The dream of cryptocurrency holders is to obtain passive income without the cost of purchasing expensive equipment. PoW mining has made this impossible because of its growing difficulty.
But here’s an alternative to earn on coins with a different consensus mechanism. This type of mining is called cryptocurrency staking. How does it work? How can you make money without buying expensive equipment? What coins are available to cryptocurrency enthusiasts? We will cover these and other points in the article.
What is staking
Cryptocurrency staking is a way to earn cryptocurrency by storing it in wallets. This method of earning money is suitable only for those coins that are based on the Proof of Stake algorithm. This protocol is easier and cheaper than mining because all you need is a PC with Internet access and a virtual wallet connected to the network. The principle of making a profit is similar to receiving dividends on shares or making a deposit.
How does staking work
One of the distinguishing features of PoS mining is the reward method for a new block. The reward depends on the number of coins in the miner’s PoS account. For example, if a user has 1.5% of the total number of coins, then dividends will amount to 1.5% for each new block.
Here’s what you need to know before starting staking:
- You need to have a virtual wallet that is synchronized with a network
- Cryptocurrency should be on the balance and should not be used to make transactions for a certain period of time. Staking is somewhat similar to a deposit in a bank.
- The amount of earnings at stake directly depends on the total number of coins that are stored by the user.
- Only a wallet is needed, there is no need to purchase expensive equipment.
- Many platforms have a limit on the storage of coins.
- Earnings depend on how long the crypto asset is stored by the user.
- The commission is most often fixed.
The main differences between PoS and PoW
Algorithms are constantly being compared because they are at the core of the modern cryptocurrency market. With a detailed analysis, PoS has several obvious and useful advantages:
- Increased validation speed
- Reduced fees
PoW, in turn, is highly resistant to all kinds of attacks. The downside of the proof of stake mining is the risk of creating a centralized system due to the fact that in such a system all users tend to collect a large number of assets in their hands in order to make the most profit possible.
The best coins for staking
Algorand
The project was founded by a professor at MIT (Massachusetts Institute of Technology) and Turing Prize winner Silvio Micali. This platform addresses many of the issues that are limiting the implementation of blockchain technology. The harmonized Pure Proof-of-Stake protocol, combined with the Verifiable Random Function (VRF) will allow improving scalability, security, and decentralization issues.
For its history Algorand succeeded in several things:
- Signed a partnership with AssetBlock to launch an Algorand blockchain real estate investment platform.
- Carried out a certification of the platform for financial activities.
- Launched new DeFi features and smart contracts in Algorand 2.0.
EOS: DPoS giant
EOS is a cryptocurrency that was created to support large-scale applications without any transaction fee. EOS relies on a unique resource-sharing model (CPU, RAM and network resources) with a peer-to-peer lending platform called EOS REX.
EOS has a 5% rate of annual network inflation, with 1% allocated to block suppliers who participate in shares and get credentials, and another 4% is allocated for future use and growth of the overall ecosystem.
NEO and GAS
NEO is a PoS cryptocurrency with support for smart contracts. NEO and its related GAS coin can be used to generate passive income. NEO differs from other cryptocurrencies; it cannot be divided into parts less than 1 NEO (which, by the way, is the minimum amount for staking).
Why are there two coins for one blockchain? The following analogy can help to understand the key differences between NEO and GAS: NEO represents a share of ownership in the blockchain, while GAS acts as “fuel” for this blockchain and gives holders the right to work with it.
VeChain
The latest generation of VeChain aims to become a platform for developing enterprise-level decentralized applications. All the forces of the developers are directed towards unseating Ethereum as the prominent app developing platform. The project has two types of coins – VET, or the main VeChain tokens, and VTHO tokens. In their functionalities, they are similar to the familiar NEO and GAS.
VET holders receive VTHO tokens as a result of stacking, just as NEO holders receive GAS. There are no minimums for stacking, and some exchanges even support VTHO generation for VETs stored in their wallets. The profitability of stacking is relatively small – about 1.68%, although for 10,000 VET you can become the owner of a masternode.
Cosmos (ATOM)
The team behind the Cosmos project is focused on creating an “Internet” that would ensure compatibility for different blockchains. The main developments of the project are the Tendermint Consensus, as well as the Cosmos SDK and Inter-Blockchain Communication (IBC). ATOM is the underlying asset of the Cosmos Hub service. A public sale of tokens was carried out in April 2017.
Over the years, the startup has achieved the following results: last spring, the Cosmos Hub network was launched, the project token was listed on the Binance exchange without any fees, and was also presented on other large platforms. Moreover, the Cosmos ecosystem includes projects such as Binance Dex, as well as FOAM and the IRIS Network – all of them operate on Tendermint.
Ethereum 2.0
This coin is predicted to have unprecedented success in the staking market. This year, after the transition to the Ethereum 2.0 platform, the company will launch a PoS coin, and validators will be able to receive staking income in the amount of 4.6 – 10.3% per year. At the same time, the minimum deposit for the validator will be 32 ETH.
According to analysts at Binance Research, after the launch of Ethereum 2.0, the cost of the cryptocurrency will increase sharply. Thus, ETH may double its share of the crypto market.
Conclusion
Staking cryptocurrencies is a convenient way to passively earn money, which allows you to earn income without spending money on buying ASICs. This means of earning money is most profitable for coins that have just appeared on the market and have growth prospects. As for the more popular coins, to make a profit you need to have solid wallet capital.
The main disadvantage of stacking remains its high threshold for entry (for some cryptocurrencies). Users can stake together in pools, but after accumulating the required number of coins, they can also return to solo mining.