What are blockchain nodes and staking?

Updated: a day ago

What is a blockchain node?

Do you remember what the Blockchain is? It’s a decentralised digital ledger that records cryptocurrency transactions and makes the details available to every device on its distributed network. Every batch of transactions (called BLOCKS) is recorded chronologically and sent to each of the connected devices.

These devices are a computer or server connected to a cryptocurrency network. One of these devices is called a NODE. The nodes communicate with each other on the network and transfer information about transactions and new blocks; maintaining security and integrity.

A node is a critical component of the blockchain, verifying each batch of transactions and creating, sending and receiving data. They store a complete copy of the distributed ledger and are used to build blockchain applications. Each node on the blockchain is distinguished by a unique identifier, and every new node helps shorten transaction times and reduce fees.

Some cryptocurrencies have what is called Proof of Stake (PoS), which is a consensus mechanism - the way to ensure that all transactions are verified and secured without a bank or payment processor in the middle.

What is Staking?

You can stake your cryptocurrency on a node, which is called delegating your stake. This means you are actively participating in transaction validation (similar to crypto mining). This gives you a share of the income from that node; kind of like the interest you would get from a bank, but in cryptocurrency. The blockchain is basically putting your crypto to work.

When a minimum balance of crypto staked in a node is met, the node deposits that amount into the network like a security deposit. That amount gives the node the right to validate transactions on the chain. Larger stakes mean a higher chance of a node being chosen by the algorithm to forge the next block. The number of accepted validator nodes are limited though, and more than one is required to verify each block, so most have the chance of being involved in transactions.

An epoch is the timeframe for creating a block on the respective chain – it is different for different coins. When the node successfully creates a block during an epoch, it receives a reward which is shared amongst those who staked their crypto. This is like how a cryptocurrency miner is rewarded for a proof-of-work claim. The node manager generally receives a commission on the rewards. Staking allows everyone to invest in the blockchain, and they are crucial to help strengthen networks.

How to choose a validator node to stake your crypto

1. Biggest isn’t necessarily best

Many stakers tend to choose the ‘top’ validator to delegate their stake to. However, it’s important to remember that your stake is safe no matter which validator you choose. Also, supporting smaller stakers helps further decentralise the network instead of concentrating your stake among the biggest validators.

Because of the still limited number of nodes for each blockchain, any node you choose still has a good chance of being able to be involved in transactions.

2. Check the commission amount

All users will earn rewards (or interest) based on the stake you have delegated to the node. Rewards are distributed to users minus a fee set by the validator which ranges from 0% to 20% or even more. Obviously the lower the commission the greater your personal rewards. Often newer nodes will offer a much smaller commission to stakeholders then will likely increase the commission when they have more users delegating to them