The freshmen guide for the crypto class of 2025: Chapter 4

Lending & Staking 101

There is some confusion between lending and staking so it is a good idea to start by explaining the similarities and differences between the two. It looks staking term was used for lending for some time as initially this term was not being used in the crypto space. The confusion only arose when proof-of-stake became mainstream.

Proof of Work vs Proof of Stake

There were attempts to solve the double-spend problem even before bitcoin but BTC solved it in the most elegant way using proof of work.

Proof of Work

Let me explain how proof of work works with a simple example of a hypothetical PrimeCoin. Let’s say that there is a Coin called PrimeCoin which is rewarded to the first person who is able to find the next prime number. There is also a need to validate if the previous prime number was awarded to the right person.

Proof of Stake

To solve the PoW problem, a new coin uses an innovative approach. To avoid both electricity consumption and Sybil attack, the validator nodes need to have proof of stake ie. prove that they own a substantial number of coins already. Let’s use a simple example to understand it.

On-line Staking vs Off-line Staking

Whenever staking is the term used for lending, it is qualified as offline staking. The PoS staking is called online staking.

Staking and ETH2

Coming back to IRL, Ethereum is being upgraded to adopt Proof of Stake. During the process, Ethereum is being mined using existing ETH as stake. In fact, every validator node needs 32 ETH to run. This gives an opportunity to existing ETH holders to get staking rewards.

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Rishi Yadav

Rishi Yadav

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This blog is mostly around my cloud-native & Environments-as-a-Service (EaaS) technology insights. I would throw some crypto wisdom here and there.