Passive staking in the world of cryptocurrencies refers to the act of locking your digital assets (cryptocurrencies) in a blockchain network to help validate transactions and, in return, receive rewards periodically. It is a way to earn passive income, similar to how interest is earned in a traditional savings account, but in the decentralized realm of cryptocurrencies.
How does passive staking work?
The key to passive staking lies in the consensus protocols of blockchains, specifically in the Proof of Stake (PoS) model and its variants (such as DPoS or LPoS). Unlike the Proof of Work (PoW) used by Bitcoin, which requires miners to solve complex problems with high energy consumption, Proof of Stake allows cryptocurrency holders to support the network by "staking" their coins.
* Locking cryptocurrencies: You, as a user, decide to "deposit" a specific amount of your cryptocurrencies in a wallet or platform compatible with staking. These coins are "locked" for a determined period, meaning you will not be able to move or sell them during that time.
* Transaction validation: The cryptocurrencies you have locked are used to help validate new transactions and add new blocks to the blockchain. This contributes to the security and operability of the network.
* Rewards: In exchange for your contribution and the locking of your assets, the network rewards you with additional cryptocurrencies. These rewards are usually in the same cryptocurrency you are staking and are distributed based on your participation and the rules of the protocol. The profitability is often expressed as an Annual Percentage Yield (APY).
* No active intervention required: The "passive" feature of staking means that once you have locked your coins, you do not need to perform any constant actions. The platform or validator takes care of the technical process, allowing you to generate income while your assets are immobilized.