Staking rewards refer to a form of reward that can be obtained by holding a specific cryptocurrency. This concept and technology are relatively new but rapidly gaining traction.
The term “staking rewards” stems from the emergence of a novel method for securing blockchains called Proof of Stake. In the traditional method known as Proof of Work, users were required to purchase specialized hardware capable of performing complex calculations to validate transactions, and they were subsequently rewarded.
In Proof of Stake, such hardware is typically unnecessary. Instead, users generally “stake” a portion of the cryptocurrency as collateral to ensure the accuracy and validity of transactions. As the staking system processes these transactions, it also rewards the individuals who have staked their cryptocurrency.
The rewards obtained through staking are referred to as staking rewards. These rewards can be reinvested by increasing the amount of cryptocurrency being staked, thereby earning even more staking rewards. Alternatively, users have the option to withdraw, store, or sell the rewarded amount.
Due to its minimal hardware requirements compared to Proof of Work, Proof of Stake has attracted many users seeking to earn rewards through staking. Consequently, coins and cryptocurrencies that offer staking rewards have gained significant popularity.
In 2021, Ethereum is expected to commence its transition from Proof of Work to Proof of Stake. Currently, individuals holding 32 ETH or more have the opportunity to earn staking rewards by staking their coins on a staking system once it becomes available.