Crypto trading works for risk-takers. Investing in blockchain projects matches the interests of forward-thinkers. Coin staking has the potential to benefit everyone.
The idea of passive income is something that everyone can relate to and staking your crypto coins basically offers you a semi-passive form of income. It is easier than getting rewards from mining and can be highly beneficial.
At the same time, staking is a complex process and a powerful tool in a blockchain ecosystem. When done responsibly, it can make positive governance changes and push the development process forward. But before we explore the greater purpose behind this process, let’s review the basics.
Staking is the New Mining
One of the driving forces of Bitcoin’s blockchain is the Proof of Work consensus algorithm that is based on the concept of crypto mining. Miners solve energy-consuming tasks to secure the blockchain and get rewards for the work that they do. The system has proven to be very reliable and almost impossible to compromise.
However, there are some serious downsides involved: the process of crypto mining requires money and time investments as well as specific knowledge and certain experience. Besides, the industry has become extremely centralized, and it’s nearly impossible to join the process as an individual miner at this point. On top of that, mining wastes huge amounts of energy.
Proof of Stake, on the other hand, is a newer version of the consensus algorithm that can be truly decentralized. Anyone can start staking their coins at any given point with no hidden costs or extra investments.
Just like with mining, staking is necessary for validating and recording transactions but it can also serve as a voting instrument. When staking is done wisely, it may contribute to the evolution of the blockchain. On top of that, it’s sustainable.
How Staking Works
Put simply, the concept of staking suggests that you lock a certain amount of coins in your wallet or via other platforms that allow you to do so and wait until you get them back along with rewards.
But that’s just one side of it.
Most importantly, whenever you stake coins you support the network and if the project is democratic enough, take part in some serious decision-making.
Those who stake coins are called forgers, and they get their rewards from transaction fees. If a forger validates a fraudulent transaction, they lose their stake.
Considering that the value of the stake is higher than the reward (those who stake more have higher chances of becoming a validator), there is no sense in trying to cheat the system.
Delegated Proof of Stake: Staking, Voting, Delegating
DPoS is a perfect example of staking that goes beyond receiving rewards and getting semi-passive income. Introduced by Dan Larimer, DPoS is used on the EOS blockchain and is considered to be an advanced version of regular PoS in terms of speed and scalability.
Within the DPoS model, users select a certain number of witnesses to validate transactions. Witnesses gather blocks and receive rewards via transaction fees. Also, it doesn’t really matter how big your stake is as long as the community votes for you, you have equal chances to become a witness.
And if you’re not into voting, you can delegate your voting power to any other user of your choice.
Apart from witnesses, the community must choose delegates who will be responsible for monitoring the blockchain and making sure governance is carried out properly. Delegates can propose improvements and bring them forward for further votes.
Liquid Proof of Stake: Staking and Optional Delegating
Another staking-friendly coin that has been doing exceptionally well during the last months is Tezos, and it also uses a modified version of the traditional Proof of Stake algorithm. Tezos also allows its users to delegate the right to vote, but it is totally up to you unlike with DPoS where delegation is mandatory (for instance, you must delegate your votes to one of 21 Block Producers in EOS).
This method is called Liquid Proof of Stake and it promotes the idea of decentralization, security, and designated governance by keeping the number of validators flexible.
How to Stake?
There are quite a few coins that you can stake for rewards including EOS, Tezos, Lisk, Steem, Ark, Dash, Neo, Tron, Pivx, Strat, Waves, and others.
- Before you choose a coin to stake, you need to determine what you want to get out of it. If you’re only interested in receiving rewards for your staking, your choice will clearly be wider. But if you’re willing to be engaged in the project’s development, you need to research all the coins and pick the ones that encourage the activity of their communities.
- Check the minimum amount of coins you need to have in order to start staking
- Get a wallet that supports the coin and allows staking. Some coins are easy to stake and all you need to do is literally have them on your client-side wallet with a staking functionality. Otherwise, you can always use the help of special platforms that enable staking, but keep in mind that once you transfer the coins to an exchange, you lose control over your funds. If you prefer to stay in charge, you need to choose the coins that allow cold staking via your hardware wallet. The conditions are different for all the coins and you need to check them in advance.
The Bottom Line
For hodlers, staking is a great way to make their coins work for them by earning the owner a few extra bucks. But staking is not only about making passive income.
Responsible and active participants of the blockchain community can use their stakes to choose the direction of project development, apart from getting their rewards.