Crypto Staking: How It Helps Secure Billions of Dollars Worth of Value

Introduction
The nature of blockchain networks has created the need for mechanisms to ensure the smooth operation of crypto protocols. One major characteristic of blockchains is decentralization, which entails the participation of several users in the network’s day-to-day activities.
Crypto staking helps uphold decentralization. This mechanism enables community members of a crypto project to participate in the validation of transactions on the network. The best part is that they earn rewards while verifying transactions. So, in this scenario, their crypto assets are working for them.
What is Crypto Staking?
Crypto staking allows users to participate in a network’s transaction validation process by locking their digital assets in designated smart contracts. This feature is peculiar to protocols that have Proof-of-Stake (PoS) consensus mechanisms.
Consensus mechanisms refer to methods of validating entries into a data set. They ensure that every participant in a decentralized finance (DeFi) network unanimously agrees on and verifies data added to a blockchain, eliminating the need for a trusted third party. So, PoS is a consensus mechanism that enables the processing of transactions and the creation of new blocks in a blockchain.
To become part of those approving transactions in a PoS blockchain, network participants need to run validator programs linked to cryptocurrency nodes – which host and synchronize copies of blockchain networks. To access these validator programs, they need to stake their cryptocurrencies.
It is worth mentioning that validators do not always approve transactions. They are randomly selected to verify and process a new block, and the chances of a validator being chosen are affected by the number of tokens they have staked. So, the more crypto a validator stakes, the higher the odds of their selection. Also, they get to earn the rewards associated with the transactions they approve.
Top Blockchains By Amounts of Staked Value
Crypto staking is not just an avenue for network participants to validate transactions and earn rewards; this mechanism strengthens a network’s stability and security. The higher the value of tokens staked on a blockchain, the stronger the security and reliability of the network, especially as validators risk losing their staked assets if they misbehave or approve false transactions.
There are many blockchains with PoS consensus mechanisms, but they are not on the same level when analyzed by total staked value or staking market capitalization, which is determined by multiplying the staked tokens with the current price of the asset. This means that some blockchains have higher staked tokens than others, and all things being considered, they are often more reliable and secure than their counterparts.
While the total staked value in the PoS market amounts to $2.8 trillion, data from Staking Rewards shows the top blockchains by staked value, and they include:
- Ethereum: Ethereum is the second-largest crypto network by market capitalization. The blockchain transitioned from a Proof-of-Work (PoW) consensus mechanism to that of PoS in September 2022 through a process known as “the Merge,” and since then has amassed over $106.6 billion in staked value.
- Solana: Solana was created and launched as a PoS network, but the blockchain also uses a Proof-of-History (PoH) consensus mechanism. Over the years, Solana has grown into one of the largest public blockchains and now has a total staked value exceeding $91 billion.
- Sui: The Sui network went live in May 2023 but has evolved into one of the largest PoS chains in the crypto space, with a value of $29.69 billion. This remarkable growth can be attributed to the protocol’s high staking ratio, which indicates a more committed community of token holders.
- BNB Chain: BNB Chain, created by Binance, the world’s largest crypto exchange, has a staked value of $21 billion. This network dates back to April 2019.
- Cardano: Cardano is one of the leading alternative crypto networks in the industry, with a staking market cap of $20 billion.
PoS vs PoW: Which is Superior?
Before PoS consensus mechanisms existed, most blockchains used PoW. While some still do, especially older networks like Bitcoin and Litecoin, most modern blockchains have pivoted to PoS.
The major reason why crypto OGs had to find an alternative to the PoW consensus mechanism was the high level of computational power needed to run such blockchains. PoW involves network participants – known as miners – solving computationally challenging puzzles to create new blocks in a network. After mining a block and approving transactions, the miners are then rewarded for their computational power.
PoW has raised concerns about environmental hazards due to the vast amounts of energy needed to mine blocks. There are also scalability challenges as PoW networks become slower and more expensive during peak usage.
On the other hand, PoS does not require as much energy, is environmentally friendly, and is cost-effective, even during peak usage. This shows that PoS, though not without its challenges, is better, or rather, superior, as the case may be, to PoW.
Final Words
The crypto staking sector provides a significant opportunity for growth in the DeFi space and encourages more engagement with the crypto ecosystem; however, participating in PoS networks comes with risks. Therefore, it is important to learn about the challenges that come with getting involved with crypto staking.