#marsecosystem

An Introduction to Cryptocurrency Staking

On the surface level, staking is a way of earning rewards for holding some cryptocurrencies. It involves locking up a portion of your cryptocurrency for a specific period as a way of contributing to a blockchain network. Stakers get rewarded typically in the form of additional coins or tokens. 

Staking can be considered similar to traditional investment instruments, such as depositing money in a bank and agreeing not to withdraw it for a set period. This generates interest for the depositor. Staking involves delegating a certain number of tokens towards the administrative model of the blockchain. These tokens are out of circulation for a specified length of time.

How does staking work?

If a cryptocurrency allows staking, such as the MARS Coin - the holder can volunteer to stack his tokens. In exchange, the holder may earn rewards. The staked tokens generate rewards because they work in a consensus mechanism called Proof of Stake. 

With the lack of a central governing authority in decentralized networks, all transactions are verified using a consensus mechanism. Blockchain networks employ a consensus mechanism to achieve a necessary agreement on various transactions by synchronizing the majority of the nodes on the network. There are two types of consensus mechanisms used by blockchain networks: Proof of Work and Proof of Stake.

Proof of Work vs Proof of Stake

Via proof of work, the network throws an incredible amount of processing power at solving mathematical problems for validating transactions and ensuring the legitimacy of the same. Miners are involved in solving these cryptographic puzzles. The first to solve these equations earns the right to add the latest block to the blockchain and receive some crypto tokens for their effort.

Proof of work is a scalable solution for simpler blockchains such as Bitcoin, which track incoming and outgoing transactions like a ledger. But it may cause bottlenecks when applied to complex blockchains such as Ethereum. 

On the other hand, Proof of Stake omits the idea of miners solving math problems through an energy-intensive process. Instead, users put their tokens to stake to be eligible to add a new block onto the blockchain in exchange for a reward. These staked tokens act as a guarantee of the legitimacy of the transactions they add to the blockchain.

Validators are chosen by the network, depending on the size of their stake and the length of time they have held it. If transactions approved by a validator are found to be invalid, a certain amount of their stake can be burnt by the network. The burning of such stakes is called a slashing event. 

Benefits of Staking?

Stakers get voting rights. These give the investor a say in the development of the protocol for a cryptocurrency. Additionally, as staking is a cost-effective method of verification, validators get to contribute to the security and efficiency of the blockchain they have invested in.

With tokens such as MARS, investors can simply opt to stake their holding and watch it grow without stressing about mining. Staking requires lesser resources as opposed to mining which uses intensive mining equipment and power. Long term cryptocurrency holders reap the benefits of earning additional crypto tokens by putting them at stake.

The development of blockchain can be roughly divided into three stages, marked off by important developments and inventions. Even though the technology has only recently debuted in the grand scheme of the Internet, it's easy to mark its early milestones.

Blockchain for Bitcoin

The pseudonym developer of Bitcoin, Satoshi Nakamoto is widely credited for outlining blockchain in its current form. Though ideas were floating in the Computer Science communities, the technology was initially conceptualized to support the Bitcoin network. The technology found varied applications over the course of its development. However, it was designed specifically to advance the horizons for digital currency.

At its inception, blockchain was to be set up as a shared public ledger that could support a cryptocurrency network. Blockchain technology in its present forms relies heavily on the features it was established with and Bitcoin’s blockchain largely remains unchanged. 

Satoshi’s idea for blockchain was to make use of 1MB worth of information on transactions, per block. These blocks were placed on a chain through a complex cryptographic verification process, making the placement immutable. Hence, creating a highly secure permanent record. 

Contracts – The next development

Blockchain was believed to be a revolutionary technology that had the potential to do more than documenting digital transactions. Innovation was at its prime. The founders of Ethereum, for instance, introduced the idea of smart contracts, which became another milestone for blockchain development.

Contracts in the traditional sense are managed between two entities, sometimes under the oversight of a third mediating entity. Smart contracts, on the other hand, are self-managed on a blockchain. These contracts are actually computer programs that can oversee all aspects of an agreement, from creation to execution. Changes and adjustments within such contracts are updated when conditions are met, such as expiration dates. This holds the potential to manage documentation with no involvement of an outside entity and can be applied to almost all fields of business.

Footsteps towards the future

Blockchains’ biggest challenge remains scaling. Cryptocurrencies have time and again tried to revise their blockchain in order to ensure scalability, improve transaction processing times, and avoid bottlenecking. The next big milestone for blockchain technology will target an easier scalability.

New applications beyond the cryptocurrency industry are also being constantly developed. Blockchain technology has already seeped into the world of supply-chain management effectively. The technology also offers a tremendous level of security given its decentralized verification process, which makes it great for identity management. This mechanism could ideally be used for identity verification. The culmination of blockchain with other adjacent technologies will also give rise to exciting technological developments.