Swing trading is one of the most popular trading strategies used in different markets including Forex, cryptocurrency, stocks, fut...
Despite the crypto community is focused on Bitcoin’s halving and potential price increase lets not forget about the Staking year.
Staking is a process that came as an alternative to the Proof of Work mining algorithm. Proof of Stake means that you hold a significant amount of your coins and don’t want to sell them short. Staking refers to classic stakes in the companies, where big capital is put into valuable papers for a long time.
When you hold Bitcoin, you also participate in it’s ‘staking’. Because you are holding a stake in the economy. Bitcoin is the decentralized economy and a centralized company mixed in one by venture capitalists.
The so-called crypto influencers understood that the public is ready to use different consensus models if they have a monetary incentive. If you cannot participate in mining, you can participate in automated mining, which is – staking.
The classic Proof-of-Work algorithm is good as a consensus model. Probably, it’s the best consensus model in history. However, it takes time to establish, and the anonymity of parties brings in lots of confusion.
First, it imposes high burdens on who can make business with mining. Miners have to pledge real dollars into mining equipment, then they sell off mined coins. To be profitable, the miner needs to invest substantial amounts of cash into the mining rigs. Then, they don’t have the tools of governance, and all the decision making is done by the coders. Those coders typically do not listen to the miners or users. It’s their ego or the mercantile motives, but they don’t like to report even to crypto journalists. That’s why there’s so much attention to governance in Proof of Stake models.
The Staker is someone who can participate in the life of a cryptocurrency via putting in the money or the computational power of a node. Proof of Stake coins usually enable a broad list of features, including voting and elections. Those features help the network pick development decisions based on community consensus, not the sole will of a closed circle of developing elitists.
The staker is also a person who put a significant amount of his coin stash to the ‘staking’ mode. This means that, in most PoS currencies, the reference wallet implementation has a special ‘vault’ for staking part of your balance. You can compare the vault to a bank account, where you cannot withdraw cash until the deposit end date. Not all the coins demand to store the coins for some time. But you’ll have to deal with many pretty hard to remember rules. And most of the PoS systems make you lose ‘stake rewards’ or even part of your stash in case you break the network rules.
In general, crypto staking is the automated shareholding with a build-in incentive scheme for the interested masses to explore. The staking model itself, just like the mining of PoW coins, has no intrinsic value. The cost of the coins appears solely from the massive crowds and their belief that the project is important. This is similar to ordinary stocks but in cryptocurrency.
Different staking coins offer different profits based on a hefty of parameters. For example, in the majority of staking coins, the more coins you hold in a ‘stake’ mode, the more block rewards you get. Some projects may modify this rule to achieve precise consensus or new incentive schemes.
Another example – in many of the projects, you will receive the return based on the time your node spends in the network. Sometimes, its the power of the validating node that acts as the key factor of staking reward volumes. Depending on the network’s architecture and needs, staking plans differ in the demands.
If you don’t care about the ideology of the project and simply want to put in some capital for growth, use websites giving statistics to compare the coins. Many of the staking-related services have profit calculators built-in.
For instance, on the ‘Stakingrewards‘ homepage, we could see the top staking coins with their basic stats. It shows you the seven days price change, approximate reward per month or year (or per staking period), a percentage of coins currently in the ‘stake’ mode and so on. The website also shows you the list of staking providers with ratings and coins they support.
You can see that some coins offer big returns like 55% profitability. And some other assets only give you 5% annually. Obviously, the more the coin gives back per the share, the more probability that it’s a shitcoin or a Ponzi scheme masked as a PoS currency. You must be extremely aware when investing in PoS tokens with high ROI. Check that they have low public coverage and weak code to make sure to stay away.
So, if you’re in the staking game, one of the main questions is whether to perform it online or offline. Offline means that you will use your PC as the staking node, sometimes called a validator node or the delegate node. Depending on the blockchain, different projects require different nodes. Some of the PoS coins require that the node you use meets the minimum technical requirements to keep the network’s operation quality at a high level.
The minimum burdens could be imposed on RAM, CPU speed or some other factors such as Internet bandwidth. However, many other PoS coins don’t have any Desktop validator requirements, which means you can even use an outdated PC (like the one Tone Vays is using on his kitchen to support the Bitcoin network) for staking it.
The other option is much easier and it only requires you to have an account on some exchange. Many of the exchanges handle all the fuzz with preparations for a small fee. You simply register, put in the cash, lock it and enjoy. Online staking is better because it can offer higher ROI rates compared to Desktop validation. Your computer may be too old for the network, thus it will generate fewer profits thanks to RAM or CPU limitations. When using online service, there are best servers for you and they don’t even want to know your real name in most cases.
There are three major types of online staking. The first one is a cloud validator node, where you buy cloud server space and put a validating node there, increasing profits thanks to powerful hardware. In the second one, you can drop the coins on the exchange and it will do the rest for you, but the returns may be smaller. The third one is several firms that serve as online staking providers. It’s up to you to decide whether you want to use them, just compare the staking plans they offer and pick the best one.
Keep in mind that any of the validator plans in different types of PoS blockchains use a minimum stake volume to prevent cheating. To ensure that network participants act honestly, the blockchain could cut off a part of the staking stash if the validator tries breaking the consensus rules or cheating with transactions/blocks/censorship.
Putting in a substantial amount of tokens also means that you’re either an early network supporter who bought lots of coins for low price, or an investor looking to earn more than local banks could offer via deposit system. In both cases, nobody’s interested in a scenario where the network’s consensus model fails. Presumably, this makes you a loyal follower ready to risk some of his time and energy to support and (possibly) promote a favorite staking plan.
Tezos in yet another PoS currency with the possibility of delegating the validation rights to other holders. You can transfer the rights without transferring the token itself. Also, you are not obligated to pick any Trusted Block Producers as in EOS or Lisk. The system’s consensus algorithm is called Liquid Proof of Stake, or LPoS. Liquid, because the user decides on whether the rights are transferable or not.
Instead of mining or staking, Tezos is using ‘baking’ as the reference word when it comes to the block producing. There is a difference between the Liquid Proof of Stake and classic Delegated Proof of Stake. Liquid version allows people an option to pick the delegates, but they can refuse. While classic DPoS is about obligatory picking of the delegates, and the delegates are known corporations, not the users.
Tezos is the second biggest staking coin by volume locked in staking stash. You can join the process both using your node or via the mainstream exchanges. Coinbase offers a 5% yield on Tezos staking, and the rate may be even higher. If you want to stake the coin via Trezor Model T – read this. And if you sent some tizzies to your Ledger Nano X, read on to see how it can be profitable for you. Other Tezos staking issues? Check out this article.
Harmony is upcoming with its staking model called EPoS, which means Effective Proof of Stake. It uses a sharded blockchain and around 400 validators are picking to participate in each of the network’s shards. The system supports voting via bonded shares. One bonded vote share gives a validator the right to cast one vote. During the day, a validator is using all his bonded vote rights and the rights are re-attributed on the next day.
How are they re-distributed? At the end of each day, people who stake send out their bets to a special betting address. The more tokens sent as the bet, the more the chance of being elected by the protocol as the next block producer and transactions facilitator.
The core protocol features include FBFT, a consensus type where at least 2 of 3 votes cast a decision. It also has BLS multi-signature consensus, sharded P2P, distributed randomness generator, and so on.
Since January 2019, there are multiple test networks working already to help the network facilitate self-checks. Harmony doesn’t impose hardcore limits on the hardware of validator nodes, as well as on the network speed. If you have a weak PC and bad Internet but want to participate in block production – you will have the ability to do so.
You can check other exchange offers to pick the one that fits you best. The estimated annual yield for staking ONE on Binance is 8-10%. If you want to stake using your own resources, here’s the Ledger Nano S staking guide.
Cosmos is widely referred to as the ‘blockchain for blockchains’. It is using a Tendermint consensus protocol. The network consists of several scalable blockchains sending the data to each other via the primary one. This adds to the decentralization and governance-related solutions pile but adds troubles with code verification.
While the new features are untested, the finality of the project is under question. Also, the developers still working on the Inter-block Communication Protocol, which is a crucial part of the project’s further developments.
The developers claim that the platform is ‘programming language agnostic’, which means it supports any type of smart contracts. According to the docs, DApps running on this blockchain receive an enormous amount of scaling possibilities.
One of the bad sides of staking Cosmos is that the top 10 validators are services or companies with the biggest stake. Over time, any stake gets bigger because the more you ‘hold’ in staking the more rewards you get. That’s how the top 10 validators of the network got control of over 46% of the whole network’s cumulative share.
Currently, the Ethereum staking roadmap consists of classic PoS rule-set where the more you have, the more you get.
Ethereum 2.0 will presumably arrive somewhere in Q1 2020 in a major network upgrade. It promises the support for staking of Ethereum, as well as for a list of other long-awaited features. From the current plans of developers, a minimum burden for a validator node will be 32 ETH.
This is a somewhat large price for the average investor. So, the majority of Ethereum staking will presumably work thanks to large companies/staking pools. In case you don’t have 32 ETH or don’t want to stake so many coins, staking pools will allow staking any amount of funds, but with some fees.
Also, there is no clearance regarding the possible ROI, and Buterin proposed something between 1,5% and 18%. Ethereum developer Justin Drake is proposing a 5% return rate for the validators.
Unlike other blockchains, where hybrid PoW/PoS algorithms work, in Ethereum PoS will work as a separate network layer. This means that classic Ethereum mining on video cards from AMD/Nvidia isn’t going anywhere. The new network layer should work separately from the old one. While the classic layer will continue to focus on smart contract functionality, confirming transactions and PoW, the new layer will facilitate PoS-related tasks solely.