Despite the fact that the cryptocurrency community is focused on the bitcoin halving, the potential price increase allows us not to forget about Proof-of-Stake (POS).
Stake is a process that has become an alternative to the Proof of Work mining algorithm. Proof of stake means you have a significant amount of coins and don't want to sell them quickly. Stake refers to classic shares in companies where a lot of capital has long been invested in securities.
When you hold Bitcoin, you are also participating in its "Stake". Because you hold a stake in the economy. Bitcoin is a decentralized economy and a centralized company brought together by venture capitalists.
The so-called crypto authorities understood that the public was ready to use different consensus models if they have a monetary incentive. If you cannot participate in mining, you can participate in automated mining, that is, in Stake.
Proof-of-Work vs. Proof of Stake: what's the difference?
The classic Proof-of-Work algorithm is good as a consensus model. Perhaps this is the best consensus model in history. However, the anonymity of the parties introduces a lot of confusion.
First, it places a great burden on who can do business with mining. Miners are forced to invest real money in mining equipment and then sell the mined coins. To be profitable, a miner must invest significant amounts of cash in their farms. They have no management tools and all decisions are made by coders. These coders usually don't listen to miners or users. It's their ego or commercial motives but they don't like to tell even crypto journalists. This is why there is so much focus on governance in Proof of Stake models.
A staker is someone who can participate in the life of a cryptocurrency by investing money or the processing power of a node. Proof of Stake coins usually provide a wide range of features, including voting and elections. These features help the network make development decisions based on community consensus rather than the sole will of a vicious circle of emerging elites.
A staker is also a person who has put a significant portion of his coin store into Stake mode. This means that in most PoS currencies, the implementation of the reference wallet has a special “storage” for hosting part of your balance. You can compare the vault with a bank account where you cannot withdraw cash until the deposit expiration date. Not all coins require coin storage for some time. But you will have to deal with many pretty catchy rules. And in most PoS systems, you lose “reward for a bet” or even part of your cache in case of violation of network rules.
All in all, a crypto-stake is an automatic shareholding with a built-in incentive scheme for the interested masses to explore. The staking model itself, like mining PoW coins, has no intrinsic value. The value of the coins depends solely on the huge crowds and their belief that the project is important. It is similar to regular stocks, but in cryptocurrency.
How to choose a profitable staking plan?
Different coins offer different profits depending on a huge number of parameters. For example, in most cases, the more coins you hold in the stake mode, the more blocks you will receive. Some projects may change this rule to reach an exact consensus or new incentive schemes.
Another example is that in many projects you will get a return based on the time your node spends on the network. Sometimes it is the strength of the verifying node that acts as a key factor in the distribution of reward volumes. Depending on the network architecture and needs, hosting plans differ depending on the requirements.
If you are not interested in the ideology of the project, and you just want to invest some capital in growth, use the websites that provide statistics for comparing coins. Many have built-in profit calculators.
For example, on the home page 'Stakingrewards we we could see the best Proof-of-Stake coins with their basic statistics. It shows you the change in price for seven days, the approximate remuneration for a month or a year (or for the placement period), the percentage of coins currently in "Stake" mode, and so on. The website also shows a list of betting providers with ratings and coins that they support.
You can see that some coins offer great returns, such as 55% profitability. And some other assets give you only 5% per year. Obviously, the more a coin gives out per share, the more likely it is a shitcoin or a Ponzi scheme disguised as a PoS currency. You should be very careful when investing in high ROI PoS tokens. Make sure they have low public outreach and weak code to keep out.
Online staking vs offline staking
So, if you are in a game, one of the main questions is whether to play it online or offline. Standalone mode means that you will use your PC as a node (node), sometimes called a validation node or a delegate node. Depending on the blockchain, different projects require different nodes. Some PoS coins require the node you are using to meet minimum technical requirements in order to maintain a high network quality.
The minimum load can be imposed on the RAM, processor speed or some other factors, such as Internet bandwidth. However, many other PoS coins do not impose any requirements on the validator, which means that you can even use an outdated PC to place it.
Another option is much simpler, and it requires you only to have an account on any exchange. Many exchanges handle the entire process with preparation for a small fee. You simply register, deposit money, choose and enjoy. Online Stake is better because they can offer higher ROIs compared to PCs. Your computer may be too old for the network, so it will generate less profit due to RAM or CPU limitations. When using the online service, the best servers will suit you, and in most cases they don’t even want to know your real name.
There are three main types of online stake. The first is the cloud validator node, where you buy cloud server space and host a validator node there, increasing profits with powerful hardware. In the second, you can get coins on the exchange, and it will do the rest for you, but the return may be less. The third is a few firms that serve as online Stake providers. It's up to you if you want to use them, just compare the Stake plans they offer and choose the best one.
Keep in mind that to prevent fraud in any of the validator plans, various types of PoS chains use a minimum bid amount. To ensure that network participants act honestly, the blockchain can disable a part if the validator tries to break the agreed rules or cheat with transactions / blocks / censorship.
The introduction of a significant number of tokens also means that you are either an early supporter of the network who bought a lot of coins at a low price, or an investor who wants to earn more than local banks can offer through the deposit system. In both cases, no one is interested in a scenario in which the consensus model on the network does not work. Presumably, this makes you a loyal follower willing to risk your time and energy in order to support and (possibly) promote your favorite betting plan.
Proof-of-Stake Tezos Staking (XTZ)
Tezos is a PoS currency with the ability to transfer validation rights to other holders. You can transfer rights without transferring the token itself. In addition, you are not required to choose manufacturers of reliable blocks, as in EOS or Lisk. The consistent system algorithm is called Liquid Proof of Stake, or LPoS. Liquid, because the user decides whether the rights will be transferred or not.
Instead of mining or stake, Tezos uses the word "baking" as a control word when it comes to block production. There is a difference between liquid proof of stake and classic delegated proof of stake. The liquid version allows people to choose delegates, but they can opt out. While the classic DPoS is a mandatory selection of delegates, and the delegates are well-known corporations, not users.
Tezos is the second largest stake coin by volume. You can join the process both through your node and through the main exchanges. Coinbase offers a 5% return on Tezos stakes and the rate can be even higher. If you want to stake a coin through Trezor Model T - read it. And if you sent a few pangolins to your Ledger Nano X, Readto find out how much it can be beneficial for you.
Harmony Staking (ONE)
Harmony comes with an EPoS betting model, which means "Effective Proof of Stake." It uses a locked chain of blocks, and about 400 reviewers choose to participate in each of the network segments. The system supports voting through bonds. One bonded share entitles the validator to cast one vote. During the day, the validator uses all his voting rights related to bonds, and the rights are redistributed the next day.
How are they redistributed? At the end of each day, bidders send their bids to a special betting address. The more tokens sent as a bet, the more likely it is to be selected by the protocol as the next block producer and transaction intermediary.
The main functions of the protocol include FBFT, a type of consensus, where at least 2 out of 3 votes make a decision. It also has BLS multisignature consensus, distributed P2P, distributed randomness generator and so on.
As of January 2019, several testnets already exist to help the network perform self-tests. Harmony does not impose hard limits on the hardware of the validator nodes, as well as on the network speed. If you have a weak computer and bad internet, but you want to participate in the production of blocks, you will have such an opportunity.
You can check other exchange offers to choose the one that suits you best. The estimated annual return for placing ONE on Binance is 8-10%. If you want to do stakingusing my own resources, here's a guide to Ledger Nano S.
Cosmos Staking (ATOM)
Cosmos is widely referred to as a “blockchain for blockchains”. It uses the Tendermint consensus protocol. A network consists of several scalable chains of blocks that send data to each other through the primary. This adds to the heap of decentralization and management related solutions, but adds problems with code validation.
Until new features are tested, the finality of the project is in question. In addition, developers are still working on an inter-unit communication protocol, which is an important part of the further development of the project.
The developers claim that the platform is "independent of the programming language", which means that it supports any smart contracts. According to the documents, DApps working on this blockchain get a huge amount of scalability.
One of the downsides of Cosmos placement is that the top 10 Proof-of-Stake validators are the services or companies with the largest stakes. Any bet gets bigger over time, because the more you "keep" in the bet, the more rewards you get. Thus, the top 10 network validators got control over 46% of the total network share.
Proof-of-Stake Ethereum Staking (ETH)
Currently, the Ethereum staking roadmap consists of a classic set of PoS rules, where the more you have, the more you get.
It is assumed that Ethereum 2.0 will appear somewhere in the third quarter of 2020 as part of a massive network upgrade. It promises support for Ethereum staking, as well as a list of other highly anticipated features. Based on the current plans of the developers, the minimum contribution for the validator node will be 32 ETH.
This is a slightly large price for the average investor. Thus, most of the Ethereum Proof-of-Stake is likely to work thanks to large betting companies / pools. In the event that you do not have 32 ETH or you do not want to bet so many coins, pooling will allow you to bet any amount of funds, but with some fees.
In addition, there is no permission regarding the possible return on investment, and Buterin suggested something between 1,5% and 18%. Ethereum developer Justin Drake offers a 5% return rate for validators.
Unlike other blockchains where hybrid PoW / PoS algorithms work, Ethereum PoS will work as a separate network layer. This means that the classic Ethereum mining on video cards from AMD / Nvidia will not go anywhere. The new network layer should work separately from the old. While the classic tier will continue to focus on smart contract functionality, transaction confirmation and PoW, the new tier will only contribute to PoS related tasks.