Staking Cryptocurrency: Everything You Need To Know
Each blockchain in the crypto world operates with a consensus method of some sort. The Proof of Stake consensus mechanism dictates that instead of using expensive hardware and large amounts of electrical power, you can be a part of the blockchain by staking cryptocurrency.
In the Proof of Work consensus, it is all about who did the work towards the validation of the block, while with PoS, it is about who has invested in the network. The more coins up for staking you have the higher your investment in the network and the higher your chance is to be the next validator.
How Does Staking Work?
So, what is cryptocurrency staking? Well, to put it simply, staking is the process of holding coins in a designated wallet, which has the function to stake them on the network, thus receiving interest or rewards based on those coins. It differs greatly from conventional mining, because instead of using expensive hardware and large amount of electricity to validate transactions and blocks in the network, it uses your coin holdings to create blocks and support the system.
Many people consider crypto staking as one of the most viable options for generating profits, because it is considered a passive income. A lot of coins will allow you to stake without the need of a high initial investment or the need for expensive hardware. Although staking has its similarities with masternodes, they are not the same. Masternodes require a hefty initial investment in coins in almost all cases. They also perform additional functions and get regular rewards from the network.
Advantages
- The Proof of Stake consensus mechanism does not require the user to invest in expensive hardware and electricity bills, it can be done with your everyday computer
- More environmentally friendly and energy efficient than the Proof of Work consensus
- If you have enough coins invested and held in your wallet, you can confirm transactions on the network as well as receive rewards
- The so-called 51% attacks are practically impossible to achieve as you will need to own more than 50% of the total coin supply
Disadvantages
- Some cryptocurrency networks still may require a hefty investment in order to be able to stake coins
- You will need to lock your coins in the wallet without spending them
Staking Your Coins
In order to start staking cryptocurrency, you will need to store your coins in a wallet that can be used for staking. During the process, the wallet will approve and validate transactions in the network. It checks if the sender has the coins and if they are not already spent somewhere else to avoid double spending.
When talking about how the whole cryptocurrency staking process works and is carried out, We need to mention the deciding factors, which are coin age, network weight, total weight and coin maturity period. Coin age refers to the time that the coins have spent in the wallet without any changes or movement for them. When you move, add or successfully stake with them, their coin age returns back to 0. This is one of the major factors that can help you be luckier as it directly connects to the time you have spent waiting without a reward. The maturity period is the time the coins need to spend in the wallet before they become eligible for staking. Different networks have different requirements and necessary confirmations (blocks) that need to pass before you can stake your cryptocurrency. Network weight is a combination of the coin age and size of your stake (amount of coins up for staking) that is mature enough and it decides your place and ‘weight’ in the network, which increases your chances of being picked for a validator. The total weight is the full picture of the network, that includes a sum of the total coin age and the ratio between the staked coins in the network versus the total coins that exist in it.
What Do You Need To Start Staking?
Although staking your coins might seem easy and efficient, you will need to make sure that you have prepared well beforehand. Most networks have long wait times, or also called confirmations, that are necessary to make the coins eligible for staking.
First of all, you should make sure that you have a PC that you can dedicate to staking. What that means is, that the computer will be online mostly nonstop in order for you to get the most bang for your buck. This will increase your chances substantially for earning rewards during the process. The PC will need to have a wallet installed on it, which depends on the type of coin network you choose. Different coins have different core wallets and only they can be used for staking cryptocurrency. Each of them requires a proper setup and configuration in order to ensure that the staking will be running smoothly.
As you can already tell, not every coin can be staked. Also, different projects offer different rewards and conditions to get those rewards. It is vital to really get to know each and every cryptocurrency that is stakeable and consider your options to choose the most suitable for you.
How To Make A Passive Income With Staking Coins?
When it comes to making money with staking cryptocurrency, there are two ways you can go about it depending on the coin and its network that you choose. For example, standard PoS based networks give you the possibility to stake yourself. You can set up your own computer and wallet that you can stake with. In other networks, where Delegated PoS (DPoS) is the consensus method, you can vote to make someone a delegate member, who stakes from your (and other users’) behalf. You still will need to set up a dedicated PC and wallet for that, but it will serve basic functions which are still important to the network. We do not recommend DPoS, as these networks tend to be quite centralized. Especially when there are no master nodes available in the network, the more stakers there are, the more secure it becomes. This is because all stakers in a non-masternode environment dedicate a part of their computing resources to validate transactions and blocks.
As we mentioned earlier in this article, no matter what you choose as a method, your rewards will be based on a set of rules that may differ from network to network. Also, every cryptocurrency has a different block reward and percentage of annual ROI, which you will have to take into consideration. Of course, there is always the ability to join a staking pool, but they are mostly community run and not trustworthy enough. Additionally, most stakeable crypto coins don’t need a big investment to start staking.
Popular Cryptocurrencies To Stake
How do you choose a coin that you can start staking with? Well, there are so many coins today with different goals and features, which is enough to make your and our heads spin. Here we will review what we consider three of the most popular stakeable cryptocurrencies.
Launched in mid 2017, Particl is a blockchain platform with its own native coin (PART) that offers great levels of security and anonymity. It implements Smart Contracts in order to provide great flexibility along with their own Proof of Stake consensus called PPoS (Particl PoS). This makes the users addresses and keys impossible to decrypt by a malicious user. The other notable property of the Particl network is the support of Cold Staking, meaning you can shut down your wallet for some time and the staking process will not stop. While there is no minimum requirements for coins in order to stake, you should have roughly at least 1000 so that you receive rewards more regularly.
Maybe one of the more unique cryptocurrencies out there, PIVX offers not one native to the blockchain coin, but two. The PIV coin is the standard cryptocurrency which you can directly get from an exchange and stake, the other is called zPIV, which is made by minting PIV in the core wallet. zPIV coins are private coins that allow you to do transactions where your information is hidden. While staking zPIV no one will be able to see how much and what you are staking. The whole network is built around security and privacy when it was launched back in 2016. We recommend staking zPIV as the rewards are higher there so that people are incentivized to use it. The minimum amount of coins you need in order to stake is 1 PIV or 1 zPIV.
As one of the few and maybe the most popular hybrid cryptocurrencies, Decred supports both Proof of Work and Proof of Stake consensus mechanism for finding solutions in the network. The staking of DCR is maybe the most unique feature of the coin. In order to stake you would need to first mine or buy coins from an exchange so that you can buy a ticket for staking. These tickets increase your chances to be chosen as the next block validator and stake your coin holdings for a reward. The minimum amount of DCR coins you would need is the minimum to buy one ticket for staking. Currently that is 100DCR coins. The more tickets you can buy, the better returns you can expect.