Exploring the History of Staking

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Cryptocurrency staking is a popular way to increase digital assets. It is similar to depositing money in a bank, which uses customer deposits to form loans for others and incentivizes them with interest payments.

More specifically, crypto staking is the transfer of a part of coins to the blockchain to keep the network functioning and secure.

For this contribution, coin owners are rewarded in the form of a percentage of the deposited funds. The process is a way to make passive income, so it’s quite convenient.

Staking has not always been talked about and used as much as it is now. To understand how this phenomenon became so popular, it is worth studying its history.

Why did staking appear

For a more complete understanding of the topic, it is necessary to consider such concepts as PoW (proof-of-work) and PoS (proof-of-stake) mechanisms, as they had a direct impact on the staking emergence.

Looking ahead, staking appeared as a result of PoW problems.

Challenges of the PoW mechanism

PoW involves verifying transactions and creating new blocks in the blockchain. The verifiers here are called ‘miners,’ who compete to solve math tasks – whoever solves it first adds the next block and gets rewarded.

This concept worked fine until the popularity of cryptocurrencies started to grow intensively, and the networks became overloaded.

PoW could no longer process a large number of TPS (transactions per second), which began to limit network bandwidth.

Moreover, this mechanism is very energy-intensive and requires a lot of computational power. It became especially noticeable in the context of increasing network activity and only reinforced the need for change.

Introduction of the PoS mechanism

The answer to the problems of the PoW mechanism was a new one, which was PoS. Its idea was proposed in 2011 on the BitcoinTalk forum by a user of the QuantumMechanic nickname.

He said that the PoS mechanism would select network validators to add new blocks to the blockchain based on the number of coins they have and are willing to stake as collateral.

Such a measure was supposed to reduce the speed of transaction processing, since validators would not have to spend time on tasks.

For the same reason, there was no need for powerful computing equipment, which would decrease energy consumption.

This scheme worked – already in 2012, the PoS mechanism was first introduced by the Peercoin cryptocurrency.

Stages of the staking…