What Is Bitcoin Staking

Bitcoin Staking or “Proof of Stake” is explained by many blockchain experts as follows:

“Proof-of-Stake algorithms achieve consensus by requiring users to stake an amount of their tokens so as to have a chance of being selected to validate blocks of transactions, and get rewarded for doing so.”

Proof of Stake or Bitcoin Staking shares many similarities with Proof of Work, but also differs in fundamental ways. As in any blockchain based consensus algorithm, the goal is still to achieve distributed consensus — to create a secure system whereby users are incentivised to validate other peoples’ transactions while maintaining complete integrity. In Proof of Stake the miner of a new block, in this case known as the forger, is chosen in a semi-random, two-part process. The first element to be considered in this selection process is a user’s stake. How much of the currency in question is the user staking? Every validator must own a stake in the network. Staking involves depositing an amount of tokens into the system, locking it in what you can think of as a virtual safe, and using it as a collateral to vouch for the block. The more a user stakes, the better their chance of being selected since they’d have more skin in the game — acting maliciously would see them set back by a greater amount than someone who stakes less. In the majority of Proof of Stake consensus algorithms, the incentive to partake in validation of blocks is a payout in the form of transaction fees, as opposed to freshly created currency in Proof of Work systems.

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