Staking is the process of storing cryptocurrency in a wallet, which serves to support the blockchain network. From the user’s point of view, this is holding the cryptocurrency in order to receive a reward. Staking is closely related to PoS (Proof of Stake). The staking mechanism is used in many blockchains based on Proof of Stake or any of its variants. Btcnewsweb.com will analyze in detail all the nuances associated with this method of passive earnings.
Since 2019, cryptocurrency staking has been available on the popular exchange Binance, and since 2020, the crypto exchange has provided the Launchpool platform for pharming new DeFi tokens.
- 1 What is cryptocurrency staking and how it works
- 2 Views and perspectives
- 3 How to make money on staking
- 4 Staking Exchanges
- 5 Staking wallets
- 6 Platforms
- 7 Advantages and disadvantages
- 8 Output
What is cryptocurrency staking and how it works
Cryptocurrency staking is the retention of funds that facilitates transactions on the blockchain and at the same time provides rewards. Such a system is widely used in those networks where the Proof of Stake consensus mechanism is taken as a basis. Unlike those blockchains that work on the basis of Proof of Work and use mining to check and add new blocks, here the blocks are checked by placing bets. No special equipment is needed for this. PoS validators are selected based not on their power, but on the number of coins in the account.
The user who has bet more coins has a better chance of becoming the next block validator. As far as investments are concerned, investments in cryptocurrency are required instead of ASICs. Proof of Stake provides increased scalability; this is one of the reasons that in the Casper update for Ethereum, this currency will switch from PoW to PoS.
Views and perspectives
The main existing types of staking:
✅ Normal Proof of Stake. Uses the same blockchain that everyone is familiar with. The difference is that instead of Proof of Work, as in Bitcoin, in PoS currencies, the next block validator is selected based on the size of the bet and by random combinations. To earn, you just need to have coins in your wallet. Examples: Peercoin, Blackcoin.
✅ dPoS (Delegated Proof of Stake). Such a consensus mechanism was designed to address the scaling issues of BTC. dPoS has proven to be scalable and is behind the three active blockchains in operation today. The process is similar to the principle of democracy, when about twenty representatives are chosen to mine blocks, and those who voted for them. receive a percentage. Examples: EOS, Bitshares, Steemit.
✅ Leased Proof of stake This mechanism allows any user to “lease” their coins to quality nodes with good connections, similar to masternodes. This is an opportunity for smaller users to receive more frequent rewards. Example:
✅ Masternodes. A node can become a masternode if it invests a large amount. Such nodes are considered more reliable than conventional ones. Masternode stacking is usually combined with regular PoS or PoW like Dash. Examples: DASH, PIVX, XZC.
There are also options specific to certain cryptocurrencies. So, the staking of the Zerocoin cryptocurrency is currently used in the PIVX project and guarantees complete anonymity.
It is believed that passive earning options such as staking, holding and running masternodes will skyrocket in 2020. Through the use of these methods, it is possible to hold cryptocurrencies and receive relatively stable profits.
How to make money on staking
Even if it seems to you that only those who started it at the very beginning can make money on staking cryptocurrencies, then this is not entirely true. You can always find a new promising coin. However, it is quite possible to choose a currency from the top 10 – let the income be low, but the risks are minimal.
How to Stake
After finding the right cryptocurrency, you need to read the whitepaper or guide on how to set up that currency’s wallet. Then buy currency using a cryptocurrency exchange or exchanger, and after receiving it on the wallet, keep your computer turned on so as not to lose connection to the blockchain. With an open wallet and an active internet connection, you start earning.
The reward is determined randomly, but those holding the largest amount have the greatest chances. The reward is called block rewards. The reward for each block is assigned to a random person.
Staking cryptocurrencies and their profitability
Here is a list of the best PoS cryptocurrencies for staking and their estimated annual income:
|Cryptocurrency||Potential annual return|
The data is shown as of 12/29/2019 and according to the Binance exchange.
Many cryptocurrencies have a low enough barrier to get started. It is believed that even 5% of the free reward is enough incentive to just keep the wallet open. In addition to those listed, other currencies such as NXT, PAY can bring income. And cryptocurrencies with masternodes (PIVX, DASH).
Staking can be done with some cryptocurrency exchanges. Among them:
✅ Binance. Supports staking currencies KAVA, ATOM, Tezos, Algorand, TRON, Fetch.ai, ONE, QTUM, Stratis, Ontology, VeChain, Komodo, NEO, Stellar, Elrond. The yield is from 1 to 20%, depending on the chosen cryptocurrency and its course.
✅ KuCoin. Supports stacking PIVX, EOS, ATOM, TRX, NEBL, IOST, ONION, NRG, TOMO, NULS, LOOM, EOSC, WAN, VSYS, XTZ, IOTX, LOKI, ELA. Profitability from 0.5 to 15%, depending on the cryptocurrency.
✅ Kraken. So far, it only supports staking of the Tezos cryptocurrency, the annual yield is 6%. Cosmos (ATOM) and Dash (DASH) are also planned soon.
More about staking on the Binance exchange
Users are rewarded for simply depositing and storing coins on Binance. You can make trades, trade and use tokens on Binance as usual, and receive rewards based on daily balance checks for each coin for which staking is supported. You can also receive monthly reward payments, which are calculated based on the user’s proportional share of the total balance of Binance users over the past month.
Binance does not charge any fees for stakes, but it also cannot guarantee that you will receive rewards; therefore, the platform tries to optimize them so that users receive the right amount of rewards.
The user can always trade the coins he has. However, this changes the balance and, accordingly, the size of the daily reward. To stop receiving staking bonuses, you just need to withdraw or sell the supported coin.
Cryptocurrency wallets that support staking:
✅ TrustWallet. This wallet makes it possible not only to just keep coins or lock them in a masternode, but also to add an element of randomness to the process, so that it is difficult for attackers to manipulate the results. This process is similar to a lottery in which the number of coins held is equivalent to the number of lottery tickets. Delegation is also available in the system, where each person delegates his voting rights and received income to another trusted party. Delegates receive block approval rewards and pay their supporters a certain amount in exchange for their vote.
✅ Atomic Wallet. After installing the wallet, you need to transfer your coins to the staking address. As with most crypto wallets, you need to securely store your private key, because if it is lost, access to the wallet and funds will be permanently lost. The reward starts to be generated some time after the start of staking. It can then be spent on an integrated cryptocurrency exchange, converted into fiat currency or another cryptocurrency.
✅ Ledger. Owners of the Ledger hardware wallet can stake Tezos cryptocurrency. For this, the Ledger Live technology has been developed. The user must select the account from which he will delegate, then select the validator (baker), focusing on the expected reward for the bet, and confirm the information about the delegation on the hardware wallet.
In addition to wallets and exchanges, there are special platforms for cryptocurrency staking, for example:
✅ Staked. Gives institutional investors the ability to reliably and securely grow their crypto assets by 5% -100% per year through staking and lending. Works with an affordable investor betting infrastructure covering all major PoS protocols. Offers SLA for block rewards, granular reporting, and automatic payments.
✅ Stakinglab. The main goal of the project is to offer investors and developers a comprehensive platform for staking, creating masternodes and other related services. It currently serves over 25 thousand active members. Offers consulting and POS services to every investor in a constantly and rapidly changing environment.
✅ Everstake. Helps institutional investors and token holders profit from their crypto assets. Works with multiple Proof of Stake blockchains, providing customers with options to choose from. You can choose the most promising projects, delegate through Everstake and receive 5% -20% per annum.
Advantages and disadvantages
✅ An easier source of income than mining.
✅ There is no need to purchase expensive equipment that consumes a huge amount of electricity.
✅ Your current capital depends only on the cryptocurrency rate and does not decrease over time, unlike the ASIC value.
✅ Proof of Stake reduces the chance of an attack by 51%.
✅ The stacking process consumes less electricity and does not generate heat.
❌ The “wagered” coins are locked in the wallet and cannot be spent for a certain period of time.
❌ Strong dependence of profitability on the market trend.
Cryptocurrency staking is definitely crowding out mining due to its low entry threshold and ease of participation. There is no need to buy and install expensive equipment, to maintain it. Of course, there are downsides to PoS – for example, the need to hold coins if you want to maximize profits.
If you want to invest in this way, then do it only in those cryptocurrencies in which there really is reason to believe. It makes no sense to keep and earn coins, which in a few years will become useless.