Featured Article

What is Staking
(And Why Does It Matter)?

Staking is a critical function of protocols that operate under the Proof-of-Stake (PoS) model. Cardano, Etherium, Avalanche, and many other tokens operate on this principle. It’s a different mechanism that validates transactions between two parties than the Proof-of-Work protocol that Bitcoin employs.

But that’s an article for another time.

So, What Is Staking?

In short: A way for investors to earn rewards for holding different protocols. But it’s not just a passive income idea. It’s passive income with a purpose.

Staking is what’s called a “consensus mechanism”. Without a central authority, transactions require reliable validation. Validation requires servers and uptime. Acquiring too many servers would quickly create a central authority. See the problem?

So, protocols ingeniously decided to incentivize existing servers across the globe to donate their power to different networks.

What Uber did for ridesharing, PoS protocols did computing.

Stake pools (like Sonarch) set up 24/7 servers that networks like Cardano could use to validate transactions on the network anonymously, provided they had enough “skin in the game” to prove they were a worthy partner.

How Does Staking Work?

For a network to recognize and reward a stake pool (and its delegators) you need a few things:

  • Enough pooled tokens to prove that you are reliable.
  • The hardware to provide consistent uptime for the network to consistently use.

That’s as simple as we can get. The benefit to delegators is that everytime we mint a new block (i.e. validate transactions on the Cardano network) that protocol rewards the node with tokens that are automatically distributed to delegators, netting you an average ROI of ~5% per year.

Not too shabby for just waiting around.

Why Stake?

You make money for waiting. It’s a pretty sweet deal. Stake with a reliable, transparent operator, and there’s virtually no downside. If you invest in protocols you believe in, that means you believe they’ll gain adoption and grow. Who doesn’t want to grow with growth?

It’s also more energy efficient than mining. You retain custody of your crypto (barring a small waiting period to stake and un-stake). And you can lord your digital savviness over your fiat friends. Everyone wins.

But seriously: If you believe in the mission behind a protocol (and if you invested resources, why wouldn’t you?) then you should stake to help that protocol succeed. Carefully consider the protocols you invest in, and the missions of the stake pools you delegate to. They matter. Which is why we chose to focus our efforts on Cardano.

What Are the Risks?

The only risk is the time it takes to undelegate your tokens. Every protocol is different, but generally if you are into crypto for swapping purposes, you should not stake. If you are a long term investor, you should heavily consider it. You’ll contribute to the security and efficiency of your chosen protocol (reward = warm fuzzies) while reaping the rewards of a powerful incentive (reward = cold, hard crypto).*

How Do I Collect Crypto Rewards?

You wait. For many networks like Cardano, the complex, All-Seeing Algorithm™ uses an intricate system of variables to decide who to reward for writing the next block in the ledger. But know, that the payout is largely the same over a long enough period regardless of the size of your chosen stake pool.

Stick with a big guy, and you get small but consistent rewards.

Thank you for reading.

If there are any in-depth questions we can answer, reach out to us on Twitter, contact us on Reddit, or join our Discord! If you’re ready to stake, and support making blockchain technology accessible to everyone, do it with Sonarch. Search ARCH1 in your preferred wallet provider.

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