There are hundreds of coins out there for which you can acquire interest by buying an amount and then holding the coins in a wallet. The amount you earn is proportional to the "stake" you hold in the project. There are a couple of Steemit articles touching upon the subject, see e.g. the work of dhouse and cashrich. In this article I will communicate the perks and risks of staking cryptocoins. Is it worth the effort? Given the dynamics of the industry and the rate at which it changes the topic is most definitely worth revisiting.
Proof of stake vs. Proof of work
A blockchain operates with a particular consensus method and it is necessary for it to function. Two of the most popular consensus mechanisms are Proof of Work (PoW) and Proof of Stake (PoS) although there are several others. Bitcoin and Ethereum operate with PoW whereas Neo functions with (Delegated) Proof-of-Stake, see the article by Turner or watch the video below to learn the specifics. Proof of Stake is similar to Proof of Work and their job is same; that is, validating transactions, creating new blocks and distributing new coins as rewards to the participants.
There are many subcategories / different consensus mechanisms and for our discussion later on Masternodes another worth mentioning is the Proof of Service (PoSe).
What exactly is staking and is it worth the hassle?
In order to get a grip on the process of staking let's first take a look at the Proof of Work consensus mechanism. The blockchain is composed of transaction data which is arguably next to impossible to modify. The blockchain grows overtime as data is added and the process of adding blocks is facilitated by miners. In order to add the next block in blockchain miners need to find a solution to a complicated mathematical problem and this requires computing power, which in turn demands electricity. The one with the most computing power will have the highest chance of finding a solution. This is a competitive process and whoever generates the acceptable Proof of Work first wins the next block.
Staking on the other hand does not require the massive amounts of energy to produce the next block. The protocol relies on selecting random participants from a pool who hold the digital asset. A participant can be added to the pool by staking a certain amount of coins in a bound wallet. If you are lucky, you will be chosen to become a validator (someone who can produce blocks), which means the coins are locked up for a certain time (on the order of minutes). For this service you are rewarded a certain number of coins which is proportional to the stake in the pool. This method of generating passive income is a viable option for generating profits provided that the digital asset doesn't depreciate.
The risks
There are several risks associated with this method of passive income. The coin you bought today might be worth a lot less or more, relative to BTC or fiat, next month. Furthermore, some projects require that you leave the desktop wallet open and unlocked on your desktop in order to receive the staking rewards. The former point is up to you understand what projects are worth the investment. The latter point is clearly a security risk, however, not all projects enforce this requirement. Staking as a passive income is most definitely less risky than say lending your coins via polonex and bitfinex.
If the project/coin supports the Proof of Service (PoSe) mechanism then setting up a masternode becomes another option for passive income.
Comparison to Masternodes
Masternodes are different to staking and are sometimes confused with each other. A masternode safeguards a copy of the blockchain in real-time and although staking has its similarities with masternodes, they are not the same. Masternodes require a large initial investment which means a lot of coins that you may potentially not be able to liquidate. Masternodes perform additional functions and you can get regular and higher rewards from the network. Furthermore, building your own node can sometimes be tricky but luckily there are many masternode hosting services such as Swyft.
Noteworthy projects
I've invested time and money into various projects (around 20) and the noteworthy ones which have not disappointed, in this specific order, are: Neo, Algorand, and SmartCash.
Neo
Neo has an annual staking yield of 2.4 % which you receive in the form of their token GAS.
Algorand
Algorand has an annual staking yield of 5 % which you receive in your wallet directly. There is another, separate program where the staking rewards will be doubled provided that your wallet doesn't fall below the value it was when the snapshot is taken.
SmartCash
Smartcash has an annual staking yield of 18.5 % which you receive in your wallet directly. You can either receive the rewards every moth provided that you actively vote /participate on proposals or you can set-up a masternode.
Atomic wallet is one of the best multi-crypto wallets out there and I'll tell you why. You can actively stake PoS assets such as Neo and soon Decred, Cardano and Tezos. They also have an airdrop if you actively use their wallet. Go to settings and enter your email and the promocode 11SRER and you will receive 10 free AWC (approx. 1.2 euros). The token is actually doing very well so it is worth the trouble. In addition to having a desktop wallet there are also mobile versions.
Let me know your thoughts on staking and the other multi-crypto wallets out there.
Remember to always do your own research! Crypto is a risky business.
I feel staking is worth it if you invest in the right coins. Doing this of course requires time and research.
I like PoS. Just my opinion, good article.
Thanks! I also prefer PoS. It's nice to know you liked it!
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