Since 2016, Polkadot has managed to cement its place in the smart contract platform space as more than just another attempt to create an Ethereum killer. Instead, Polkadot's primary focus is to facilitate communication between typically siloed blockchains—in other words, to become the Internet of Blockchains.
Polkadot uses a proof-of-stake (PoS) consensus algorithm, which enables more transactions per second and requires less infrastructure compared to proof-of-work (PoW) blockchains like Bitcoin or Ethereum. This makes it not only more affordable, but also environmentally-friendly.
PoS provides an opportunity for users to participate in staking, an activity that benefits them, and the blockchain as whole. We are going to take a deeper look at the relevance of staking Polkadot (DOR), the rewards for those who stake, and how to go about it.
Like many other PoS blockchains, Polkadot requires nodes to validate transactions. The more nodes available, the more decentralized the network is, limiting the chances of successful attacks on the blockchain.
Polkadot staking is the process by which you can submit DOT tokens in a bid to serve as a validator and get rewarded.
It's important to note that the Polkadot blockchain uses a Nominated Proof-of-Stake (NPoS) consensus algorithm. This means that you can either take the technical, complex route and stake directly as a validator with a node running 24/7—or you can take the simple road and nominate another validator, in which case you’re the nominator. Most people will fall into the latter category.
With an adequate number of validators, the blockchain can also handle more transactions. The Polkadot blockchain can handle as much as 1,000 transactions per second, making it 75x faster than Ethereum, and also significantly cheaper when it comes to transaction fees.
In the future, Polkadot will be able to handle over 1 million transactions per second when parachains and parathreads are in full effect, with numerous decentralized apps (DApps) running in this ecosystem. To handle the load, staking on Polkadot will only become more crucial.
Stakers will receive rewards in the form of Polkadot's native token, DOT. As a nominator, you’ll be able to participate in the selection of the most reliable validators to keep the network highly efficient.
Similarly, participating in a Polkadot parachain crowdloan by staking DOT also offers rewards from projects vying for a slot, for example in the form of Efinity's native EFI token.
Staking can be a complex exercise, especially if you’re trying to do it as a validator. Setting up and maintaining your own node is very technically demanding, but you don’t have to go about it this way.
The vast majority of staking will be as nominators, so that's what we'll talk about from this point forward.
Staking with exchanges is the easiest way to go about staking DOT. This is because the exchange usually has the resources to run any wallet-level or node-level software involved at scale. Subsequently, they can just present staking as a service to you through a lean dashboard with minimal configuration needed.
The leading exchanges for staking Polkadot include Kraken, Binance, and Bitfinex. To stake DOT using an exchange, first deposit fiat or crypto into your exchange account and buy some DOT tokens (or deposit DOT directly, if you already own some). Then, follow these steps:
Before you stake with an exchange, first check their Annual Percentage Yield (APY), find out whether it fluctuates, and read the terms and conditions regarding lockup periods. Binance, for example, has staking options for periods like 30 or 60 days, during which your DOT will be locked.
At the end of the day, it makes more sense to go with the exchange you trust and with the user experience you enjoy the most.
When comparing APYs, be careful not to end up stuck with an exchange that often suffers downtime when you need to make transactions. Each of these exchanges has a minimum amount you can stake, so that should also factor into your decision.
Another convenient way to stake Polkadot is through a non-custodial wallet. Keep in mind that in this case, the only real “middleman” between you and the rewards is the actual validator you nominate. The wallet’s vendor is usually not the one promising you the returns.
The best wallets for staking Polkadot include Ledger Live, Fearless, and Polkadot.js. In this case, you can start by buying Polkadot (DOT) from the exchange of your choice and sending it to your wallet address, then following these steps:
Please note that you may not immediately start earning rewards. With nomination, there’s usually a waiting period of at least one era (24 hours) for your eligibility to be in effect.
To cancel all your nominations made on Ledger Live, click “Manage assets” on your Polkadot account page, and select “Clear nominations.”
Keep in mind that your assets will remain bonded even though you won’t be receiving rewards. To unbond your DOT tokens:
You can click “Rebond” in the “Unbonding” section to rebond your assets.
These rewards can be manually claimed up until 84 eras from their issuance date and time. You can use a block explorer like Subscan or Polkascan to check if you’ve received a payout. Ensure that you have at least one DOT token in the rewards destination address to avoid losing your payout due to Polkadot's existential deposit rule.
When staking Polkadot, it's important to stay up-to-date on the state of the chain and validator lists. Rewards can become irredeemable after a certain period, and incompetent validators could cause you to lose DOT tokens if they fall below the blockchain’s standards.
Stay safe, and happy staking!