Demystifying Staking vs Internet Bonds

This post was originally published on ankr

Franciska Kovacs

Jun 22 · 2 min read

The difference between staking and internet bonds can be confusing. In this article, we’re breaking it down using a simple example from the banking system.

Staking and internet bonds in banking terms

Think of staking like putting your money in a bank and earning interest. Your money remains your money. If you take it out, you stop getting that interest.

Now, imagine that you put your money in that bank, and the bank then gives you back a voucher that says “Whoever holds this voucher owns a stake in this bank”. Now you have a choice: you can either hold the voucher or you can sell it to someone else. If you sell the voucher, then whoever you sell it to, now owns the stake.

There’s also a second bank down the road that accepts these vouchers… and gives you interest on them too! That second bank can be thought of as a decentralized exchange or a lending platform. So now, you can see that the voucher system is far more lucrative than just holding the money in the bank. You can earn twice, or even multiple times, from your original money in the bank and the voucher.

The basic method of putting your money in the bank is like staking, and the vouchers are essentially the same as internet bonds.

Two types of internet bonds

Now let’s go one step further. There are two different types of internet bonds:

  • Reward Bearing
  • Reward Earning

Referring back to our example, if our Voucher was Reward Bearing then its value would increase over time. When we eventually go back to the first bank and withdraw our money, we would get more out than we put in, because the voucher is worth more now.

But if our voucher was Reward Earning, instead, we would get additional smaller vouchers sent to us over time, which we can also use to invest further.

Once you think about internet bonds in these terms, it’s fairly straightforward — and as you can also see, these bonds provide considerable advantages over regular staking. We hope this brief article helped explain these concepts. Feel free to ask any questions in our communities, where there are always people willing to help.

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