Staking in layman’s terms means you put in your coins and the platform will reward you with extra coins, similar to a term deposit. The platform secures your money to invest on its ecosystem, while you being an investor, get the extra coins as a percentage of the coins you staked. The reward coins/staked coins is normally greater than any interest of a term deposit therefore you get better return at the end. Unlike a term deposit, your staked coins still stay in your wallet therefore staking is considered very safe.
It appears a Win-Win however the systematic risk is any cypto fluctuates a lot so it’s possible you lose your real money at the end, even though your total coins are always increasing but the opposite is also true that when this crypto increases its value, you could end up with a lot more real money, just take a look at Bitcoin’s shocking price.
Staking is considered as the 2nd generation of “mining” as the first generation of mining needs super powerful GPUs which consume too much electricity for nothing good to the society(it’s actually necessary for the cypto platform, I’ll explain this later) while staking only takes a fraction of electricity so this model (Proof of Stake, PoS) is being adopted by more and more cypto coins nowadays.
Staking model employs two roles: a pool operator verifies and certifies a block so that it becomes a coin; a delegator (i.e. an investor) simply delegates his/her coins to this pool operator who will then distribute reward coins (generated by the platform and certified by the pool operator) among all delegators within this pool operator.
Under staking model, most users don’t need to invest on powerful machines as they can delegate their coins to a pool operator whose role is technically the same as a miner(i.e. to certify a coin).
Regardless of mining or staking, a crypto platform always needs to employ a group of privileged users: miner or pool operator. Different coins use different methods to determine who can be a miner or pool operator, and in essence it’s capital: a miner needs to have money to buy special equipment(i.e. GPU) . A stake pool operator needs to prove its trustworthiness and vast majority of coin platforms require them to invest a lot upfront on servers/networks/initial deposit of coins.
Under mining model, miners who have powerful machines will have more chance to mine a coin; Under staking model, a pool operator with larger staked coins would have more chance to be rewarded; It’s however not in the best interest of the platform to have just a few “privileged” users as this discourages decentralisation, which brings in huge risks to the overall platform.
Cadano uses a lottery system so smaller operator still has a chance to become a pool operator but the chance also greatly depends on staked coins so it may take 100 years or more for a small operator to be elected; Harmony One uses an quite fair system to share all reward coins to all elected validators however in order to be elected an operator must be the top 100 or so in terms of staked coins.
I’ll provide a more detailed demo on how to become a Harmony One pool operator, so stay tuned!