If you hold proof-of-stake cryptocurrency, you can use it to produce blocks. When you delegate your currency, let someone else use your tokens to produce blocks. You still own the currency, and you get a slice of any rewards they generate.
Delegation is a key component in proof-of-stake networks. It lets token holders take part in block creation, without effort or investment. Delegation lets you earn regular rewards… if you delegate wisely.
Do you want to earn regular cryptocurrency without much effort? Delegation could be for you.
In this post, we’ll look at how delegation works. We’ll cover:
- What is Proof-of-Stake Delegation?
- Why Do Proof-of-Stake Networks Need Delegation?
- Why Would You Delegate Cryptocurrency?
What is Proof-of-Stake Delegation?
Block production is the heartbeat of every blockchain. In proof-of-stake ecosystems, validators create blocks and add them to the chain. Delegation is assigning your tokens to these validators.
Delegating a token gives a vote of confidence to a validator. They can perform vital chain activities in your stead. It’s like electing a politician to office. Each token a validator holds increases its chance of successful block creation.
Why Delegation Is Needed in Proof-of-Stake Networks
Proof of Stake relies on validators to secure the network. But being a validator takes time and money, and is a risky investment. Delegation ensures all token holders can participate in the network, without the drawbacks.
Sure, running a validator can be lucrative if you meet the right conditions. But it comes with risk and responsibility. It also requires investment.
Setting Up a Validator Is Risky
On the plus side, blockchains are permissionless and open-source. Therefore your ability to create a validator node is only hampered by resources. It’s like opening a shop. If you have the budget, you can open a shop. But can you run it? Will it be a success? What happens if it fails?
Similar to setting up a shop, there are downsides and risks to becoming a validator. Most importantly, attracting delegates can be hard. Every validator delivers the same service; block production.
Validators Can Struggle to Differentiate Themselves
The service is highly competitive and commoditized. Thousands of validators compete for a finite amount of stake. This makes attracting delegates increasingly difficult. It’s hard to stand out from the crowd. Often it is only the financial parameters set by the validator that differentiates them. That is, they offer a higher percentage of staking rewards to delegators.
Maintaining Validators Isn’t Trivial
Validating also requires constant uptime, monitoring and maintenance. This means your time and money. With no guarantee of success. Worse, you could be slashed for poor performance.
Instead, you can delegate your tokens to someone else.
Why Would You Delegate Cryptocurrency?
Anyone has the right to produce blocks, but most holders do not have the resources to carry it out successfully. Delegation lets you participate in a proof-of-stake network, without actually performing any work. You give this responsibility to someone else.
Delegating your stake to a validator is similar to casting a vote. You’re choosing the node you want to represent you. Votes give political parties more say in running a country. Delegation gives a validator more say in running the network.
The more tokens a validator has, the higher their chance of successful block creation. By delegating your tokens, you’re pooling your assets with others. Increasing your chance of rewards.
You can also think of each token as representing a lottery ticket. With regular and random lotteries to elect block producers. By pooling lottery tickets with others, you have more chance of winning. Although you share the rewards relative to the size of your stake.
How You Can Earn Rewards with Blockdaemon
Blockdaemon validators are among the most reliable. We have never been slashed. Delegating to Blockdaemon increases your chances of earning rewards.
When you delegate your tokens to Blockdaemon, you’re putting your cryptocurrency in safe hands. Our public validators have a proven track record and provide regular yields.
Delegating with Blockdaemon is easy and safe. Our experts are on hand to make sure you get the most from your stake.
- Terra: Blockdaemon’s public Terra validator node uses our secure, high-quality node infrastructure to guarantee uptime and high availability. This results in the secure delegation of your native LUNA token.
- SKALE: Blockdaemon’s public SKALE validator node has a proven track record of strong performance on an epoch-by-epoch basis. Through our protocol level expertise, we are committed to providing token holders with a safe and secure way of delegating their funds.
- Polkadot: Blockdaemon’s support for Polkadot means being a validator on the Relay Chain. The Relay Chain acts as the central backbone of the Polkadot network. It will process parachain transactions in the future.
- Celo: Blockdaemon’s support for Celo means contributing to the decentralized Celo ecosystem.
- Cardano: Blockdaemon’s support for Cardano supports a growing ecosystem of a peer-review based protocol.