Whenever we mention the “staking” it refers to Proof-of-Stake consensus protocol that helps secure blockchains and provides validation of transactions. 

Not every instrument that claims to be “staking” is actually proof-of-stake, where the validator’s funds are locked in the blockchain as a pledge by which he is responsible for correctness of the calculations in the new block and the permanence of his server’s operation. 

The concept of consensus protocol that was started with Bitcoin in a form of Proof-of-Work (mining) and continues with Ethereum, Cardano, Solana, Cosmos, etc. in a form of Proof-of-Stake is a key difference between fiat money and decentralized value. Since the cancellation of the gold and currency standard the fiat money had been printing without being backed with real assets, as it was when the paper money was first created in a form of debt receipt proving that you own a certain amount of gold, silver, copper, etc.

The key is in the fact that supply of paper money is rising, while supply of gold is not. The emission of cryptocurrency is fundamentally different, because there is no printing of new Bitcoin, Ethereum or Atom without the process of proving that the recent operations in this system are being written and sealed without the possibility of revocation or modification. Only after this process is done and new block is formed, the new cryptocurrency is credited to the account who did the job.

“Mining” and “Staking” – Proof-of-Work and Proof-of-Stake – are simply two methods of the process of proving safety and validating transactions. 

In the POW the whole world is hashing the information until someone finds the variation of number that results in certain consecutive zeros in the hash.

In the POS the algorithm is automatically giving the job of validation to various servers where the funds are locked as a pledge. The more funds is locked and for the more time – the more chances of being chosen. After you did the job, your time resets in order for others to have a change to do the work and get the reward.

So the main question, is participating in Proof-of-Stake consensus for monetary benefits permissible for Muslims in a form of validation or delegation? Is “Staking” Halal or Haram?

We will answer this question in the next posts.