Chapter 6: dApps & Defi

What is the Goal of Staking Crypto Assets?

Interesting Fact:

Did you know that staking is a means of earning passive income?

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11 minutes

In this section, I will tell you what is staking in crypto!

I bet you’ve heard the term “staking” before, multiple times, even. It’s a word that keeps popping up on various cryptocurrency exchange platforms, wallet interfaces, and so on. Now, have you ever thought - “what in the world does this word mean?!”? Well, that is EXACTLY what I will tell you about, in this section!

In this section, we’re going to answer what is “staking” in crypto. Specifically, we’ll examine what this term ACTUALLY means, talk about the concepts of Proof-of-Work and Proof-of-Stake, and take a look at some of the risks associated with the process, too!

Let’s get to it!

What Does Staking Mean in Crypto? (Easily Explained!)

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Video Explainer: What is the Goal of Staking Crypto Assets?

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What is Staking?

So, then - what in the world is “staking”?

Well, in order to truly understand staking, you will need to be aware of concepts known as “Proof-of-Work” and “Proof-of-Stake”.

I’ve discussed these terms in a section about blockchains. If you’d like to learn more about it, and understand the topic in-depth, I’d highly advise you to go check that section out, and then come back to this one.

With that out of the way, allow me to give you a brief run down.

In the world of crypto, there are two main ways how blockchains function - those ways are called “Proof-of-Work” and “Proof-of-Stake”. Both of these concepts are called “consensus algorithms” - in human-speak, this refers to the methods of how blockchains verify the transactions (or, simply, processes) happening on them in order to save those transactions into the blockchain. So, when you buy or sell cryptocurrency, this is a transaction, and it needs to be checked & confirmed!

What is staking in crypto: what is staking.

Proof-of-Work is the oldest and best-known transaction verification process. It’s used with Bitcoin, Ethereum 1.0, and many other popular cryptocurrencies. With PoW, you have miners - special computers and crypto machines that are plugged into the network, and are constantly competing for their chance to earn cryptocurrency.

Being the oldest form of transaction confirmations, PoW is often seen as the worst option, as well. Even though it’s used by a huge number of cryptocurrencies out there, most new and emerging coins are switching to the second, opposite one - the Proof-of-Stake concept.

What is staking in crypto: Proof-of-work.

The way you can look at both concepts of transaction verification is like this - imagine that there are two car race events happening in your town. In the Proof of Work racing event, all of the cars race to the finish line - however, only one of the cars wins the race! So, all of the other cars basically wasted fuel and energy.

As opposed to that, in the Proof-of-Stake racing event, out of all the cars near the starting line, only one, let's say randomly, is selected to drive in the race. Thus, if there are, say, 100 different cars near the starting line, that’s a huge amount of fuel saved!

With Proof-of-Work, all miners compete to verify transactions happening on the blockchain, but only one, in most cases the biggest and most powerful one, wins and receives a reward. On the flip side, with Proof-of-Stake, only a single miner (well, here, it’s actually called a validator) is chosen, and he needs to verify the transaction. And after that, let’s say, a few extra validators are needed to check his final result. It’s much more energy-efficient!

What is staking in crypto: Proof-of-Work and Proof-of-Stake.

Now, this is where we get into the “staking” part of the section.

As I’ve mentioned earlier, with PoW, transactions are confirmed with miners. These miners are special machines used to mine cryptocurrency. They are usually very expensive, consume astonishing amounts of electricity, and are bad for the environment.

In regards to PoS, there are no expensive machines to do the work. Well, at least none that you’d need to buy. Machines do exist, but you “mine” by staking your coins, and not turning on a special mining rig. In other words, transactions are confirmed by staking your existing cryptocurrency!

What is staking: Proof-of-Stake.

Let’s illustrate this with an example. Let’s take, say, the ADA coin, also known as Cardano. It’s one of the most popular cryptocurrencies that uses a PoS consensus algorithm.

If you want to become one of the people who confirm transactions on the ADA network, you don’t need to buy an expensive “ADA miner” - such machines do not exist. Instead, all that you need to have is some ADA cryptocurrency. Then, in a random order, validators are selected, and rewarded for legitimate transaction confirmations - this is as opposed to PoW, where everyone participates in the “race”.

You will be confirming the transactions with your ADA coins - in a way, this acts as a casino. You stake your coins, and if the transaction is legitimate, you will receive rewards. If it’s not, you will lose all of your staked coins.

Unlike a casino, though, your chances of “winning” aren’t based on luck. Instead, they are purely up to you - if there are malicious individuals trying to push a fraudulent transaction, they will be punished by losing all of their staked coins - this incentivizes the validators to remain fair, and avoid foul play.

Remember the car race example I gave a bit earlier? Well, you might say - why would other cars go to the starting line, if only one car will actually drive in the race?

Well, other cars - or, as it relates to our topic, other validators - are there to ensure that the chosen car does a good job, and actually finishes the race. When you stake your cryptocurrency, and validate a transaction, other validators are going to check whether or not you’ve done so successfully. If that’s the case, you get rewarded - if not, you get penalized, and your coins get taken away from you.

As you can see, in a very general sense, the process is actually quite simple - it’s like you playing a multiple-choice guessing game, where your goal is to increase the value of your pot. The entire process described here is a representation of Proof-of-Stake, and showcases how blockchains confirm transactions in a fast, efficient, and energy-preserving way.

One last point to discuss before moving on is the validator selection process. In other words, when all of the cars align at the starting line, and get ready to race, how is the single car that’ll participate in the race chosen?

Well, there are three major criteria for choosing the one validator that’ll confirm a transaction - age, amount of coins, and a randomness-ensuring factor.

The first two are self-explanatory - if you hold a huge amount of coins, and are staking them for a long time already, the network recognizes that you’re probably legitimate, and prioritizes picking you as the validator. However, in order to avoid a monopoly of large staking companies taking control of the entire blockchain infrastructure, there’s a random number picker inserted into the selection process, as well.

In other words, even if you don’t hold a lot of coins, and have just started staking crypto, there is a chance that you’ll get picked as the validator, as well.

An Alternative Look at Staking

Up to this point in time, we’ve discussed staking from a very technical point of view - PoW, PoS, validators, transactions, and so on. I’d like to remind you that, if you want to learn more about each of these topics, make sure to go through the "Bitdegree Crypto 101 Handbook", you’ll find sections on all of the important topics that might interest you!

Moving on, though, I would now like to tell you about an alternative way that you can look at staking - one that’s much simpler and more user-friendly than all of the technical stuff we’ve discussed up to this point.

Staking allows blockchains to confirm transactions - that’s true. However, nowadays, the term can be seen on a huge variety of cryptocurrency exchanges, wallets, and other services. You might even notice terms such as “liquidity pool” being mentioned, as well.

What is staking: An alternative look at staking.

All of that is because staking allows you - the simple user - to earn rewards in almost the same way as original big Proof-of-Stake validators, but without setting up and owning machines or solving software and connection issues!

For us, small or medium crypto holders - staking is a good chance to earn extra with cryptocurrencies that we have decided to hold and not to trade for a specific period of time. Imagine, you have decided to earn from your Bitcoins that you have just bought, just by holding them for 10 years, you’re not a day trader, but a long-term crypto “hodler” with no speculative intentions or even knowledge.

In this situation, with staking pool services, you’ll be able to earn the same way, by just holding your Bitcoins and not selling them for 10 years, predicting that the value of Bitcoin will grow, and as an extra, by “lending” those same Bitcoins to the staking pool and earning.

Specifically, while you stake your crypto coins on exchange pools, you are able to earn a passive interest. It’s like trusting your money with a friend, for a specified amount of time, and then getting back more than you’ve given.

The concept is very popular among smaller or medium crypto enthusiasts, since it involves earning more cryptocurrency, without actually doing anything. You just delegate your coins to an exchanges’ staking pool for a specific period - it may look complicated, but with many exchanges or wallets, all that you need to do is to click a single button, and wait. That’s it!

All other technical parts of the validation process are covered by exchanges or staking pool owners themselves. By attracting your extra funds, exchanges make their staking pool bigger, they get chosen to validate transactions more frequently, and because of a higher probability to be chosen, they earn more, and finally, they share the revenue from these validations with you.

Staking Risks

Now, I don’t want to alarm you, but you should be aware of the fact that there are risks associated with staking, too. Just like in the earlier-mentioned casino example, you might end up with more crypto than you’ve initially started with, or lose everything.

That’s the biggest risk, actually - if you or a staking pool confirm a faulty transaction, you are at risk of losing all of your staked coins. This is why it is very important to choose the verified and well-known staking pool as a service provider. However, while this is the most commonly-referenced risk, there are other things to be aware of when deciding on whether or not you should start staking your crypto!

What is staking: Staking risks.

For example, the process is still rather technical. If you plan to stake simply in order to earn interest, on an exchange platform, things are going to be simple - most exchanges and wallets have guides on how to do so.

However, if you want to become an actual validator of a network on your own, you’ll need to delve deeper into the topics of blockchains, Proof-of-Stake, and hardware stuff.

Furthermore, while staking your coins, you will need to lock them up for a period of time. Meaning that you won’t be able to withdraw or trade them! The time periods will differ depending on a few different criteria, but if you’re an active day trader, this might pose an issue.

The topic of staking (and Proof-of-Stake) can be difficult and complicated, but in this section, we’ve covered all of the core aspects, in simple terms. That being said, I hope that the concept is understandable for you now.

<\/a><strong><a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-liquidity-provider/">a liquidity provider<\/a>.<\/strong> Referencing the example given at the beginning of this section, imagine that you and your friend decide to throw your $100 bills into a pot for a week - after a week, you need that money for a new keyboard! Well, liquidity pools allow you to take your money out, usually without any problems, and at any point in time.<\/p>\n<p>In the upcoming week, you are free to go on with your life - there is nothing else that you need to do in regards to that pot. Liquidity pools allow your money to work for you - after a week, you might come to find that your $100 has now turned into $110!<\/p>\n<p>Now, obviously, this is just an example, and the rate at which you will earn the passive interest will vary from pool to pool, but you get a general idea, nonetheless. Think about it this way - some pots will be old and barely usable, while others - embedded with fancy jewels and made out of gold. Thus, your earnings will differ, accordingly!<\/p>\n<p>Now, you do need to know that you can provide<strong> other crypto assets<\/strong> to the liquidity pool, and not only <strong><a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-fiat/">fiat money<\/a>.<\/strong> It all depends on the pool. For example, some liquidity pools might allow you to earn interest on <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//buy-bitcoin-btc/">Bitcoin, <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//buy-ethereum-eth/">Ethereum, and other super-popular cryptocurrencies!<\/p>\n<p>From a liquidity provider's point of view, that’s the general idea of how a liquidity pool works. It’s rather simple, on the surface level - you put money in, hoping that, in some time, you’ll take out a bit more.<\/p>\n<p>Moving on, in order to understand the use cases of liquidity pools from the user side of the table, we need to take a look at how these pools work, in the first place.<\/p>\n<h2>How Do Liquidity Pools Work?<\/h2>\n<p>Imagine that it’s a beautiful summer day outside, and you’re sitting in your room, all jolly and relaxed. Suddenly, you remember that you’re in need of a new laptop - your old computer is laggy and worn down, and takes about 26,5 years to turn on. Being in a great mood, you decide that it’s time to order a new laptop.<\/p>\n<p>You find one that you like online and go through the checkout process. Here, you need to put in your personal information, name and surname, address, and your bank information. This is all fine and dandy, however, what if you DON’T want to do that?<\/p>\n<p>Specifically, what if you DON’T want the shop to know all of your information? Well, what if there was a way to purchase the computer, without actually providing any personal details about yourself - simply sending the money, and receiving the new laptop at a specified location, without involving any other third-party human beings into the process?<\/p>\n<p>Well, in a very rough way, this is how DEXes - <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-decentralized-exchange-dex/">decentralized cryptocurrency exchanges<\/strong><\/a> - work. These exchange platforms allow users to trade different crypto coins and tokens <strong>without having to provide personal information<\/strong> to any specific, centralized institution.<\/p>\n<p>Now, I’ve mentioned <strong>coins<\/strong> and <strong>tokens<\/strong> - if you’d like to learn more about the differences between the two, don’t forget to check out the section <strong>\"<a href=https://www.bitdegree.org/"//crypto//learn//coin-vs-token/">Coin VS Token<\/a>\".<\/strong><\/p>\n<p>In order for decentralized exchanges to function properly in an automated manner, they need to have some sort of an asset pool. It’s like a car and fuel - while the car might be awesome, if it has no fuel, it’s useless. This is where liquidity pools come in.<\/p>\n<p>Namely, liquidity pools allow decentralized exchanges to function, in the first place. When you come to trade on a DEX, and want to, say, sell your tokens, liquidity pools allow you to do so - they hold some of those tokens inside of themselves, and pay out the crypto that you want for the tokens.<\/p>\n<p>To understand the process clearly, you should know that, fundamentally, trades were based on so-called <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-order-book/">Order Books<\/strong><\/a>. In short, the idea of an Order Book is to match a buyer with a seller, and finally close their deal.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-liquidity-pool-2.o.jpg/" alt=\"What is liquidity pool in crypto: Order Book.\" width=\"800\" height=\"696\" \/><\/p>\n<p>With the Order Book, sellers will set <strong>the minimum price <\/strong>of the assets they want to sell, and buyers will set <strong>the<\/strong> <strong>maximum price<\/strong> they are willing to pay for such assets. If the system matches the seller and buyer, both with the same set price for the same item, it finalizes the deal. This is a classic way of functioning for any marketplace.<\/p>\n<p>With Liquidity Pools, it's a different story, and Order Booking is not needed here anymore! A simple illustration of the same trade process with a Liquidity pool would look like this: <\/p>\n<p>First of all, as I mentioned earlier, the liquidity pool is filled with a bunch of funds provided by liquidity providers. When you’re buying or selling your desired coin on a liquidity pool, there is no seller or buyer on the other side, as we tend to have them normally with the Order Book. Instead, you always trade with the pool itself. All your and pool activities are governed by the <strong>automated algorithm in a <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-smart-contract/">smart contract<\/a>.<\/strong><\/p>\n<p><strong><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-liquidity-pool-3.o.jpg/" alt=\"What is liquidity pool in crypto: How do liquidity pools work?\" width=\"800\" height=\"732\" \/><\/strong><\/p>\n<p>Prices of our trades are also managed by this algorithm, based on the current and historical trades that happened in that pool. So, no humans are needed on the other side, to make the trade happen, because everything that happens is between you and a programmed algorithm that is launched on a blockchain, and can’t be changed.<\/p>\n<p>In short, by default, a pool is filled with<strong> a 50\/50 ratio of 2 coins.<\/strong> Let’s say, it’s 50% <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//buy-bitcoin-btc/">Bitcoin, and 50% <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//buy-ethereum-eth/">Ethereum. After you start buying Bitcoins with your Ethereum in that pool, the pool starts losing its Bitcoins and obtaining more and more Ethereum coins from you.<\/p>\n<p>In this case, the algorithm of the pool will incrementally raise the price of the Bitcoin and lower the price of Ethereum, because it clearly sees the demand of Bitcoin and the supply of Ethereum. This is the automated pool reaction to the market needs, everything is self-regulated.<\/p>\n<p>Also, this illustration answers the question why liquidity pools are looking for more and more liquidity investors. And the answer is - the bigger the pool and sum of assets in it, the less it’s sensitive to massive buy and sell trades, and the price algorithm of the assets stays less sensitive to the market itself, because, with each trade, the pool will obtain or lose just a little amount of assets, when compared to the whole liquidity pool size.<\/p>\n<p>Now, allow me to be clear - the processes behind liquidity pools are <strong>far more complicated than that. <\/strong>There are a ton of different features related to these projects, and each pool needs to be developed and programmed using smart contracts and advanced coding logic.<\/p>\n<p>For your average person, though, all of that is trivial. You aren’t going to need to know the intricacies of liquidity pools in order to use them. Suffice to say that liquidity pools hold two or more assets (cryptocurrencies, USD, and so on) inside of them, and allow people to trade on decentralized exchange platforms.<\/p>\n<p>In turn, while individuals use the pools for their trades, investors will receive interest on their investments, over time. <em>Simple!<\/em><\/p>\n<h2>Why are Liquidity Pools Useful?<\/h2>\n<p>Now that you have a better idea of what liquidity pools are and how they work, let’s explore the concept of why anyone would want to use these pools in the first place.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-liquidity-pool-4.o.jpg/" alt=\"What is liquidity pool in crypto: Why are liquidity pools useful?\" width=\"800\" height=\"314\" \/><\/p>\n<p>We’ve already covered the very general ideas of why someone might want to use liquidity pools - investors want to <strong>earn a premium,<\/strong> while traders are able to <strong>trade the cryptocurrencies<\/strong> that they want, on decentralized exchanges, thanks to those same liquidity pools. However, the reasoning goes much deeper, too.<\/p>\n<p>Imagine that you’re trading on a centralized, well-known cryptocurrency exchange. Suddenly, the price of Bitcoin drops by 40%, out of the blue. What do you think happens next?<\/p>\n<p>If you said “panic”, you’re definitely correct.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-liquidity-pool-5.o.jpg/" alt=\"What is liquidity pool in crypto: Trading on a centralized crypto exchange.\" width=\"801\" height=\"297\" \/><\/p>\n<p>Fearing further price plunges, thousands of traders and their pets rush to the exchange, in order to sell their BTC. While all of this is happening, the CEO of the exchange sees that the situation is dire - they are running out of fiat money, and their servers are crashing.<\/p>\n<p>The CEO decides to freeze the transactions - in other words, you are no longer able to sell your BTC on the exchange. Just to be clear, the managing staff of a <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-centralized-exchange-cex/">centralized exchange<\/strong><\/a> is always prepared to pull the kill-switch, and to turn off our trading party if a situation starts moving away from their interests.<\/p>\n<p>THIS is exactly why decentralized exchanges are popular and useful. <strong>No one person can dictate what happens with a DEX<\/strong> simply because he got out of bed on the wrong foot that morning. And liquidity pools allow these DEXs to remain decentralized, in the first place!<\/p>\n<p>On top of that, if the aforementioned CEO freezes the operations of their exchange, as discussed earlier, this will impact the price further - people will start panicking even more! On a decentralized exchange, liquidity pools are the ones that dictate the price of an asset - they are not impacted by bad mood or weather<em>. <\/em><\/p>\n<p>Sure, the price will follow the market, but it will be <strong>less prone to various forms of manipulation. <\/strong>Once again, this is thanks to the logic behind liquidity pool development.<\/p>\n<p>Also let’s not forget about market-making mechanisms on some centralized exchanges, where sneaky exchange owners deal with specific coin creators so that the exchange will move their coins by buying and selling them hundreds of times, without any fee, to create a volume and some sort of activity of the so-called “<a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-shitcoin/">shitcoin”, to make it look like an active project with thousands of active transactions, buyers and sellers.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-liquidity-pool-6.o.jpg/" alt=\"What is liquidity pool in crypto: Market-making mechanism.\" width=\"801\" height=\"196\" \/><\/p>\n<p>By doing so, they try to imitate activity and look prettier to potential investors on the market. And this is one of the darkest things on centralized exchanges, especially with new, less-known altcoins.<\/p>\n<p>Another use for liquidity pools among traders is “<a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-arbitrage/">arbitrage trading<\/strong><\/a>”. A very fancy term, sure, but the concept is actually very simple! Traders try to search for many liquidity pools with the best prices of an asset lying within, and then buy that asset, so that they could trade it on centralized or even other decentralized exchanges, and make a profit with a difference in doing so.<\/p>\n<p>Let's imagine a trader finds the DEX that currently trades some coin or token for $50 per coin. After buying these tokens, he goes to a different exchange with a higher bid price for the same coin and sells it there for $51 per coin. By doing so, his profit is $1 per coin, and this is huge!<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-liquidity-pool-7.o.jpg/" alt=\"What is liquidity pool in crypto: Arbitrage trading.\" width=\"800\" height=\"469\" \/><\/p>\n<p>Arbitrage trading requires a lot of experience and discipline, but it’s one of the more common uses for liquidity pools, nonetheless. It’s made possible due to the <strong>common asset price differences<\/strong> between centralized exchanges and liquidity pools.<\/p>\n<p>All in all, there’s a lot more when it comes to liquidity pools, but the information discussed in this section should serve as a great starting point for beginners.<\/p>","definition":"Did you know that liquidity pools allow your money to work for you?","status":"published","meta_title":"What is a Liquidity Pool in Crypto? Its Benefits and Usage","meta_description":"If you're trying to figure out what is a liquidity pool in the crypto world, you'll find everything you need to know right here!","meta_keywords":"what is a liquidity pool, what is liquidity pool in cryptocurrency, what is crypto liquidity pool, what is uniswap liquidity pool, uniswap liquidity pool, uniswap liquidity pool returns","modified_content":"<p>In this section, we’re going to be answering the question of <strong>what is a Liquidity Pool in Crypto.<\/strong><\/p>\n<p>Imagine that you have $100 of spare money - money that you don’t need at this point in time, and can use at your leisure. Now, one day you are approached by your friend, who offers you a deal - both of you throw your $100 bills into a pot, invite a few other friends to do the same, and then allow other people to use the money from that pot. In turn, you will earn <strong>passive interest<\/strong> over time.<\/p>\n<p>In essence, this is a very broad explanation of how a liquidity pool works. In this section, we’ll answer questions such as what a liquidity pool is, how it works, and why such a concept is useful, in the first place.<\/p>\n<p><em>Let’s not waste any time and get right 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=\"What is a Liquidity Pool in Crypto? (Animated)\"\n title=\"What is a Liquidity Pool in Crypto? (Animated)\" class=\"border-0\">\n <p>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: What is a Liquidity Pool and How Does It Work?<\/h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"What is a Liquidity Pool and How Does It Work?\" 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=\"X8J3qSI3avg\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"><\/div>\n <p class=\"text-left dyk-video-title\">What is a Liquidity Pool in Crypto? (Animated)<\/p>\n <img data-srcset=\"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-a-liquidity-pool-in-crypto-animated.jpg?tr=w-420 500w,\n https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-a-liquidity-pool-in-crypto-animated.jpg?tr=w-760 1000w\"\n alt=\"What is a Liquidity Pool in Crypto? (Animated)\"\n title=\"What is a Liquidity Pool in Crypto? (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=\"What is a Liquidity Pool in Crypto? (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 class=\"fab fa-youtube yt-dyk-btn\"><\/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 <span>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 aria-hidden=\"true\" class=\"fas fa-times\"><\/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 <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">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 <span>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 a Liquidity Pool?<\/h2>\n<p>Firstly, let’s establish what exactly is a liquidity pool. There are two ways how you can look at it - as an <strong>investor<\/strong>, and as someone who will <strong>actually use the pool.<\/strong><\/p>\n<p><strong><img title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-liquidity-pool-1.o.jpg/" alt=\"What is liquidity pool in crypto: Liquidity provider.\" width=\"800\" height=\"478\" \/><\/strong><\/p>\n<p>First, let’s discuss the investor’s point of view.<\/p>\n<p>A liquidity pool is a place where you can lock up your money or a specific asset, for a set amount of time. If you do so, you’ll be called -<a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-liquidity-provider/"> <\/a><strong><a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-liquidity-provider/">a liquidity provider<\/a>.<\/strong> Referencing the example given at the beginning of this section, imagine that you and your friend decide to throw your $100 bills into a pot for a week - after a week, you need that money for a new keyboard! Well, liquidity pools allow you to take your money out, usually without any problems, and at any point in time.<\/p>\n<p>In the upcoming week, you are free to go on with your life - there is nothing else that you need to do in regards to that pot. Liquidity pools allow your money to work for you - after a week, you might come to find that your $100 has now turned into $110!<\/p>\n<p>Now, obviously, this is just an example, and the rate at which you will earn the passive interest will vary from pool to pool, but you get a general idea, nonetheless. Think about it this way - some pots will be old and barely usable, while others - embedded with fancy jewels and made out of gold. Thus, your earnings will differ, accordingly!<\/p>\n<p>Now, you do need to know that you can provide<strong> other crypto assets<\/strong> to the liquidity pool, and not only <strong><a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-fiat/">fiat money<\/a>.<\/strong> It all depends on the pool. For example, some liquidity pools might allow you to earn interest on <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//buy-bitcoin-btc/">Bitcoin, <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//buy-ethereum-eth/">Ethereum, and other super-popular cryptocurrencies!<\/p>\n<p>From a liquidity provider's point of view, that’s the general idea of how a liquidity pool works. It’s rather simple, on the surface level - you put money in, hoping that, in some time, you’ll take out a bit more.<\/p>\n<p>Moving on, in order to understand the use cases of liquidity pools from the user side of the table, we need to take a look at how these pools work, in the first place.<\/p>\n<h2>How Do Liquidity Pools Work?<\/h2>\n<p>Imagine that it’s a beautiful summer day outside, and you’re sitting in your room, all jolly and relaxed. Suddenly, you remember that you’re in need of a new laptop - your old computer is laggy and worn down, and takes about 26,5 years to turn on. Being in a great mood, you decide that it’s time to order a new laptop.<\/p>\n<p>You find one that you like online and go through the checkout process. Here, you need to put in your personal information, name and surname, address, and your bank information. This is all fine and dandy, however, what if you DON’T want to do that?<\/p>\n<p>Specifically, what if you DON’T want the shop to know all of your information? Well, what if there was a way to purchase the computer, without actually providing any personal details about yourself - simply sending the money, and receiving the new laptop at a specified location, without involving any other third-party human beings into the process?<\/p>\n<p>Well, in a very rough way, this is how DEXes - <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-decentralized-exchange-dex/">decentralized cryptocurrency exchanges<\/strong><\/a> - work. These exchange platforms allow users to trade different crypto coins and tokens <strong>without having to provide personal information<\/strong> to any specific, centralized institution.<\/p>\n<p>Now, I’ve mentioned <strong>coins<\/strong> and <strong>tokens<\/strong> - if you’d like to learn more about the differences between the two, don’t forget to check out the section <strong>\"<a href=https://www.bitdegree.org/"//crypto//learn//coin-vs-token/">Coin VS Token<\/a>\".<\/strong><\/p>\n<p>In order for decentralized exchanges to function properly in an automated manner, they need to have some sort of an asset pool. It’s like a car and fuel - while the car might be awesome, if it has no fuel, it’s useless. This is where liquidity pools come in.<\/p>\n<p>Namely, liquidity pools allow decentralized exchanges to function, in the first place. When you come to trade on a DEX, and want to, say, sell your tokens, liquidity pools allow you to do so - they hold some of those tokens inside of themselves, and pay out the crypto that you want for the tokens.<\/p>\n<p>To understand the process clearly, you should know that, fundamentally, trades were based on so-called <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-order-book/">Order Books<\/strong><\/a>. In short, the idea of an Order Book is to match a buyer with a seller, and finally close their deal.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-liquidity-pool-2.o.jpg/" alt=\"What is liquidity pool in crypto: Order Book.\" width=\"800\" height=\"696\" \/><\/p>\n<p>With the Order Book, sellers will set <strong>the minimum price <\/strong>of the assets they want to sell, and buyers will set <strong>the<\/strong> <strong>maximum price<\/strong> they are willing to pay for such assets. If the system matches the seller and buyer, both with the same set price for the same item, it finalizes the deal. This is a classic way of functioning for any marketplace.<\/p>\n<p>With Liquidity Pools, it's a different story, and Order Booking is not needed here anymore! A simple illustration of the same trade process with a Liquidity pool would look like this: <\/p>\n<p>First of all, as I mentioned earlier, the liquidity pool is filled with a bunch of funds provided by liquidity providers. When you’re buying or selling your desired coin on a liquidity pool, there is no seller or buyer on the other side, as we tend to have them normally with the Order Book. Instead, you always trade with the pool itself. All your and pool activities are governed by the <strong>automated algorithm in a <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-smart-contract/">smart contract<\/a>.<\/strong><\/p>\n<p><strong><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-liquidity-pool-3.o.jpg/" alt=\"What is liquidity pool in crypto: How do liquidity pools work?\" width=\"800\" height=\"732\" \/><\/strong><\/p>\n<p>Prices of our trades are also managed by this algorithm, based on the current and historical trades that happened in that pool. So, no humans are needed on the other side, to make the trade happen, because everything that happens is between you and a programmed algorithm that is launched on a blockchain, and can’t be changed.<\/p>\n<p>In short, by default, a pool is filled with<strong> a 50\/50 ratio of 2 coins.<\/strong> Let’s say, it’s 50% <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//buy-bitcoin-btc/">Bitcoin, and 50% <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//buy-ethereum-eth/">Ethereum. After you start buying Bitcoins with your Ethereum in that pool, the pool starts losing its Bitcoins and obtaining more and more Ethereum coins from you.<\/p>\n<p>In this case, the algorithm of the pool will incrementally raise the price of the Bitcoin and lower the price of Ethereum, because it clearly sees the demand of Bitcoin and the supply of Ethereum. This is the automated pool reaction to the market needs, everything is self-regulated.<\/p>\n<p>Also, this illustration answers the question why liquidity pools are looking for more and more liquidity investors. And the answer is - the bigger the pool and sum of assets in it, the less it’s sensitive to massive buy and sell trades, and the price algorithm of the assets stays less sensitive to the market itself, because, with each trade, the pool will obtain or lose just a little amount of assets, when compared to the whole liquidity pool size.<\/p>\n<p>Now, allow me to be clear - the processes behind liquidity pools are <strong>far more complicated than that. <\/strong>There are a ton of different features related to these projects, and each pool needs to be developed and programmed using smart contracts and advanced coding logic.<\/p>\n<p>For your average person, though, all of that is trivial. You aren’t going to need to know the intricacies of liquidity pools in order to use them. Suffice to say that liquidity pools hold two or more assets (cryptocurrencies, USD, and so on) inside of them, and allow people to trade on decentralized exchange platforms.<\/p>\n<p>In turn, while individuals use the pools for their trades, investors will receive interest on their investments, over time. <em>Simple!<\/em><\/p>\n<h2>Why are Liquidity Pools Useful?<\/h2>\n<p>Now that you have a better idea of what liquidity pools are and how they work, let’s explore the concept of why anyone would want to use these pools in the first place.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-liquidity-pool-4.o.jpg/" alt=\"What is liquidity pool in crypto: Why are liquidity pools useful?\" width=\"800\" height=\"314\" \/><\/p>\n<p>We’ve already covered the very general ideas of why someone might want to use liquidity pools - investors want to <strong>earn a premium,<\/strong> while traders are able to <strong>trade the cryptocurrencies<\/strong> that they want, on decentralized exchanges, thanks to those same liquidity pools. However, the reasoning goes much deeper, too.<\/p>\n<p>Imagine that you’re trading on a centralized, well-known cryptocurrency exchange. Suddenly, the price of Bitcoin drops by 40%, out of the blue. What do you think happens next?<\/p>\n<p>If you said “panic”, you’re definitely correct.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-liquidity-pool-5.o.jpg/" alt=\"What is liquidity pool in crypto: Trading on a centralized crypto exchange.\" width=\"801\" height=\"297\" \/><\/p>\n<p>Fearing further price plunges, thousands of traders and their pets rush to the exchange, in order to sell their BTC. While all of this is happening, the CEO of the exchange sees that the situation is dire - they are running out of fiat money, and their servers are crashing.<\/p>\n<p>The CEO decides to freeze the transactions - in other words, you are no longer able to sell your BTC on the exchange. Just to be clear, the managing staff of a <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-centralized-exchange-cex/">centralized exchange<\/strong><\/a> is always prepared to pull the kill-switch, and to turn off our trading party if a situation starts moving away from their interests.<\/p>\n<p>THIS is exactly why decentralized exchanges are popular and useful. <strong>No one person can dictate what happens with a DEX<\/strong> simply because he got out of bed on the wrong foot that morning. And liquidity pools allow these DEXs to remain decentralized, in the first place!<\/p>\n<p>On top of that, if the aforementioned CEO freezes the operations of their exchange, as discussed earlier, this will impact the price further - people will start panicking even more! On a decentralized exchange, liquidity pools are the ones that dictate the price of an asset - they are not impacted by bad mood or weather<em>. <\/em><\/p>\n<p>Sure, the price will follow the market, but it will be <strong>less prone to various forms of manipulation. <\/strong>Once again, this is thanks to the logic behind liquidity pool development.<\/p>\n<p>Also let’s not forget about market-making mechanisms on some centralized exchanges, where sneaky exchange owners deal with specific coin creators so that the exchange will move their coins by buying and selling them hundreds of times, without any fee, to create a volume and some sort of activity of the so-called “<a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-shitcoin/">shitcoin”, to make it look like an active project with thousands of active transactions, buyers and sellers.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-liquidity-pool-6.o.jpg/" alt=\"What is liquidity pool in crypto: Market-making mechanism.\" width=\"801\" height=\"196\" \/><\/p>\n<p>By doing so, they try to imitate activity and look prettier to potential investors on the market. And this is one of the darkest things on centralized exchanges, especially with new, less-known altcoins.<\/p>\n<p>Another use for liquidity pools among traders is “<a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-arbitrage/">arbitrage trading<\/strong><\/a>”. A very fancy term, sure, but the concept is actually very simple! Traders try to search for many liquidity pools with the best prices of an asset lying within, and then buy that asset, so that they could trade it on centralized or even other decentralized exchanges, and make a profit with a difference in doing so.<\/p>\n<p>Let's imagine a trader finds the DEX that currently trades some coin or token for $50 per coin. After buying these tokens, he goes to a different exchange with a higher bid price for the same coin and sells it there for $51 per coin. By doing so, his profit is $1 per coin, and this is huge!<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-liquidity-pool-7.o.jpg/" alt=\"What is liquidity pool in crypto: Arbitrage trading.\" width=\"800\" height=\"469\" \/><\/p>\n<p>Arbitrage trading requires a lot of experience and discipline, but it’s one of the more common uses for liquidity pools, nonetheless. It’s made possible due to the <strong>common asset price differences<\/strong> between centralized exchanges and liquidity pools.<\/p>\n<p>All in all, there’s a lot more when it comes to liquidity pools, but the information discussed in this section should serve as a great starting point for beginners.<\/p>","youtube_video":{"id":3,"channel_id":1,"sort":87,"video_title":"What is a Liquidity Pool in Crypto? (Animated)","description":"What is a liquidity pool in crypto?\n\nLiquidity pools are special tools that allow people to trade their cryptocurrencies even if there is no buyer or seller available otherwise. A liquidity pool allows people to trade some niche and less-known crypto assets, as well as earn a passive income, if you\u2019re a liquidity provider.\n\nLiquidity pools are definitely among the more-complicated topics in crypto. However, in this video, I\u2019ll break them down in a simple-to-understand manner, so that the topic would become approachable to even complete beginners! We\u2019ll cover what liquidity pools are, how do they work, and why are they useful, in the first place.\n\nHave you ever used a liquidity pool yourself? Perhaps you\u2019re a liquidity provider right now? Let me know in the comments down below!\n\nVideo Time Table:\n\n0:00 Introduction to What is a Liquidity Pool in Crypto\n0:59 What is a Liquidity Pool in Crypto?\n2:42 How do Liquidity Pools Work?\n7:21 Why Are Liquidity Pools Useful?\n10:51 Wrap-up: What is a Liquidity Pool in Crypto?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps:\/\/twitter.com\/crypto_xplained\n\n#LiquidityPool #WhatisaLiquidityPool #WhatisLiquidityPoolinCrypto #WhatisCryptoLiquidityPool #UniswapLiquidityPool","video_id":"X8J3qSI3avg","duration":668,"view_count":1223,"thumbnail_url":"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-a-liquidity-pool-in-crypto-animated.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2022-02-10T15:27:12.000000Z","created_at":"2022-02-21T13:20:28.000000Z","updated_at":"2024-01-09T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}}}" :prev-section="{"id":12,"chapter_id":6,"order":7,"featured_image_id":3045,"youtube_video_id":1,"author_id":1,"created_at":"2022-05-03T08:51:29.000000Z","updated_at":"2023-12-14T09:29:51.000000Z","slug":"what-is-a-dao-in-crypto","title":"The Notion of a Decentralized Autonomous Ogranization (DAO)","content":"<p>In this section, I will tell you <strong>what is a DAO in crypto!<\/strong><\/p>\n<p>If you’re an avid coffee lover just like I am, chances are that, at some point in your life, you’re going to purchase a modern coffee machine. A single press of a button, and you’ve got your coffee made! While the machine does all of the work for you, though, you still need to clean it, refill it with water, add coffee beans, and perform general maintenance.<\/p>\n<p>In essence, this example is the perfect illustration of how DAOs work. In this section, I’ll explain the concept of a DAO in simple-to-understand terms, and we’ll also discuss why DAOs are important in the world of cryptocurrencies, in general!<\/p>\n<p><em>So, let’s get to it!<\/em><\/p>\n<h2>What is a DAO?<\/h2>\n<p>First things first - what is a DAO, in the first place?<\/p>\n<p>DAO abbreviates as a “<a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-are-decentralized-autonomous-organizations-dao/">Decentralized Autonomous Organization<\/strong><\/a>”. Three very big words, but when you break them down, the concept itself is rather simple.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-dao-in-crypto-1.o.jpg/" alt=\"What is a DAO in crypto: Decentralized Autonomous Organization.\" width=\"800\" height=\"443\" \/><\/p>\n<p>“<a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-decentralization/">Decentralization” is something I’ve covered quite a few times already - if you’re interested in studying the concept in-depth, you should check out the previous sections. To put it shortly, though, decentralization refers to <strong>something lacking a single, central authority<\/strong> - imagine a company without a CEO where all of the employees are equally responsible for making decisions!<\/p>\n<p><strong>Autonomous<\/strong> is a fancy way of saying “self-sufficient”. This refers to a system being able to complete certain processes without someone else intervening, and having to manually complete the process. Here, you can simply think about the earlier-mentioned coffee machine example - once you press the button, you don’t need to push and pull any more levers, or grind the coffee beans by hand - the machine does all of the work for you in an automatic manner.<\/p>\n<p>Lastly, in this context, “<strong>organization<\/strong>” references the fact that there is a group of people making the decisions. So, when you add all of that together, <strong>DAO simply stands for a group of individuals who are concerned with some sort of an active project and are responsible for making decisions, changes, and upgrades to that said project.<\/strong><\/p>\n<p>In all honesty, the example of the coffee machine is the perfect visualization here. The machine works by itself - just as I’ve stated earlier, you do not need to do anything after pushing the “Start” button! Simply sit back, and wait until the machine does its job.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-dao-in-crypto-2.o.jpg/" alt=\"What is a DAO in crypto: An example with a coffee machine.\" width=\"801\" height=\"554\" \/><\/p>\n<p>In the cryptocurrency world, the equivalent of this would be a <strong><a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-smart-contract/">smart contract<\/a>.<\/strong> Smart contracts are special programmed agreements that allow for certain processes to happen automatically, without the need for a human to intervene.<\/p>\n<p>In the same way how you turn on your coffee machine, and the rest of the processes happen automatically, smart contracts allow users to participate in multiple different processes - cryptocurrency trading, lending and borrowing money, trustless gambling, and so much more. If you’d like to learn more about smart contracts, make sure to check out the section <strong>\"<a href=https://www.bitdegree.org/"//crypto//learn//what-are-smart-contracts/">What are Smart Contracts?<\/a>\"<\/strong>.<\/p>\n<p><span style=\"font-family: -apple-system, BlinkMacSystemFont, 'Segoe UI', Roboto, Oxygen, Ubuntu, Cantarell, 'Open Sans', 'Helvetica Neue', sans-serif;\">Going back to the coffee machine example, even though all of its processes are automatic, every once in a while, you are going to need to clean the machine & its filters, fill its water tank, and perform general maintenance, too. Well, the same can be said about smart contracts, as well!<\/span><\/p>\n<p>In order to perform certain updates and programmable changes to the contract, and to take care of the project behind it, in general, you have DAOs - groups of people who all vote on proposed changes to their respective network, and implement them, if <strong>a<\/strong> <strong>mutual decision<\/strong> is made.<\/p>\n<h2>How Do DAOs Work?<\/h2>\n<p>Now that you have a bit of a better idea of what is a DAO, you might naturally wonder - how do they work?<\/p>\n<p>Well, the underlying idea behind DAOs is actually pretty simple. However, we’re going to touch on a bit of <strong><a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-are-tokenomics/">tokenomics - if this term isn’t familiar to you, or you don’t understand how blockchains work, fundamentally, I would strongly advise you to check out the section <strong>\"<a href=https://www.bitdegree.org/"//crypto//learn//what-is-blockchain/">What is the Blockchain?<\/a>\"<\/strong>, before reading further. That will give you a better understanding of what to expect when it comes to DAOs.<\/p>\n<p>Now, think about the last time you and your friends got together at someone’s place, for a casual hangout. At some point in time, someone asked the big question - should you order pizza or Chinese food?<\/p>\n<p>Well, there’s only one way to settle this question, in a civil fashion - you and your friends decided to vote! In this situation, there was no central entity who would come and make the decision for the entire group - instead, each member of the friends’ group votes, and gets to be a part of the decision-making process.<\/p>\n<p>This is essentially how a DAO functions. Well, it’s a bit more complex than that, but the general idea is the same.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-dao-in-crypto-3.o.jpg/" alt=\"What is a DAO in crypto: How do DAOs work?\" width=\"800\" height=\"593\" \/><\/p>\n<p>For starters, in order for a DAO to form around a specific crypto project, there needs to be a <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-token/">token <strong>associated with that project.<\/strong> By the way, there is a <strong><a href=https://www.bitdegree.org/"//crypto//learn//coin-vs-token/">section about tokens<\/a><\/strong>, and how they differ from <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-coin/">crypto coins<\/strong><\/a>, too - you can check it out if you want to understand tokens a bit better!<\/p>\n<p>But in regards to DAOs, tokens are like <strong>voting ballots. <\/strong>The more tokens each individual in the DAO has, the stronger will their vote become.<\/p>\n<p>Think of the same pizza VS Chinese food example discussed earlier. Let’s say, some of your friends simply have a huge craving for pizza -<em> I know I would be one of those friends.<\/em> Well, in this case, you might feel bad for them, if you do end up ordering Chinese - those friends simply “sway” the rest of the group’s decision!<\/p>\n<p>While there’s no “feeling bad” or “swaying” with DAOs, <strong>individuals with a larger collection of tokens<\/strong> are going to have <strong>more influential votes,<\/strong> nonetheless. In the vast majority of cases, the tokens can be acquired by purchasing or trading them on a <strong><a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//best-cryptocurrency-exchange/">cryptocurrency exchange<\/a>.<\/strong><\/p>\n<h2>Why are DAOs Important?<\/h2>\n<p>Now that you have a better understanding of what is a DAO in crypto, and can comprehend how these DAOs work, in the first place, the big question that remains is simple - why do DAOs exist, and why are they even important?<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-dao-in-crypto-4.o.jpg/" alt=\"What is a DAO in crypto: Why are DAOs important?\" width=\"800\" height=\"507\" \/><\/p>\n<p>With time, the communities behind crypto projects have understood that the concept of a DAO is actually essential for any long-term decentralized ecosystem to prosper, and retain its decentralized features.<\/p>\n<p>The core feature of a DAO is <strong>decision-making.<\/strong> Namely, DAOs are responsible for all of the core decisions that might involve the crypto project - this is true with some sort of changes, upgrades and updates, new features, token logic tweaks, and so on, and so forth.<\/p>\n<p><img title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-dao-in-crypto-5.o.jpg/" alt=\"What is a DAO in crypto: Decision-making.\" width=\"800\" height=\"246\" \/><\/p>\n<p>The biggest benefit of a DAO, in this regard, is the fact that all of these decisions are going to be <strong>completely trustless. <\/strong>In other words, they won’t be made by a single person who might have some selfish intentions in mind, but rather, by the actual community behind the project.<\/p>\n<p>Imagine that you have your favorite coffee shop - one that you’ve been visiting for a few years now. The shop would serve some amazing coffee, and have great music playing in the background. One day, the shop owner makes a deal with a new coffee bean provider - while this provider isn’t known for the best quality coffee beans on the market, they sell them very cheap.<\/p>\n<p>The coffee shop owner wants to maximize his profits - thus, he makes the deal to sell coffee that’s made exclusively from the beans supplied by said provider.<\/p>\n<p><em>And, well… The new coffee sucks!<\/em><\/p>\n<p>Well, if the shop was owned by a DAO, this decision would have been <strong>put to a vote.<\/strong> If the community behind the coffee shop decided that a tiny increase in profits in the short term isn’t worth losing out on loyal customers, long-term, the decision would be made to reject the offer made by the bean provider.<\/p>\n<p>All of that is to say - with a DAO making the decisions on certain questions regarding the crypto project, there’s a much higher chance that the “right” decision will be made, instead of one that would maximize the profits, short-term, but lead to horrible customer experiences and “selling out”.<\/p>\n<p>Another benefit - and also a shortcoming, in a way - is the fact that DAOs operate in an <strong>open-source manner. <\/strong>What this means is that their processes can be viewed at any point in time, and the integrity of their decisions (and, following that - code) can be inspected by anybody. The shortcoming here is that DAOs then become <strong>vulnerable to external attacks<\/strong> - since everything is out there, in the open, malicious third parties might spot a loophole, and take advantage of it.<\/p>\n<p>Lastly, it’s also worth mentioning that the token voting system is sometimes brought in question, as well. As I’ve told you earlier, DAO members vote on changes and upgrades of a project with their tokens. Meaning that <strong>the more tokens you have, the more votes you will be able to cast, <\/strong>as well.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-dao-in-crypto-6.o.jpg/" alt=\"What is a DAO in crypto: More tokens – more votes.\" width=\"800\" height=\"455\" \/><\/p>\n<p>What this might lead to is a big player coming in, buying up an exponential amount of tokens, and thus, creating a sort of centralized environment - their votes would then be the ones that would sway decisions the most. Naturally, many DAOs tend to have safety measures against something like this happening, but the concern is still out there.<\/p>","definition":"Did you know that the term \"decentralized autonomous organization\" was initially used to characterize multi-agent systems in an Internet-of-things (IoT) context in the 1990s?","status":"published","meta_title":"What is a DAO in Crypto and Why is It Important?","meta_description":"Looking for a simple but informative explanation of what is a DAO in crypto? You'll find that explained here with simple everyday examples!","meta_keywords":"what is a dao, what is a dao in crypto, what is a dao nft, dao definition, what does dao mean","modified_content":"<p>In this section, I will tell you <strong>what is a DAO in crypto!<\/strong><\/p>\n<p>If you’re an avid coffee lover just like I am, chances are that, at some point in your life, you’re going to purchase a modern coffee machine. A single press of a button, and you’ve got your coffee made! While the machine does all of the work for you, though, you still need to clean it, refill it with water, add coffee beans, and perform general maintenance.<\/p>\n<p>In essence, this example is the perfect illustration of how DAOs work. In this section, I’ll explain the concept of a DAO in simple-to-understand terms, and we’ll also discuss why DAOs are important in the world of cryptocurrencies, in general!<\/p>\n<p><em>So, let’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=\"What is a DAO in Crypto? (Animated Explanation)\"\n title=\"What is a DAO in Crypto? (Animated Explanation)\" class=\"border-0\">\n <p>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: The Notion of a Decentralized Autonomous Ogranization (DAO)<\/h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"The Notion of a Decentralized Autonomous Ogranization (DAO)\" 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=\"toSViQmtqFQ\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"><\/div>\n <p class=\"text-left dyk-video-title\">What is a DAO in Crypto? (Animated Explanation)<\/p>\n <img data-srcset=\"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-a-dao-in-crypto-animated-explanation.jpg?tr=w-420 500w,\n https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-a-dao-in-crypto-animated-explanation.jpg?tr=w-760 1000w\"\n alt=\"What is a DAO in Crypto? (Animated Explanation)\"\n title=\"What is a DAO in Crypto? (Animated Explanation)\"\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 DAO in Crypto? (Animated Explanation)\">\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 class=\"fab fa-youtube yt-dyk-btn\"><\/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 <span>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 aria-hidden=\"true\" class=\"fas fa-times\"><\/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 <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">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 <span>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 a DAO?<\/h2>\n<p>First things first - what is a DAO, in the first place?<\/p>\n<p>DAO abbreviates as a “<a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-are-decentralized-autonomous-organizations-dao/">Decentralized Autonomous Organization<\/strong><\/a>”. Three very big words, but when you break them down, the concept itself is rather simple.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-dao-in-crypto-1.o.jpg/" alt=\"What is a DAO in crypto: Decentralized Autonomous Organization.\" width=\"800\" height=\"443\" \/><\/p>\n<p>“<a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-decentralization/">Decentralization” is something I’ve covered quite a few times already - if you’re interested in studying the concept in-depth, you should check out the previous sections. To put it shortly, though, decentralization refers to <strong>something lacking a single, central authority<\/strong> - imagine a company without a CEO where all of the employees are equally responsible for making decisions!<\/p>\n<p><strong>Autonomous<\/strong> is a fancy way of saying “self-sufficient”. This refers to a system being able to complete certain processes without someone else intervening, and having to manually complete the process. Here, you can simply think about the earlier-mentioned coffee machine example - once you press the button, you don’t need to push and pull any more levers, or grind the coffee beans by hand - the machine does all of the work for you in an automatic manner.<\/p>\n<p>Lastly, in this context, “<strong>organization<\/strong>” references the fact that there is a group of people making the decisions. So, when you add all of that together, <strong>DAO simply stands for a group of individuals who are concerned with some sort of an active project and are responsible for making decisions, changes, and upgrades to that said project.<\/strong><\/p>\n<p>In all honesty, the example of the coffee machine is the perfect visualization here. The machine works by itself - just as I’ve stated earlier, you do not need to do anything after pushing the “Start” button! Simply sit back, and wait until the machine does its job.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-dao-in-crypto-2.o.jpg/" alt=\"What is a DAO in crypto: An example with a coffee machine.\" width=\"801\" height=\"554\" \/><\/p>\n<p>In the cryptocurrency world, the equivalent of this would be a <strong><a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-smart-contract/">smart contract<\/a>.<\/strong> Smart contracts are special programmed agreements that allow for certain processes to happen automatically, without the need for a human to intervene.<\/p>\n<p>In the same way how you turn on your coffee machine, and the rest of the processes happen automatically, smart contracts allow users to participate in multiple different processes - cryptocurrency trading, lending and borrowing money, trustless gambling, and so much more. If you’d like to learn more about smart contracts, make sure to check out the section <strong>\"<a href=https://www.bitdegree.org/"//crypto//learn//what-are-smart-contracts/">What are Smart Contracts?<\/a>\"<\/strong>.<\/p>\n<p><span style=\"font-family: -apple-system, BlinkMacSystemFont, 'Segoe UI', Roboto, Oxygen, Ubuntu, Cantarell, 'Open Sans', 'Helvetica Neue', sans-serif;\">Going back to the coffee machine example, even though all of its processes are automatic, every once in a while, you are going to need to clean the machine & its filters, fill its water tank, and perform general maintenance, too. Well, the same can be said about smart contracts, as well!<\/span><\/p>\n<p>In order to perform certain updates and programmable changes to the contract, and to take care of the project behind it, in general, you have DAOs - groups of people who all vote on proposed changes to their respective network, and implement them, if <strong>a<\/strong> <strong>mutual decision<\/strong> is made.<\/p>\n<h2>How Do DAOs Work?<\/h2>\n<p>Now that you have a bit of a better idea of what is a DAO, you might naturally wonder - how do they work?<\/p>\n<p>Well, the underlying idea behind DAOs is actually pretty simple. However, we’re going to touch on a bit of <strong><a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-are-tokenomics/">tokenomics - if this term isn’t familiar to you, or you don’t understand how blockchains work, fundamentally, I would strongly advise you to check out the section <strong>\"<a href=https://www.bitdegree.org/"//crypto//learn//what-is-blockchain/">What is the Blockchain?<\/a>\"<\/strong>, before reading further. That will give you a better understanding of what to expect when it comes to DAOs.<\/p>\n<p>Now, think about the last time you and your friends got together at someone’s place, for a casual hangout. At some point in time, someone asked the big question - should you order pizza or Chinese food?<\/p>\n<p>Well, there’s only one way to settle this question, in a civil fashion - you and your friends decided to vote! In this situation, there was no central entity who would come and make the decision for the entire group - instead, each member of the friends’ group votes, and gets to be a part of the decision-making process.<\/p>\n<p>This is essentially how a DAO functions. Well, it’s a bit more complex than that, but the general idea is the same.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-dao-in-crypto-3.o.jpg/" alt=\"What is a DAO in crypto: How do DAOs work?\" width=\"800\" height=\"593\" \/><\/p>\n<p>For starters, in order for a DAO to form around a specific crypto project, there needs to be a <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-token/">token <strong>associated with that project.<\/strong> By the way, there is a <strong><a href=https://www.bitdegree.org/"//crypto//learn//coin-vs-token/">section about tokens<\/a><\/strong>, and how they differ from <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-coin/">crypto coins<\/strong><\/a>, too - you can check it out if you want to understand tokens a bit better!<\/p>\n<p>But in regards to DAOs, tokens are like <strong>voting ballots. <\/strong>The more tokens each individual in the DAO has, the stronger will their vote become.<\/p>\n<p>Think of the same pizza VS Chinese food example discussed earlier. Let’s say, some of your friends simply have a huge craving for pizza -<em> I know I would be one of those friends.<\/em> Well, in this case, you might feel bad for them, if you do end up ordering Chinese - those friends simply “sway” the rest of the group’s decision!<\/p>\n<p>While there’s no “feeling bad” or “swaying” with DAOs, <strong>individuals with a larger collection of tokens<\/strong> are going to have <strong>more influential votes,<\/strong> nonetheless. In the vast majority of cases, the tokens can be acquired by purchasing or trading them on a <strong><a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//best-cryptocurrency-exchange/">cryptocurrency exchange<\/a>.<\/strong><\/p>\n<h2>Why are DAOs Important?<\/h2>\n<p>Now that you have a better understanding of what is a DAO in crypto, and can comprehend how these DAOs work, in the first place, the big question that remains is simple - why do DAOs exist, and why are they even important?<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-dao-in-crypto-4.o.jpg/" alt=\"What is a DAO in crypto: Why are DAOs important?\" width=\"800\" height=\"507\" \/><\/p>\n<p>With time, the communities behind crypto projects have understood that the concept of a DAO is actually essential for any long-term decentralized ecosystem to prosper, and retain its decentralized features.<\/p>\n<p>The core feature of a DAO is <strong>decision-making.<\/strong> Namely, DAOs are responsible for all of the core decisions that might involve the crypto project - this is true with some sort of changes, upgrades and updates, new features, token logic tweaks, and so on, and so forth.<\/p>\n<p><img title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-dao-in-crypto-5.o.jpg/" alt=\"What is a DAO in crypto: Decision-making.\" width=\"800\" height=\"246\" \/><\/p>\n<p>The biggest benefit of a DAO, in this regard, is the fact that all of these decisions are going to be <strong>completely trustless. <\/strong>In other words, they won’t be made by a single person who might have some selfish intentions in mind, but rather, by the actual community behind the project.<\/p>\n<p>Imagine that you have your favorite coffee shop - one that you’ve been visiting for a few years now. The shop would serve some amazing coffee, and have great music playing in the background. One day, the shop owner makes a deal with a new coffee bean provider - while this provider isn’t known for the best quality coffee beans on the market, they sell them very cheap.<\/p>\n<p>The coffee shop owner wants to maximize his profits - thus, he makes the deal to sell coffee that’s made exclusively from the beans supplied by said provider.<\/p>\n<p><em>And, well… The new coffee sucks!<\/em><\/p>\n<p>Well, if the shop was owned by a DAO, this decision would have been <strong>put to a vote.<\/strong> If the community behind the coffee shop decided that a tiny increase in profits in the short term isn’t worth losing out on loyal customers, long-term, the decision would be made to reject the offer made by the bean provider.<\/p>\n<p>All of that is to say - with a DAO making the decisions on certain questions regarding the crypto project, there’s a much higher chance that the “right” decision will be made, instead of one that would maximize the profits, short-term, but lead to horrible customer experiences and “selling out”.<\/p>\n<p>Another benefit - and also a shortcoming, in a way - is the fact that DAOs operate in an <strong>open-source manner. <\/strong>What this means is that their processes can be viewed at any point in time, and the integrity of their decisions (and, following that - code) can be inspected by anybody. The shortcoming here is that DAOs then become <strong>vulnerable to external attacks<\/strong> - since everything is out there, in the open, malicious third parties might spot a loophole, and take advantage of it.<\/p>\n<p>Lastly, it’s also worth mentioning that the token voting system is sometimes brought in question, as well. As I’ve told you earlier, DAO members vote on changes and upgrades of a project with their tokens. Meaning that <strong>the more tokens you have, the more votes you will be able to cast, <\/strong>as well.<\/p>\n<p><img style=\"display: block; margin-left: auto; margin-right: auto;\" title=\"\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-is-dao-in-crypto-6.o.jpg/" alt=\"What is a DAO in crypto: More tokens – more votes.\" width=\"800\" height=\"455\" \/><\/p>\n<p>What this might lead to is a big player coming in, buying up an exponential amount of tokens, and thus, creating a sort of centralized environment - their votes would then be the ones that would sway decisions the most. Naturally, many DAOs tend to have safety measures against something like this happening, but the concern is still out there.<\/p>","youtube_video":{"id":1,"channel_id":1,"sort":85,"video_title":"What is a DAO in Crypto? (Animated Explanation)","description":"What is a \u201cDAO\u201d in crypto?\n\nDAO abbreviates as a \u201cDecentralized Autonomous Organization\u201d. In short, DAOs are groups of people who vote for changes and upgrades to be made on specific cryptocurrency-powered projects.\n\nWhile the concept of a DAO might sound complicated at first, when broken down correctly, it\u2019s actually rather simple, from a fundamental standpoint. In this video, I will tell you about DAOs in a simple-to-understand manner. You will also be able to learn how DAOs work, and why are they important in the world of crypto, too!\n\nDo you know any cool DAO-powered projects? Share them with the rest of us, in the comment section below!\n\nVideo Time Table:\n\n0:00 Introduction to What is a DAO in Crypto\n0:53 What is a DAO?\n3:23 How do DAOs Work?\n5:20 Why are DAOs Important?\n8:10 Wrap-up: What is a DAO in Crypto?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps:\/\/twitter.com\/crypto_xplained\n\n#DAO #WhatisaDAO #WhatisaDAOinCrypto #WhatisaDAONFT #DAODefinition #WhatDoesDAOMean","video_id":"toSViQmtqFQ","duration":502,"view_count":709,"thumbnail_url":"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-is-a-dao-in-crypto-animated-explanation.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2022-02-18T13:12:38.000000Z","created_at":"2022-02-21T13:20:28.000000Z","updated_at":"2024-01-09T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}}}" :model="{"id":11,"chapter_id":6,"order":8,"featured_image_id":3044,"youtube_video_id":2,"author_id":1,"created_at":"2022-05-03T08:40:39.000000Z","updated_at":"2023-12-13T20:35:45.000000Z","slug":"what-is-staking-in-crypto","title":"What is the Goal of Staking Crypto Assets?","content":"<p>In this section, I will tell you what is staking in crypto!<\/p>\n<p>I bet you’ve heard the term “<a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//best-crypto-staking-platform/">staking” before, multiple times, even. It’s a word that keeps popping up on various cryptocurrency exchange platforms, wallet interfaces, and so on. Now, have you ever thought - “what in the world does this word mean?!”? Well, that is EXACTLY what I will tell you about, in this section!<\/p>\n<p>In this section, we’re going to answer what is “staking” in crypto. Specifically, we’ll examine what this term ACTUALLY means, talk about the concepts of <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-proof-of-work-pow/">Proof-of-Work and <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-proof-of-stake-pos/">Proof-of-Stake, and take a look at some of the risks associated with the process, too!<\/p>\n<p>Let’s get to it!<\/p>\n<h2>What is Staking?<\/h2>\n<p>So, then - what in the world is “staking”?<\/p>\n<p>Well, in order to truly understand staking, you will need to be aware of concepts known as “Proof-of-Work” and “Proof-of-Stake”.<\/p>\n<p>I’ve discussed these terms in a section about <a href=https://www.bitdegree.org/"//crypto//learn//what-is-blockchain/">blockchains. If you’d like to learn more about it, and understand the topic in-depth, I’d highly advise you to go check that section out, and then come back to this one.<\/p>\n<p>With that out of the way, allow me to give you a brief run down.<\/p>\n<p>In the world of crypto, there are two main ways how blockchains function - those ways are called “Proof-of-Work” and “Proof-of-Stake”. Both of these concepts are called <strong>“consensus algorithms”<\/strong> - in human-speak, this refers to the methods of how blockchains verify the transactions (or, simply, processes) happening on them in order to save those transactions into the blockchain. So, when you buy or sell cryptocurrency, this is a transaction, and it needs to be checked & confirmed!<\/p>\n<p style=\"text-align: center;\"><img title=\"What is staking in crypto: what is staking.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-does-staking-mean-in-crypto-1.o.jpg/" alt=\"What is staking in crypto: what is staking.\" width=\"800\" height=\"619\" \/><\/p>\n<p>Proof-of-Work is the oldest and best-known transaction verification process. It’s used with <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin, <a href=https://www.bitdegree.org/"//crypto//buy-ethereum-eth/">Ethereum 1.0, and many other popular cryptocurrencies. With PoW, you have miners - special computers and crypto machines that are plugged into the network, and are constantly competing for their chance to earn cryptocurrency.<\/p>\n<p>Being the oldest form of transaction confirmations, PoW is often seen as the worst option, as well. Even though it’s used by a huge number of cryptocurrencies out there, most new and emerging coins are switching to the second, opposite one - the Proof-of-Stake concept.<\/p>\n<p><img title=\"What is staking in crypto: Proof-of-work.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-does-staking-mean-in-crypto-2.o.jpg/" alt=\"What is staking in crypto: Proof-of-work.\" width=\"800\" height=\"422\" \/><\/p>\n<p>The way you can look at both concepts of transaction verification is like this - imagine that there are two car race events happening in your town. In the Proof of Work racing event, all of the cars race to the finish line - however, only one of the cars wins the race! So, all of the other cars basically wasted <strong>fuel and energy<\/strong>.<\/p>\n<p>As opposed to that, in the Proof-of-Stake racing event, out of all the cars near the starting line, only one, let's say randomly, is selected to drive in the race. Thus, if there are, say, 100 different cars near the starting line, that’s a huge amount of fuel saved!<\/p>\n<p>With Proof-of-Work, all miners compete to verify transactions happening on the blockchain, but only one, in most cases the biggest and most powerful one, wins and receives a reward. On the flip side, with Proof-of-Stake, only a single miner (well, here, it’s actually called a validator) is chosen, and he needs to verify the transaction. And after that, let’s say, a few extra validators are needed to check his final result. It’s much more energy-efficient!<\/p>\n<p style=\"text-align: center;\"><img title=\"What is staking in crypto: Proof-of-Work and Proof-of-Stake.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-does-staking-mean-in-crypto-3.o.jpg/" alt=\"What is staking in crypto: Proof-of-Work and Proof-of-Stake.\" width=\"800\" height=\"754\" \/><\/p>\n<p>Now, this is where we get into the “staking” part of the section.<\/p>\n<p>As I’ve mentioned earlier, with PoW, transactions are confirmed with miners. These miners are special machines used to mine cryptocurrency. They are usually very expensive, consume astonishing amounts of electricity, and are <strong>bad for the environment.<\/strong><\/p>\n<p>In regards to PoS, there are no expensive machines to do the work. Well, at least none that you’d need to buy. Machines do exist, but you “mine” by staking your coins, and not turning on a special mining rig. In other words, transactions are confirmed by staking your existing cryptocurrency!<\/p>\n<p><img title=\"What is staking: Proof-of-Stake.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-does-staking-mean-in-crypto-4.o.jpg/" alt=\"What is staking: Proof-of-Stake.\" width=\"800\" height=\"613\" \/><\/p>\n<p>Let’s illustrate this with an example. Let’s take, say, the ADA coin, also known as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//tutorials//how-to-buy-cardano/">Cardano. It’s one of the most popular cryptocurrencies that uses a PoS consensus algorithm.<\/p>\n<p>If you want to become one of the people who confirm transactions on <strong>the ADA network<\/strong>, you don’t need to buy an expensive “ADA miner” - such machines do not exist. Instead, all that you need to have is some ADA cryptocurrency. Then, in a random order, validators are selected, and rewarded for legitimate transaction confirmations - this is as opposed to PoW, where everyone participates in the “race”.<\/p>\n<p>You will be confirming the transactions with your ADA coins - in a way, this acts as a casino. You stake your coins, and if the transaction is legitimate, you will receive rewards. If it’s not, you will lose all of your staked coins.<\/p>\n<p>Unlike a casino, though, your chances of “winning” aren’t based on luck. Instead, they are purely up to you - if there are malicious individuals trying to push a fraudulent transaction, they will be punished by losing all of their staked coins - this incentivizes the validators to remain fair, and <strong>avoid foul play<\/strong>.<\/p>\n<p>Remember the car race example I gave a bit earlier? Well, you might say - why would other cars go to the starting line, if only one car will actually drive in the race?<\/p>\n<p>Well, other cars - or, as it relates to our topic, other validators - are there to ensure that the chosen car does a good job, and actually finishes the race. When you stake your cryptocurrency, and validate a transaction, other validators are going to check whether or not you’ve done so successfully. If that’s the case, you get rewarded - if not, you get penalized, and your coins get taken away from you.<\/p>\n<p>As you can see, in a very general sense, the process is actually <strong>quite simple<\/strong> - it’s like you playing a multiple-choice guessing game, where your goal is to increase the value of your pot. The entire process described here is a representation of Proof-of-Stake, and showcases how blockchains confirm transactions in a fast, efficient, and energy-preserving way.<\/p>\n<p>One last point to discuss before moving on is the validator selection process. In other words, when all of the cars align at the starting line, and get ready to race, how is the single car that’ll participate in the race chosen?<\/p>\n<p>Well, there are three major criteria for choosing the one validator that’ll confirm a transaction - age, amount of coins, and a randomness-ensuring factor.<\/p>\n<p>The first two are self-explanatory - if you hold a huge amount of coins, and are staking them for a long time already, the network recognizes that you’re probably legitimate, and <strong>prioritizes picking you as the validator<\/strong>. However, in order to avoid a monopoly of large staking companies taking control of the entire blockchain infrastructure, there’s a random number picker inserted into the selection process, as well.<\/p>\n<p>In other words, even if you don’t hold a lot of coins, and have just started staking crypto, there is a chance that you’ll get picked as the validator, as well.<\/p>\n<h2>An Alternative Look at Staking<\/h2>\n<p>Up to this point in time, we’ve discussed staking from a very technical point of view - PoW, PoS, validators, transactions, and so on. I’d like to remind you that, if you want to learn more about each of these topics, make sure to go through the \"Bitdegree Crypto 101 Handbook\", you’ll find sections on all of the important topics that might interest you!<\/p>\n<p>Moving on, though, I would now like to tell you about an alternative way that you can look at staking - one that’s much simpler and more <strong>user-friendly<\/strong> than all of the technical stuff we’ve discussed up to this point.<\/p>\n<p>Staking allows blockchains to confirm transactions - that’s true. However, nowadays, the term can be seen on a huge variety of cryptocurrency exchanges, <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//best-cryptocurrency-wallet/">wallets, and other services. You might even notice terms such as “<strong><a href=https://www.bitdegree.org/"//crypto//learn//what-is-liquidity-pool-in-crypto/">liquidity pool<\/a><\/strong>” being mentioned, as well.<\/p>\n<p style=\"text-align: center;\"><img title=\"What is staking: An alternative look at staking.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-does-staking-mean-in-crypto-5.o.jpg/" alt=\"What is staking: An alternative look at staking.\" width=\"801\" height=\"479\" \/><\/p>\n<p>All of that is because staking allows you - the simple user - to earn rewards in almost the same way as original big Proof-of-Stake validators, but without setting up and owning machines or solving software and connection issues!<\/p>\n<p>For us, small or medium crypto holders - staking is a good chance to earn extra with cryptocurrencies that we have decided to hold and not to trade for a specific period of time. Imagine, you have decided to earn from your Bitcoins that you have just bought, just by holding them for 10 years, you’re not a day trader, but a long-term crypto “hodler” with no speculative intentions or even knowledge.<\/p>\n<p>In this situation, with <strong>staking pool services<\/strong>, you’ll be able to earn the same way, by just holding your Bitcoins and not selling them for 10 years, predicting that the value of Bitcoin will grow, and as an extra, by “lending” those same Bitcoins to the staking pool and earning. <\/p>\n<p>Specifically, while you stake your crypto coins on exchange pools, you are able to earn a passive interest. It’s like trusting your money with a friend, for a specified amount of time, and then getting back more than you’ve given.<\/p>\n<p>The concept is very popular among smaller or medium crypto enthusiasts, since it involves earning more cryptocurrency, without actually doing anything. You just delegate your coins to an exchanges’ staking pool for a specific period - it may look complicated, but with many exchanges or wallets, all that you need to do is to click a single button, and wait. That’s it!<\/p>\n<p>All other technical parts of the validation process are covered by <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//best-cryptocurrency-exchange/">exchanges or staking pool owners themselves. By attracting your extra funds, exchanges make their staking pool bigger, they get chosen to validate transactions more frequently, and because of a higher probability to be chosen, <strong>they earn more<\/strong>, and finally, they share the revenue from these validations with you.<\/p>\n<h2>Staking Risks<\/h2>\n<p>Now, I don’t want to alarm you, but you should be aware of the fact that there are risks associated with staking, too. Just like in the earlier-mentioned casino example, you might end up with more crypto than you’ve initially started with, or lose everything.<\/p>\n<p>That’s the biggest risk, actually - if you or a staking pool confirm a faulty transaction, you are at risk of losing all of your staked coins. This is why it is very important to choose the verified and well-known staking pool as a service provider. However, while this is the most commonly-referenced risk, there are other things to be aware of when deciding on whether or not you should start staking your crypto!<\/p>\n<p><img title=\"What is staking: Staking risks.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-does-staking-mean-in-crypto-6.o.jpg/" alt=\"What is staking: Staking risks.\" width=\"800\" height=\"219\" \/><\/p>\n<p>For example, the process is still rather technical. If you plan to stake simply in order to earn interest, on an exchange platform, things are going to be simple - most exchanges and wallets have <strong>guides on how to do so.<\/strong><\/p>\n<p>However, if you want to become an actual validator of a network on your own, you’ll need to delve deeper into the topics of blockchains, Proof-of-Stake, and hardware stuff.<\/p>\n<p>Furthermore, while staking your coins, you will need to <strong>lock<\/strong> them up for a period of time. Meaning that you won’t be able to <strong>withdraw<\/strong> or trade them! The time periods will differ depending on a few different criteria, but if you’re an active day trader, this might pose an issue.<\/p>\n<p>The topic of staking (and Proof-of-Stake) can be difficult and complicated, but in this section, we’ve covered all of the core aspects, in simple terms. That being said, I hope that the concept is understandable for you now.<\/p>","definition":"Did you know that staking is a means of earning passive income?","status":"published","meta_title":"What is Staking in Crypto: Proof-of-Work or Proof-of-Stake?","meta_description":"Learn what staking means in crypto, how it is defined, & and how it works. Find out about PoW and PoS, and the possible staking risks.","meta_keywords":"What Does Staking Mean in Crypto, What is Staking in Crypto, staking in crypto, staking in crypto meaning, define staking in crypto, how does staking work in crypto","modified_content":"<p>In this section, I will tell you what is staking in crypto!<\/p>\n<p>I bet you’ve heard the term “<a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//best-crypto-staking-platform/">staking” before, multiple times, even. It’s a word that keeps popping up on various cryptocurrency exchange platforms, wallet interfaces, and so on. Now, have you ever thought - “what in the world does this word mean?!”? Well, that is EXACTLY what I will tell you about, in this section!<\/p>\n<p>In this section, we’re going to answer what is “staking” in crypto. Specifically, we’ll examine what this term ACTUALLY means, talk about the concepts of <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-proof-of-work-pow/">Proof-of-Work and <a href=https://www.bitdegree.org/"//crypto//learn//crypto-terms//what-is-proof-of-stake-pos/">Proof-of-Stake, and take a look at some of the risks associated with the process, too!<\/p>\n<p>Let’s get to it!<\/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 Does Staking Mean in Crypto? (Easily Explained!)\"\n title=\"What Does Staking Mean in Crypto? (Easily Explained!)\" class=\"border-0\">\n <p>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: What is the Goal of Staking Crypto Assets?<\/h4>\n <p class=\"py-1 mb-0 youtube-video-subtitle\">Reading is not your thing? Watch the \"What is the Goal of Staking Crypto Assets?\" 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=\"irhlfrCrywo\" data-title=\"CryptoFinallyExplained\">\n <div class=\"video-gradient-top\"><\/div>\n <p class=\"text-left dyk-video-title\">What Does Staking Mean in Crypto? (Easily Explained!)<\/p>\n <img data-srcset=\"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-does-staking-mean-in-crypto-easily-explained.jpg?tr=w-420 500w,\n https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-does-staking-mean-in-crypto-easily-explained.jpg?tr=w-760 1000w\"\n alt=\"What Does Staking Mean in Crypto? (Easily Explained!)\"\n title=\"What Does Staking Mean in Crypto? (Easily Explained!)\"\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 Does Staking Mean in Crypto? (Easily Explained!)\">\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 class=\"fab fa-youtube yt-dyk-btn\"><\/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 <span>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 aria-hidden=\"true\" class=\"fas fa-times\"><\/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 <p class=\"m-0 mt-1 mr-3\">SUBSCRIBE<br>\n <span class=\"m-0\">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 <span>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?<\/h2>\n<p>So, then - what in the world is “staking”?<\/p>\n<p>Well, in order to truly understand staking, you will need to be aware of concepts known as “Proof-of-Work” and “Proof-of-Stake”.<\/p>\n<p>I’ve discussed these terms in a section about <a href=https://www.bitdegree.org/"//crypto//learn//what-is-blockchain/">blockchains. If you’d like to learn more about it, and understand the topic in-depth, I’d highly advise you to go check that section out, and then come back to this one.<\/p>\n<p>With that out of the way, allow me to give you a brief run down.<\/p>\n<p>In the world of crypto, there are two main ways how blockchains function - those ways are called “Proof-of-Work” and “Proof-of-Stake”. Both of these concepts are called <strong>“consensus algorithms”<\/strong> - in human-speak, this refers to the methods of how blockchains verify the transactions (or, simply, processes) happening on them in order to save those transactions into the blockchain. So, when you buy or sell cryptocurrency, this is a transaction, and it needs to be checked & confirmed!<\/p>\n<p style=\"text-align: center;\"><img title=\"What is staking in crypto: what is staking.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-does-staking-mean-in-crypto-1.o.jpg/" alt=\"What is staking in crypto: what is staking.\" width=\"800\" height=\"619\" \/><\/p>\n<p>Proof-of-Work is the oldest and best-known transaction verification process. It’s used with <a href=https://www.bitdegree.org/"//crypto//buy-bitcoin-btc/">Bitcoin, <a href=https://www.bitdegree.org/"//crypto//buy-ethereum-eth/">Ethereum 1.0, and many other popular cryptocurrencies. With PoW, you have miners - special computers and crypto machines that are plugged into the network, and are constantly competing for their chance to earn cryptocurrency.<\/p>\n<p>Being the oldest form of transaction confirmations, PoW is often seen as the worst option, as well. Even though it’s used by a huge number of cryptocurrencies out there, most new and emerging coins are switching to the second, opposite one - the Proof-of-Stake concept.<\/p>\n<p><img title=\"What is staking in crypto: Proof-of-work.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-does-staking-mean-in-crypto-2.o.jpg/" alt=\"What is staking in crypto: Proof-of-work.\" width=\"800\" height=\"422\" \/><\/p>\n<p>The way you can look at both concepts of transaction verification is like this - imagine that there are two car race events happening in your town. In the Proof of Work racing event, all of the cars race to the finish line - however, only one of the cars wins the race! So, all of the other cars basically wasted <strong>fuel and energy<\/strong>.<\/p>\n<p>As opposed to that, in the Proof-of-Stake racing event, out of all the cars near the starting line, only one, let's say randomly, is selected to drive in the race. Thus, if there are, say, 100 different cars near the starting line, that’s a huge amount of fuel saved!<\/p>\n<p>With Proof-of-Work, all miners compete to verify transactions happening on the blockchain, but only one, in most cases the biggest and most powerful one, wins and receives a reward. On the flip side, with Proof-of-Stake, only a single miner (well, here, it’s actually called a validator) is chosen, and he needs to verify the transaction. And after that, let’s say, a few extra validators are needed to check his final result. It’s much more energy-efficient!<\/p>\n<p style=\"text-align: center;\"><img title=\"What is staking in crypto: Proof-of-Work and Proof-of-Stake.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-does-staking-mean-in-crypto-3.o.jpg/" alt=\"What is staking in crypto: Proof-of-Work and Proof-of-Stake.\" width=\"800\" height=\"754\" \/><\/p>\n<p>Now, this is where we get into the “staking” part of the section.<\/p>\n<p>As I’ve mentioned earlier, with PoW, transactions are confirmed with miners. These miners are special machines used to mine cryptocurrency. They are usually very expensive, consume astonishing amounts of electricity, and are <strong>bad for the environment.<\/strong><\/p>\n<p>In regards to PoS, there are no expensive machines to do the work. Well, at least none that you’d need to buy. Machines do exist, but you “mine” by staking your coins, and not turning on a special mining rig. In other words, transactions are confirmed by staking your existing cryptocurrency!<\/p>\n<p><img title=\"What is staking: Proof-of-Stake.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-does-staking-mean-in-crypto-4.o.jpg/" alt=\"What is staking: Proof-of-Stake.\" width=\"800\" height=\"613\" \/><\/p>\n<p>Let’s illustrate this with an example. Let’s take, say, the ADA coin, also known as <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//tutorials//how-to-buy-cardano/">Cardano. It’s one of the most popular cryptocurrencies that uses a PoS consensus algorithm.<\/p>\n<p>If you want to become one of the people who confirm transactions on <strong>the ADA network<\/strong>, you don’t need to buy an expensive “ADA miner” - such machines do not exist. Instead, all that you need to have is some ADA cryptocurrency. Then, in a random order, validators are selected, and rewarded for legitimate transaction confirmations - this is as opposed to PoW, where everyone participates in the “race”.<\/p>\n<p>You will be confirming the transactions with your ADA coins - in a way, this acts as a casino. You stake your coins, and if the transaction is legitimate, you will receive rewards. If it’s not, you will lose all of your staked coins.<\/p>\n<p>Unlike a casino, though, your chances of “winning” aren’t based on luck. Instead, they are purely up to you - if there are malicious individuals trying to push a fraudulent transaction, they will be punished by losing all of their staked coins - this incentivizes the validators to remain fair, and <strong>avoid foul play<\/strong>.<\/p>\n<p>Remember the car race example I gave a bit earlier? Well, you might say - why would other cars go to the starting line, if only one car will actually drive in the race?<\/p>\n<p>Well, other cars - or, as it relates to our topic, other validators - are there to ensure that the chosen car does a good job, and actually finishes the race. When you stake your cryptocurrency, and validate a transaction, other validators are going to check whether or not you’ve done so successfully. If that’s the case, you get rewarded - if not, you get penalized, and your coins get taken away from you.<\/p>\n<p>As you can see, in a very general sense, the process is actually <strong>quite simple<\/strong> - it’s like you playing a multiple-choice guessing game, where your goal is to increase the value of your pot. The entire process described here is a representation of Proof-of-Stake, and showcases how blockchains confirm transactions in a fast, efficient, and energy-preserving way.<\/p>\n<p>One last point to discuss before moving on is the validator selection process. In other words, when all of the cars align at the starting line, and get ready to race, how is the single car that’ll participate in the race chosen?<\/p>\n<p>Well, there are three major criteria for choosing the one validator that’ll confirm a transaction - age, amount of coins, and a randomness-ensuring factor.<\/p>\n<p>The first two are self-explanatory - if you hold a huge amount of coins, and are staking them for a long time already, the network recognizes that you’re probably legitimate, and <strong>prioritizes picking you as the validator<\/strong>. However, in order to avoid a monopoly of large staking companies taking control of the entire blockchain infrastructure, there’s a random number picker inserted into the selection process, as well.<\/p>\n<p>In other words, even if you don’t hold a lot of coins, and have just started staking crypto, there is a chance that you’ll get picked as the validator, as well.<\/p>\n<h2>An Alternative Look at Staking<\/h2>\n<p>Up to this point in time, we’ve discussed staking from a very technical point of view - PoW, PoS, validators, transactions, and so on. I’d like to remind you that, if you want to learn more about each of these topics, make sure to go through the \"Bitdegree Crypto 101 Handbook\", you’ll find sections on all of the important topics that might interest you!<\/p>\n<p>Moving on, though, I would now like to tell you about an alternative way that you can look at staking - one that’s much simpler and more <strong>user-friendly<\/strong> than all of the technical stuff we’ve discussed up to this point.<\/p>\n<p>Staking allows blockchains to confirm transactions - that’s true. However, nowadays, the term can be seen on a huge variety of cryptocurrency exchanges, <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//best-cryptocurrency-wallet/">wallets, and other services. You might even notice terms such as “<strong><a href=https://www.bitdegree.org/"//crypto//learn//what-is-liquidity-pool-in-crypto/">liquidity pool<\/a><\/strong>” being mentioned, as well.<\/p>\n<p style=\"text-align: center;\"><img title=\"What is staking: An alternative look at staking.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-does-staking-mean-in-crypto-5.o.jpg/" alt=\"What is staking: An alternative look at staking.\" width=\"801\" height=\"479\" \/><\/p>\n<p>All of that is because staking allows you - the simple user - to earn rewards in almost the same way as original big Proof-of-Stake validators, but without setting up and owning machines or solving software and connection issues!<\/p>\n<p>For us, small or medium crypto holders - staking is a good chance to earn extra with cryptocurrencies that we have decided to hold and not to trade for a specific period of time. Imagine, you have decided to earn from your Bitcoins that you have just bought, just by holding them for 10 years, you’re not a day trader, but a long-term crypto “hodler” with no speculative intentions or even knowledge.<\/p>\n<p>In this situation, with <strong>staking pool services<\/strong>, you’ll be able to earn the same way, by just holding your Bitcoins and not selling them for 10 years, predicting that the value of Bitcoin will grow, and as an extra, by “lending” those same Bitcoins to the staking pool and earning. <\/p>\n<p>Specifically, while you stake your crypto coins on exchange pools, you are able to earn a passive interest. It’s like trusting your money with a friend, for a specified amount of time, and then getting back more than you’ve given.<\/p>\n<p>The concept is very popular among smaller or medium crypto enthusiasts, since it involves earning more cryptocurrency, without actually doing anything. You just delegate your coins to an exchanges’ staking pool for a specific period - it may look complicated, but with many exchanges or wallets, all that you need to do is to click a single button, and wait. That’s it!<\/p>\n<p>All other technical parts of the validation process are covered by <a href=https://www.bitdegree.org/"https:////www.bitdegree.org//crypto//best-cryptocurrency-exchange/">exchanges or staking pool owners themselves. By attracting your extra funds, exchanges make their staking pool bigger, they get chosen to validate transactions more frequently, and because of a higher probability to be chosen, <strong>they earn more<\/strong>, and finally, they share the revenue from these validations with you.<\/p>\n<h2>Staking Risks<\/h2>\n<p>Now, I don’t want to alarm you, but you should be aware of the fact that there are risks associated with staking, too. Just like in the earlier-mentioned casino example, you might end up with more crypto than you’ve initially started with, or lose everything.<\/p>\n<p>That’s the biggest risk, actually - if you or a staking pool confirm a faulty transaction, you are at risk of losing all of your staked coins. This is why it is very important to choose the verified and well-known staking pool as a service provider. However, while this is the most commonly-referenced risk, there are other things to be aware of when deciding on whether or not you should start staking your crypto!<\/p>\n<p><img title=\"What is staking: Staking risks.\" src=https://www.bitdegree.org/"https:////assets.bitdegree.org//crypto//storage//media//what-does-staking-mean-in-crypto-6.o.jpg/" alt=\"What is staking: Staking risks.\" width=\"800\" height=\"219\" \/><\/p>\n<p>For example, the process is still rather technical. If you plan to stake simply in order to earn interest, on an exchange platform, things are going to be simple - most exchanges and wallets have <strong>guides on how to do so.<\/strong><\/p>\n<p>However, if you want to become an actual validator of a network on your own, you’ll need to delve deeper into the topics of blockchains, Proof-of-Stake, and hardware stuff.<\/p>\n<p>Furthermore, while staking your coins, you will need to <strong>lock<\/strong> them up for a period of time. Meaning that you won’t be able to <strong>withdraw<\/strong> or trade them! The time periods will differ depending on a few different criteria, but if you’re an active day trader, this might pose an issue.<\/p>\n<p>The topic of staking (and Proof-of-Stake) can be difficult and complicated, but in this section, we’ve covered all of the core aspects, in simple terms. That being said, I hope that the concept is understandable for you now.<\/p>","youtube_video":{"id":2,"channel_id":1,"sort":86,"video_title":"What Does Staking Mean in Crypto? (Easily Explained!)","description":"What does staking mean in crypto?\n\nIn the crypto world, staking is a process when you take your cryptocurrency, and \u201cemploy\u201d it to earn a passive interest over time. Staking usually refers to Proof-of-Stake - a consensus algorithm that allows cryptocurrency holders to become validators on the network, and confirm the transactions happening within.\n\nAdmittedly, staking isn\u2019t a simple topic to wrap your head around. In this video, I aim to help you do just that - I\u2019ll tell you about staking and Proof-of-Stake, and all of the processes associated with these concepts!\n\nHave you ever staked any crypto coins yourself? Share your experiences in the comments down below!\n\nVideo Time Table:\n\n0:00 Introduction to What Does Staking Mean in Crypto\n0:53 What is Staking?\n7:03 Alternative Look at Staking\n9:13 Staking Risks\n10:19 Wrap-up: What Does Staking Mean in Crypto?\n\nGet Quick Crypto Tips on Twitter - Follow:\nhttps:\/\/twitter.com\/crypto_xplained\n\n#WhatDoesStakingMeanInCrypto #WhatIsStakingInCrypto #StakingInCrypto #StakingInCryptoMeaning #DefineStakingInCrypto #HowDoesStakingWorkInCrypto #StakingCrypto","video_id":"irhlfrCrywo","duration":641,"view_count":2104,"thumbnail_url":"https:\/\/assets.bitdegree.org\/youtube\/crypto-finally-explained\/what-does-staking-mean-in-crypto-easily-explained.jpg","thumbnail_width":1280,"thumbnail_height":720,"published_at":"2022-02-15T12:39:31.000000Z","created_at":"2022-02-21T13:20:28.000000Z","updated_at":"2024-01-09T23:00:04.000000Z","channel":{"id":1,"title":"CryptoFinallyExplained","channel_id":"UCOryUY0yxC08eJtK23mNgiA","main_playlist_id":"UUOryUY0yxC08eJtK23mNgiA"}},"featured_image":{"id":3044,"uuid":"8ec6f2a2-871c-45b9-9990-4a53507c31ae","name":"what-is-staking.o.jpg","url":"https:\/\/assets.bitdegree.org\/crypto\/storage\/media\/what-is-staking.o.jpg","path":"crypto\/storage\/media\/what-is-staking.o.jpg","mime_type":"image\/jpeg","disk":"digitalOceanSpaces","size":264807,"width":768,"height":478,"custom_properties":null,"created_at":"2023-06-19T06:58:36.000000Z","updated_at":"2023-06-19T06:58:36.000000Z"}}" :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 Analysis","slug":"crypto-analysis","updated":null,"chapter":"crypto\/assets\/crypto-book\/chapters\/learn-crypto-analysis.jpg","chapter_simple":"crypto\/assets\/crypto-book\/chapters-simple\/crypto-analysis-101.jpg","rating":100,"sections":[{"chapter_id":8,"order":1,"slug":"what-is-bullish-and-bearish","title":"Bearish and Bullish Markets: Do They Matter?","status":"published","modified_content":null},{"chapter_id":8,"order":2,"slug":"best-technical-analysis-indicators-for-crypto","title":"5 Best Crypto Technical Analysis Indicators You Must Know About","status":"published","modified_content":null},{"chapter_id":8,"order":3,"slug":"what-is-candlesticks","title":"Technical Analysis: What are Candlesticks, Trendlines, and Patterns?","status":"published","modified_content":null},{"chapter_id":8,"order":4,"slug":"how-to-track-new-crypto-coins","title":"Crypto Tracking: How to Track Your Favorite Coins & 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="dapps-and-defi" current-section="what-is-staking-in-crypto">

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