"order":16,"slug":"what-is-algorand-crypto","title":"Did Algorand Truly Solve the Blockchain Trilemma?","status":"published","modified_content":null},{"chapter_id":2,"order":17,"slug":"what-is-olympus-dao","title":"Does Olympus DAO Have Anything to Do With Mythology?","status":"published","modified_content":null},{"chapter_id":2,"order":18,"slug":"what-is-avax","title":"Is Avalanche Network (AVAX) Rightfully Called the Future of DeFi?","status":"published","modified_content":null},{"chapter_id":2,"order":19,"slug":"what-is-monero-coin","title":"Monero: Where Cryptocurrency Meets Cryptography","status":"published","modified_content":null},{"chapter_id":2,"order":20,"slug":"what-is-ripple-xrp","title":"Is Ripple \"it\" When it Comes to Cross-Border Transactions?","status":"published","modified_content":null},{"chapter_id":2,"order":21,"slug":"practical-use-of-cryptocurrencies","title":"The Practical Use of Crypto","status":"published","modified_content":null}]},{"id":3,"title":"Crypto Exchanges","slug":"crypto-exchanges","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-crypto-exchanges.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-exchanges-101.jpg","rating":80,"sections":[{"chapter_id":3,"order":1,"slug":"how-do-cryptocurrency-exchanges-work","title":"How do Cryptocurrency Exchanges Work?","status":"published","modified_content":null},{"chapter_id":3,"order":2,"slug":"dex-vs-cex","title":"DEX VS CEX: Two Sides of the Crypto Exchange Industry","status":"published","modified_content":null},{"chapter_id":3,"order":3,"slug":"crypto-day-trading","title":"Crypto Day Trading: The Difference Between Buying, Trading, and Swapping","status":"published","modified_content":null},{"chapter_id":3,"order":4,"slug":"kyc-crypto","title":"KYC & AML: The Key to Complying With Legal Industry Standards","status":"published","modified_content":null},{"chapter_id":3,"order":5,"slug":"how-to-buy-crypto","title":"From Fiat to Crypto: How to Buy Crypto for the First Time","status":"published","modified_content":null},{"chapter_id":3,"order":6,"slug":"fiat-to-crypto","title":"Taking Profits: Turning Crypto Into Fiat","status":"published","modified_content":null},{"chapter_id":3,"order":7,"slug":"how-to-use-crypto","title":"You\u2019ve Got Crypto: What Can You Do With It?","status":"published","modified_content":null}]},{"id":4,"title":"Crypto Wallets","slug":"crypto-wallets","updated":false,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-crypto-wallets.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-wallets-101.jpg","rating":80,"sections":[{"chapter_id":4,"order":1,"slug":"what-is-a-crypto-wallet","title":"What is a Crypto Wallet?","status":"published","modified_content":null},{"chapter_id":4,"order":2,"slug":"hot-wallet-vs-cold-wallet","title":"Hot Wallet VS Cold Wallet: Which One to Pick?","status":"published","modified_content":null},{"chapter_id":4,"order":3,"slug":"non-custodial-wallet","title":"What are Non-Custodial Crypto Wallets?","status":"published","modified_content":null},{"chapter_id":4,"order":4,"slug":"what-is-metamask","title":"Metamask: The Leading Non-Custodial Wallet","status":"published","modified_content":null},{"chapter_id":4,"order":37,"slug":"how-safe-is-cryptocurrency","title":"The Key Crypto Wallet Safety Practices: How Safe Can Crypto Be?","status":"published","modified_content":null}]},{"id":5,"title":"NFTs","slug":"nfts","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-nfts.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/nfts-101.jpg","rating":100,"sections":[{"chapter_id":5,"order":2,"slug":"how-to-trade-nfts","title":"NFT Trading: The Ins and Outs","status":"published","modified_content":null},{"chapter_id":5,"order":3,"slug":"buying-nft","title":"Tips and Tricks of Choosing the Right NFTs","status":"published","modified_content":null},{"chapter_id":5,"order":4,"slug":"how-to-store-nft","title":"How to Store NFTs: Best Practices","status":"published","modified_content":null},{"chapter_id":5,"order":5,"slug":"how-to-create-an-nft","title":"How to Create Your Own NFTs?","status":"published","modified_content":null},{"chapter_id":5,"order":6,"slug":"how-to-make-passive-money-with-nft","title":"Making Passive Money with NFTs","status":"published","modified_content":null}]},{"id":6,"title":"dApps & Defi","slug":"dapps-and-defi","updated":true,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-dapps.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/dapps-defi-101.jpg","rating":80,"sections":[{"chapter_id":6,"order":1,"slug":"what-are-nfts","title":"What are Non-Fungible Tokens (NFTs)?","status":"published","modified_content":null},{"chapter_id":6,"order":1,"slug":"what-is-defi","title":"What is Decentralized Finance (DeFi)?","status":"published","modified_content":null},{"chapter_id":6,"order":2,"slug":"what-is-defi-2-0","title":"DeFi 2.0: The New Version of Decentralized Finance","status":"published","modified_content":null},{"chapter_id":6,"order":3,"slug":"what-are-dapps-in-crypto","title":"What Are dApps and How Do They Work?","status":"published","modified_content":null},{"chapter_id":6,"order":4,"slug":"defi-dapps","title":"Picking the Right dApps: Dos and Don'ts","status":"published","modified_content":null},{"chapter_id":6,"order":5,"slug":"what-is-web-3-0","title":"Web 3.0: The Future of the Internet","status":"published","modified_content":null},{"chapter_id":6,"order":6,"slug":"what-are-smart-contracts","title":"What is the Core Purpose of Smart Contracts?","status":"published","modified_content":null},{"chapter_id":6,"order":7,"slug":"what-is-a-dao-in-crypto","title":"The Notion of a Decentralized Autonomous Ogranization (DAO)","status":"published","modified_content":null},{"chapter_id":6,"order":8,"slug":"what-is-staking-in-crypto","title":"What is the Goal of Staking Crypto Assets?","status":"published","modified_content":null},{"chapter_id":6,"order":9,"slug":"what-is-liquidity-pool-in-crypto","title":"What is a Liquidity Pool and How Does It Work?","status":"published","modified_content":null},{"chapter_id":6,"order":10,"slug":"what-is-automated-market-maker","title":"Automated Market Maker: the Cornerstone of the Decentralized Crypto Exchange Industry","status":"published","modified_content":null},{"chapter_id":6,"order":11,"slug":"what-is-yield-farming-in-crypto","title":"The Main Yield Farming Techniques","status":"published","modified_content":null},{"chapter_id":6,"order":12,"slug":"what-is-an-oracle-in-crypto","title":"Crypto Oracles: The Link Between Blockchain and Outside World Data","status":"published","modified_content":null},{"chapter_id":6,"order":13,"slug":"crypto-gambling","title":"The Peculiarities of Decentralized Crypto Gambling","status":"published","modified_content":null},{"chapter_id":6,"order":14,"slug":"what-is-the-metaverse","title":"Metaverse: A New Perception of Reality","status":"published","modified_content":null}]},{"id":7,"title":"Trading & Investing","slug":"trading-and-investing","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-crypto-trading.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-trading-101.jpg","rating":80,"sections":[{"chapter_id":7,"order":1,"slug":"where-to-trade-crypto","title":"Where Can You Trade Cryptocurrencies?","status":"published","modified_content":null},{"chapter_id":7,"order":2,"slug":"how-to-invest-in-crypto","title":"Investing in Crypto: What Investing Options Do You Have?","status":"published","modified_content":null},{"chapter_id":7,"order":3,"slug":"ico-vs-ido","title":"ICO vs IDO vs IEO: Which One is the One?","status":"published","modified_content":null},{"chapter_id":7,"order":4,"slug":"what-is-an-airdrop","title":"What are Crypto Airdrops and How to Get Them?","status":"published","modified_content":null},{"chapter_id":7,"order":5,"slug":"how-to-get-free-crypto","title":"How to Get Free Crypto Assets?","status":"published","modified_content":null},{"chapter_id":7,"order":6,"slug":"how-to-arbitrage-crypto","title":"What is Crypto Arbitrage: The Main Principles","status":"published","modified_content":null},{"chapter_id":7,"order":7,"slug":"what-is-a-perpetual-contract","title":"Perpetual Contracts: Futures Contracts Without an Expiration Date","status":"published","modified_content":null},{"chapter_id":7,"order":8,"slug":"what-is-fud","title":"What is FUD: How to Use It to Your Advantage While Investing in Crypto?","status":"published","modified_content":null},{"chapter_id":7,"order":9,"slug":"investing-in-cryptocurrency","title":"Investing in Cryptocurrency: How to Manage Your Risks?","status":"published","modified_content":null},{"chapter_id":7,"order":10,"slug":"what-is-a-rug-pull-in-crypto","title":"What is a Rug Pull in Crypto?","status":"published","modified_content":null},{"chapter_id":7,"order":11,"slug":"how-to-avoid-rug-pulls-in-crypto","title":"How to Spot and Avoid Rug Pulls?","status":"published","modified_content":null},{"chapter_id":7,"order":12,"slug":"how-to-avoid-crypto-taxes","title":"The Key Legal Techniques of Avoiding Crypto Taxes","status":"published","modified_content":null}]},{"id":8,"title":"Crypto 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Tokens?","status":"published","modified_content":null},{"chapter_id":8,"order":5,"slug":"how-to-research-crypto","title":"Crypto Research Fundamentals & Social Signals: Your Daily Trading Strategy","status":"published","modified_content":null},{"chapter_id":8,"order":46,"slug":"portfolio-diversification-definition","title":"Portfolio Diversification: The Whats, the Whys, and the Hows","status":"published","modified_content":null}]},{"id":9,"title":"Mining","slug":"mining","updated":false,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-crypto-mining.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-mining-101.jpg","rating":80,"sections":[{"chapter_id":9,"order":1,"slug":"what-is-crypto-mining","title":"Crypto Mining: What It is and How Does It Work?","status":"published","modified_content":null},{"chapter_id":9,"order":2,"slug":"what-is-a-mining-pool","title":"Mining Pools: Is Collective Mining Better Than Solo Mining?","status":"published","modified_content":null},{"chapter_id":9,"order":3,"slug":"what-is-staking-crypto","title":"An Advanced Look into What is Staking Crypto","status":"published","modified_content":null},{"chapter_id":9,"order":4,"slug":"what-is-proof-of-stake-vs-proof-of-work","title":"Proof-of-Work VS Proof-of-Stake: The Differences That Matter","status":"published","modified_content":null},{"chapter_id":9,"order":5,"slug":"what-is-crypto-mining-rig","title":"Crypto Mining Rig: What It is and How to Build One?","status":"published","modified_content":null}]},{"id":10,"title":"Crypto Terms","updated":false,"chapter":"crypto\/assets\/crypto-book\/chapters\/crypto-101-glossary.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-glossary-101.jpg","rating":100,"sections":["A","B","C","D","E","F","G","H","I","J","K","L","M","N","O","P","Q","R","S","T","U","V","W","X","Y","Z"]}]" current-chapter="mining" current-section="what-is-staking-crypto">

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