Staking is closely related to the Proof of Stake (PoS) algorithm, because it is like a bank deposit the more and longer you hold it, the more bonuses you collect. It is worth first understanding how blockchain algorithms work, as they play an increasingly important role in the development of distributed networks, and many cryptocurrencies are based on blockchain.

In 2015, Vitalik Buterin, the creator of Ethereum, planned the transition from the first blockchain algorithm Proof of Work (PoW) to Proof of Stake (PoS). PoW was considered not ergonomic due to high energy consumption or the involvement of excavators when acquiring new blocks.

Proof of Stake is one of the consensus algorithms, and it is worth sticking to the name of the algorithm and not the consensus itself (as in the article above), which is gaining more and more popularity in the cryptocurrency market. Algorithms in the blockchain are used, as everywhere, for clearly defined activities to perform certain types of tasks in a way that leads to the solution of the task, in our case to the compliance of transactions in the blockchain network.

According to the PoS List ranking, 140 cryptocurrencies are currently working with the new algorithm. However, it is the value of 6.22% of the total number of cryptocurrencies (about 2250) on the global market. The total capitalization of PoS-based cryptocurrencies was USD 23 billion or 8% of the total market capitalization of the cryptocurrency market (as of June 20, 2019). Despite relatively small numbers, PoS-based cryptocurrencies continue to grow in price and volume.

With the growing number of cryptocurrencies based on the PoS algorithm, many companies have started offering lazy STAKING. In this model, the investor puts his cryptocurrencies under the management of a company that processes confirmed transactions and other activities performed by blockchain nodes. In return, the investor receives a profit from the accrued interest, which can reach up to 150% per year. In March 2021, Coinbase launched a service for institutional investors and offers the opportunity to invest in PoS-based cryptocurrency called Tezos with a return of up to 6.6% per year, based on the inflation rate calculation. Binance Staking also promotes staking for its clients, paid depending on the total amount of cryptocurrencies obtained. Currently, more than $7 billion is stored in many PoS-based cryptocurrencies.

Consensus algorithms in blockchain technology verify the creation of a new block and decide on transaction approval. They are the basic element of the blockchain and are responsible for maintaining their integrity and the security of the entire chain. They ensure compliance with the protocol and ensure that all transactions are carried out correctly (e.g. that cryptocurrencies are not double-spent). In addition to PoS and PoW, the consensus algorithm includes Proof of Capacity (PoC), Proof of Space (PoS), Proof of Importance (PoI), Proof of Burn (PoB), Proof of Storage (PoS).

PoS has its advantages over PoW. First of all, the blockchain based on the PoS algorithm is much more efficient in terms of resource consumption, like electricity. Computers connected to the blockchain network in a node, act as excavators in PoW. They find new blocks and confirm transactions. The change from PoW to PoS involves staking, i.e. the way of creating new blocks using the PoS algorithm, where the creation is based on time and funds, and not on digging, as in PoW. The user must deposit a significant amount of cryptocurrency in his wallet and keep it connected to the network non-stop.

The algorithm chooses the next block itself, based on the weight of the cryptocurrencies involved in the entire network. In fact, one user is making a "stake" with their cryptocurrencies by contributing them to the blockchain. Cryptocurrencies held as collateral cannot be returned to the user when the algorithm searches for new blocks, meaning the user is benefiting the entire ecosystem as their own money is at stake. The higher the user's rate, and the longer their cryptocurrencies stay in the system, the greater the chances of profit.

Of course, nodes don't work for free. Everyone makes a profit from every block generated and pledged cryptocurrencies in the wallet, guaranteeing a certain return on investment. It is always positive, but depends on several factors. There is no clear answer to the question of how much you can stake on the blockchain, i.e. acquire cryptocurrencies using the PoS protocol. Each network may use a different method of calculating rewards. Some do it block-by-block, taking into account how much and how long the validator stakes, and others how much is staked in a given cryptocurrency network in total to determine the amount of the prize. Nodes not only confirm new blocks and transactions, but actively participate in the development of the entire cryptocurrency ecosystem, which is crucial for new cryptocurrency projects.

To sum up, PoS is a simpler system, all you need is a computer and, of course, initial cryptocurrencies. Simply put, staking is locking in a cryptocurrency wallet, like on a bank deposit, to receive additional cryptocurrencies. The longer we keep them in time, the more cryptocurrencies we will get, because the more blocks will be created in the chain, and the greater the weight of the wallet connected to the blockchain, the greater the rewards in the form of a stake, i.e. units of a given cryptocurrency. PoS, although it is a newer and more advanced algorithm, has the disadvantages of the old PoW algorithm, because it still consumes too much energy. Despite this, it is used in such an innovative cryptocurrency as EOS, which boasts millions of transactions per second and no transaction fees.

In conclusion, it is worth adding that there are many advantages enumerated by users of the PoS protocol. It plays a role similar to that of a shareholder, giving users the opportunity to vote on key system issues. In addition, it stabilizes the system, because it plays a long-term role, due to the lack of possibility of quick and speculative profit. In general, the system is built in such a way that its participants are primarily interested in the development of the project and its application in the real world, thus dynamizing the demand and price for the new cryptocurrency. The PoS-based ecosystem is just starting to gain momentum.

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