Table of Contents
With every year more and more people are taking interest in cryptocurrencies. While some are into blockchain technologies because of its uniqueness, namely decentralization and anonymity, others (those who make up the majority) seek for the opportunity of making a fast buck. Still, while seeking for an easy way of making crypto profit a lot of betting men rather lose money than gain them. The truth is that only a few are tech-savvy enough to make a safe profit from cryptocurrencies. Hence, people consider the crypto industry like gambling one. However, it is a misleading statement. There are ways of making crypto profit avoiding the risk of losing all of your savings.
An alternative often considered as a source of income is cryptocurrency mining. However, in the case of Bitcoin and other altcoins based on the Proof-or-Work (PoW) algorithm, individual mining is practically useless from the economic point of view.
For this reason, many users turn to the so-called staking – cryptocurrency mining using the Proof-of-Stake (PoS) algorithm. This option implies the possibility of passive income without the cost of purchasing expensive equipment and electricity.
For a complete understanding of what staking is you need to know the features of the PoS consensus mechanism. Its essence is the generation of new blocks with a special option for distributing rewards to miners. The reward amount depends on the number of coins in the user wallet.
Consider an example: Mary has 2% of all issued coins. In this case, she is entitled to 2% of the reward received when a new block is found. This is a very rough description, but it shows the general principle of the PoS algorithm.
Another statement often used by proponents of staking is that the block formation in cryptocurrencies using PoS algorithm occurs randomly. This is the distinctive feature and another key difference from PoW algorithm, where miners use equipment that selects the only true number (nonce) to find a new block. The more powerful the device hash rate, the higher the efficiency of cryptocurrency mining and, therefore, the higher the miner’s rewards.
Thus, staking can be considered a convenient and less expensive way of making a crypto profit. Proponents of this algorithm also state that PoS provides a higher security level, especially in terms of 51% vulnerability to attacks. This is due to the fact that PoS network participants must compete with each other and maintain a certain amount of coins in their wallets. However, one can argue with this statement. To date, it is really hard to find more reliable protection than the one that is offered by the Bitcoin network.
So, which cryptocurrencies use the PoS algorithm? In fact, there are hundreds of them on the market today. In this article, we will consider the most popular and reliable assets that use Proof-of-Stake algorithm.
NEO project, also known as the Chinese Ethereum, offers its users the possibility of staking. The algorithm used is Delegated Byzantine Fault Tolerance.
NEO differs from other cryptocurrencies in its indivisibility. In other words, 1 NEO cannot be divided into parts. The “fuel” model is also used in the form of GAS tokens – when the next block is found, 7 GAS are automatically distributed among NEO holders.
The current yield is estimated at about 2.3% per annum. Launched at the end of April, NEO 3.0 was designed to improve the network performance and scalability.
The VeChain project has two types of coins – VET, or the main VeChain tokens, and THOR Power tokens. In their functions, they are similar to the already mentioned NEO and GAS. VET holders receive THOR tokens as a result of stacking, just as NEO holders receive GAS.
The latest generation of VeChain Thor aims to become a platform for developing enterprise-level decentralized applications. All the forces of VeChain developers are aimed at pushing Ethereum in the second place. There are no minimums for stacking, and some exchanges even support THOR generation for VETs stored in their wallets.
The profitability of stacking is relatively small – about 1.68%, although for 1,000,000 VET one can become the owner of the entire masternode.
WAVES cryptocurrency is based on the concept of creating a consensus algorithm capable of supporting up to one hundred transactions per second, which makes it suitable for mass-market applications.
WAVES uses a Leased Proof-of-Stake (LPoS) algorithm which is an advanced version of Proof-of-Stake. In the usual Proof-of-Stake system, every node that contains a certain amount of cryptocurrency has the right to add the next block to the blockchain, but in the WAVES LPoS system, users can rent their balance for full nodes. With LPoS, the user will have the opportunity to rent WAVES from the wallet to various contractors who can pay a percentage as a reward.
WAVES current price is $ 1.18 (data as of 08/20/2019). To participate in the mining process a user must stake a minimum of 1000 tokens. WAVES annual yield is around 7.5%.
Although DASH cryptocurrency is not based on Proof-of-Stake algorithm, it uses so-called masternode system that allows owners to receive dividends. For this, users need to have a masternode with 1000 coins in their wallets. In this sense, it is quite similar to classic PoS coins.
The annual profit is around 7.5-8.4% which is quite high. However, at the current DASH price around $ 95 (data as of 08/20/2019), the issue price of $ 95000 may be too high for average users.
Decred claims decentralized management is its top priority, using the hybrid PoW / PoS engine which, according to the project creators, significantly reduce the possibility of centralized mining.
Users can receive passive income by purchasing “tickets” to vote on key issues regarding the management of the Decred network. Holding a certain number of coins in their wallets, users receive a portion of 30% block mining reward proportionally from their participation.
The current annual yield with a minimum staking requirement of 5 DCR is estimated at more than 10%.
Launched in September 2018, Tezos uses the Liquid Proof of Stake algorithm and is positioned as the network protocol for safe and time-tested smart contract systems.
To become a Tezos validator, one needs to “freeze” the amount of at least 10,000 XTZ. However, the ecosystem also provides the delegation possibility which practically means that any number of user’s coins can be entrusted to a miner (baker).
The current annual yield is estimated at about 7%.
The delegated PoS algorithm is slightly inferior to the classic Proof-of-Stake. Users vote with their LSK tokens for delegates. Blocks are created by 101 delegates with the maximum number of votes. Selected delegates receive all rewards for stacking, and can also share dividends with users who support them. Although there are no technical restrictions on the amount of LSK required for voting, each vote costs 4 LSK. Therefore, it is recommended that only users with 200 LSK in their wallet (preferably more than 500 LSK) participate in the elections – this will minimize the share of costs and get good income. Currently, the cost of one LSK token is about $ 1.22.
Since the deductions share is determined by the delegate himself, it can vary widely: from 6.25% to 100%. Due to the complexity of the delegated PoS process, we recommend that you first familiarize yourself with the relevant documentation.
The distinctive feature of The Ark project is that the development team does not position Ark as a universal and comprehensive cryptocurrency. Ark seeks to combine various blockchains with SmartBridge technology. It works as a smart contract that can be executed on various blockchains with completely different protocols, for example, on Bitcoin and Ethereum blockchains.
Ark also differs from its analogs in its delegated PoS algorithm of the Lisk type that was mentioned above. Thus, users do not directly participate in the stacking. Their coins allow selecting 51 delegates, who will then share the rewards with the users who supported them.
While the average share of ARK deductions is around 10%, some delegates pay up to 90-100%. In other words, almost all dividends for stacking go to voters and are distributed depending on the number of votes. On top of that, each wallet can vote for only one delegate. This is done to prevent potential centralization of the election system.
Cosmos is a cryptocurrency project designed to ensure the compatibility of different blockchains – primarily Ethereum and Bitcoin. The project work has been carried out over the past three years.
The launch of the Cosmos Hub, the first of the Proof-of-Stake blockchain series that will become part of the Cosmos ecosystem in the future, took place on March 2019.
Validators of Cosmos own network receive additional ATOM tokens for securing the blockchain by staking their tokens. The current annual yield is estimated at more than 12%.
Zcoin (XZC) is a cryptocurrency that oriented to increased user privacy. At the end of 2018, an algorithm called Merkle Tree Proof (MTP) was activated as a result of Zcoin network hard fork.
The idea of the algorithm lies in balancing the capabilities of users with large computing power and home miners. In other words, this is mining for people, as to the project website says.
The Zcoin coin (XZC) provides favorable staking conditions of 17% per annum.
Many cryptocurrencies have limits on the number of coins in their wallet. In such cases, users are forced to pool together with the subsequent division of earnings. Hence, there is a risk of centralization – the concentration of the bulk of the coins in the hands of large players. This is especially true for young cryptocurrencies that have appeared recently and have a small price.
Also, there is a risk of a decrease in cryptocurrencies turnover. Since users seek to get maximum profit, they try to keep coins in their accounts for as long as possible.
The Future of Staking
This is a rather interesting question, especially considering the plans of Ethereum – the second-largest cryptocurrency by capitalization – to abandon PoW and switch to PoS. The world of cryptocurrencies is characterized by certain adventurism, and staking largely falls into this definition. Only time will tell whether the strongest and the most persistent win.