What are staking pools, and how can they help you make a passive income?

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Staking is one of the most popular ways to create a passive income stream through cryptocurrencies. Like a savings account, staking lets you earn 5-20 percent every year, depending on the amount and type of token you are staking. One of the easiest ways to start staking (especially for retail investors) is through a staking pool.

As the name suggests, a staking pool allows people to ‘pool’ their resources to boost their chances of being rewarded. However, to understand staking pools, we must first understand what staking is and how it works. What is staking? Staking is a simple process wherein you dedicate (stake) some of your tokens towards the blockchain’s development. In exchange, the blockchain provides you with a percentage reward on the number of tokens you have invested (staked).

It is important to note that staking is only possible on blockchains that employ the ‘proof-of-stake’ consensus mechanism. These include blockchains such as Tezos, Cardano, Ethereum 2.0, Cosmos, etc. Most blockchains employ a consensus mechanism to verify the network’s transaction data. It is a process where several network users (nodes) work together to authenticate transactions, bundle them into blocks, and add them to the blockchain.

Generally, all the users in the network can choose to become nodes as long as they meet specific requirements.Also Read: Explained | What is a crypto faucet and what are its advantages? For instance, the Bitcoin blockchain employs the proof-of-work consensus mechanism. Here nodes must possess high-performance computers to participate in the transaction verification process. On the other hand, with the proof-of-stake consensus mechanism, users can qualify as transaction validators by locking in (staking) a