In contrast to Bitcoin’s constrained proof-of-work (PoW) blockchain, the Polkadot blockchain permits cross-blockchain transfers of any kind of data or asset. Additionally, the project uses less infrastructure and enables more transactions per second.
Polkadot uses a nominated proof-of-stake (NPoS) blockchain, with a focus on the interoperability of parachains. The parachains are connected to, and secured by the Relay chain. The Relay chain is a flexible and scalable blockchain solution. Moreover, validators can validate both the Relay Chain and the parachains. The network supports trading, staking, bonding, paying transaction fees, and voting with the project’s native token, called DOT.
How staking Polkadot works
In Polkadot staking, validators are nominated using DOT tokens in exchange for rewards. The complex NPoS mechanism allows nominators to choose the validators who are permitted to take part in its consensus protocol. Additionally, a network is considered to be more decentralized when there are more users and distributed nodes.
There are four basic methods that DOT holders can interact with the Polkadot staking system natively. This depends on the availability, amount of skill, and budget. However, stakers who are unable to produce the minimal amount necessary to nominate themselves (this number fluctuates) may join a nomination pool. However, this will split all rewards and penalties proportionately.
The validators are at the upper end and are better suited for persons who can devote a lot of time and have technical knowledge. These individuals manage the nodes, which are computers running specialized software that can accept or reject blocks of transactions.
If a validator accurately verifies a transaction, stakers that stake with that validator is rewarded with extra Polkadot tokens. However, validators and their nominators will be penalized by losing a portion of their staked DOT if they approve a fraudulent transaction. Furthermore, they may also face penalties if they attempt to game the system. The Polkadot Treasury will receive any DOT that is eliminated.
How to stake your DOT tokens?
Holders of DOT tokens can take part in the network’s governance by staking their tokens. Additionally, users receive rewards in DOT tokens. Popular methods for staking DOT include hardware wallets, exchanges, or the Polkadot.js user interface (UI) of the network. Moreover, users can also use the Polkadot app to stake tokens.
Using Polkadot.js UI:
- Create a Polkadot account.
- Click on the “Network > Staking > Accounts page” tab.
- Click “+ Nominator.”
- Choose a stash and controller account.
- Enter the amount to bond.
- Chose a validator
Using an exchange:
Stakers can buy DOT tokens with fiat currency or other cryptocurrencies. If they already have a Polkadot wallet, they can deposit the tokens or transfer them into the exchange account. DOT tokens have the potential to generate significant payouts when added to the Polkadot network with little work required from stakers. Platforms for staking include Kraken, Binance, Coinbase, KuCoin, and Crypto.com, to name a few.
Due to how simple it is to participate in a staking pool on a cryptocurrency exchange, this strategy has grown in popularity. In order to start staking, users must first buy DOT tokens on their preferred exchange, add them to their Polkadot wallet, and then click the stake button.
Staking Polkadot using a wallet:
It is more difficult to stake DOT using a wallet than it is to stake it on a cryptocurrency exchange. Only the selected validator serves as a middleman between a staker and the rewards when utilizing a wallet.
Before starting to stake, users must select up to 16 validators. Therefore, before committing to the wallet mechanism, stakers should carefully assess their validators.
A staker must first purchase some DOT from an exchange and deposit it into a DOT wallet before they can begin staking using a wallet. Alternatives include software wallets, which are useful and cost nothing. Software wallets are convenient but less secure than hardware wallets. As a result, they are perhaps better for people without much skill or for storing less DOT. Some examples include Ledger, Polkadot.js, Talisman, Fearless, etc.