What are Cryptocurrency Staking Pools and how do they work?

Bitcoin has gained unexpected momentum in the past few years. It has become the face of cryptocurrency. As time passed, experts in the field realized that bitcoin is not meeting the energy consumption constraint. Moreover, they had to consider the impact it will bring on the environment as it needed Proof of Work.

With the cryptocurrency domain advancing, we have numerous coins joining the competition. Proof of Stake is one such newcomer that has been gaining a cult following among its users. POS solves the energy consumption issue as it doesn’t require energy for verifying transactions. Also, anyone can make a huge profit out of staking the POS coins.

What are the Cryptocurrency Staking Pools?

Proof of Work coins have Pooling mines.  A pooling mine is a mining method in which more than one clients invest in the creation of a block and later the block reward is split among the clients in accordance with the investment made by them. Staking pools work similarly to this pooling mine process. It focuses on bringing the highest output out of the Staking process. There are generally two types of staking pools:

How does the Staking pool function?

Basically, the larger the staking pool, the higher the chances of getting picked and certify a block. Consider that there are 3 users: X, Y, and Z. User X is a Staking wallet with 100 ADA coins. User Y is a staking wallet with 10,000 ADA coins. And finally, user Z who understands the staking pool very well takes part in the staking pool. User Z invests 100,000 ADA coins into it. When a block should be mined, the blockchain attempts to find the best-suited staking wallet. 

User Z who has taken part in the staking pool has the highest possibility of making the most profit among users X, Y, and Z. The final pool reward will be partitioned among the users and the pool service claims a small percent of the reward as charges. 

Staking as a service

There are a lot of staking as a service platform out there which provides staking services to literally anyone who is interested in claiming and collecting profits. The validator who receives the token from the user has to do staking on his behalf. One of the good examples of staking as a service platform is Livepeer. Livepeer has a well-explained staking guide to know an learn how Livepeer operates. 

Is Staking solo better than Staking pools? 

Well, to know the answer to this question, let us consider the following example. Steve is staking solo contributing over 1000 coins. Steve’s competition is a staking pool investing millions of coins. In this case, we can say without a doubt that ram has zero chance of being selected to validate the block as larger the staking pool then higher is the chance of getting selected. Hence, the staking pool is better than staking solo. The profits gained are higher in the staking pool than in staking solo. 

When to opt for staking pools?

If the number of coins in your staking wallet is in a decent figure, there is no need to take part in a staking pool. Anyhow, if your coins in the staking wallet are low, then the staking pool is your best choice. If you are not relying much on the trust of others, then staking pools are not for you as there is a lack of transparency in details about the skills of the company staking on your behalf.

Benefits in opting for staking pools

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