Crypto ELI5 Part 13: What is a Stake Pool?

In Crypto ELI5, Cryptocurrency by Juan PortilloLeave a Comment

This is part 13 of a series of short cryptocurrency “explain it like I’m five” posts. If you’re just joining us, start here: Crypto ELI5 Part 1: What is a blockchain?

This series of blog posts is meant for the absolute beginner in cryptocurrency. They are also meant to be concise and easy to understand. If you’re interested in learning about crypto, some of the history of crypto, and how to get started with using crypto, follow along! We’ll be adding a new post daily and each post will build on the one previous to it.

What is a Stake Pool?

Stake pools take the form of nodes on a crypto network. These nodes are responsible for maintenance of the network including processing transactions and producing new blocks.

A stake pool holds the combined stake of multiple stakeholders. Stake pool operators are committed to running the stake pool 24/7, on behalf of the people delegating their coins to the stake pool. Because time and resources are expended to run a stake pool, stake pool operators earn rewards for doing so. These rewards come from transaction fees and from increased supply of coin. Stake pool operators in turn, distribute a portion of these rewards to the people that delegated or “staked” their coins with the stake pool.

The more stake pool nodes in the system the more copies of the blockchain there are. This is what makes cryptocurrencies in proof-of-stake systems secure and decentralized.

Check back in soon for Crypto ELI5 Part 14: Ada, a third generation cryptocurrency

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