What is Proof of Stake?
The Proof of Stake consensus algorithm was introduced in 2011 on the Bitcointalk forum to address issues with the most widely used algorithm today – Proof of Work. While they both share the same goal of achieving consensus in blockchain, the process for achieving that goal is quite different.
How does it work?
The proof of stake algorithm uses a pseudo-random election process to select a node that will be the validator of the next block, based on a combination of factors that may include staking age, randomization, and wealth. of the node.
It is good to note that in Proof of Stake systems, blocks are said to be “forged” rather than mined. Cryptocurrencies using Proof of Stake often start by selling pre-mined coins or start with the Proof of Work algorithm and then move on to Proof of Stake.
Where in proof-of-work-based systems more and more cryptocurrency is created as rewards for miners, the proof-of-stake system typically uses transaction fees as a reward.
Users who want to participate in the forging process must lock a certain amount of parts in the array as a stake. The size of the stake determines the chances of a node being selected as the next validator to forge the next block – the greater the stake, the greater the chances. So that the process does not favor only the richest nodes in the network, more unique methods are added to the selection process. The two most commonly used methods are “random block selection” and “coin age selection”.
In the random block selection method, validators are selected by looking for nodes with a combination of the lowest hash value and the highest stake and since the stake size is public, the next forger can usually be predicted by other nodes.
The coin age selection method chooses nodes based on how long their tokens have been staked. The age of the coins is calculated by multiplying the number of days the coins were put into play by the number of coins staked. Once a node has forged a block, its part age is reset to zero and it has to wait a while to be able to forge another block – this prevents large stake nodes from dominating the blockchain.
Each cryptocurrency using the Proof of Stake algorithm has its own set of rules and methods combined for what they believe is the best possible combination for them and their users.
When a node is chosen to forge the next block, it checks if the block’s transactions are valid, signs the block, and adds it to the blockchain. As a reward, the node receives the transaction fees associated with the transactions of the block.
If a node wants to stop being a forger, its stake as well as the rewards earned will be released after a certain time, giving the network time to verify that no fraudulent blocks have been added to the blockchain by the node.
Understanding Proof of Stake (POS)
Proof of Stake was created as an alternative to Proof of Work (PoW), to tackle the problems inherent in the latter. When a transaction is initiated, transaction data is inserted into a block with a capacity of up to 1 megabyte, and then duplicated across multiple computers or nodes on the network. Nodes are the administrative body of the blockchain and verify the legitimacy of transactions in each block. To complete the verification step, the nodes or miners would need to solve a computational puzzle, known as the proof of work problem. The first miner to decipher each block transaction problem is rewarded with coins. Once a block of transactions has been verified, it is added to the blockchain, a transparent public ledger.
Mining requires a lot of computing power to perform different crypto calculations in order to unlock the IT challenges. Computing power translates into a large amount of electricity and power required for proof of work. In 2015, it was estimated that a Bitcoin transaction required the amount of electricity needed to power 1.57 American homes per day. To pay the electricity bill, the miners would typically sell their allotted coins for fiat currency, which would cause the price of the cryptocurrency to drop.
Proof of Stake (PoS) seeks to solve this problem by attributing mining power to the proportion of coins held by a miner. This way, instead of using energy to answer PoW puzzles, a PoS miner is limited to extracting a percentage of transactions that reflects their stake.
The stake works as a financial motivator so that the forger’s node does not validate or create fraudulent transactions. If the network detects a fraudulent transaction, the forger node will lose part of its stake and its right to participate as a forger in the future. Thus, as long as the stake is greater than the reward, the validator would lose more coins than he would win in the event of an attempted fraud.
In order to effectively monitor the network and approve fraudulent transactions, a node would have to own a controlling stake in the network, also known as the 51% attack. Depending on the value of a cryptocurrency, this would be very impractical as to gain control of the network you would need to acquire 51% of the circulating supply.
The main advantages of the Proof of Stake algorithm are energy efficiency and security.
More users are encouraged to run nodes because it is easy and affordable. This, along with the randomization process, also makes the network more decentralized, as mining pools are no longer required to mine blocks. And since there is less need to release many new coins for a reward, it helps the price of a particular coin stay more stable.
It is good to remember that the cryptocurrency industry is changing and evolving rapidly, and there are also several other algorithms and methods that are being developed and tested.
Top 10 Best Profitable Proof of Stake Coins for Staking in Cryptocurrency
1. Tezos (XTZ): 6% Annual ROI
Tezos is a crypto platform for apps and assets, and it evolves as it gets upgraded. It usually ranks very well on many of the best proof-of-stake lists and there are a number of reasons for this. Here are a few.
The consensus mechanism used by Tezos is called proof of liquid stake. Liquid POS refers to the fact that your balance is not locked and can be transferred at any time.
Investors or token holders have easy staking with Tezos. Indeed, they can delegate the management of accounts to the validator (also called bakers in Tezos), who will do the staking for the investors. When the investor is rewarded, the validator charges a small validation fee.
XTZ staking became more popular in 2019, and as a result, more exchange platforms (such as Binance, Kraken, and Coinbase) have committed to providing validation services to users. Currently, Coinbase is the main validator with an XTZ stack of around 65M XTZ.
For the first time you wager on XTZ, you receive rewards after 21 days. Then you start to receive rewards within three days. If you are thinking about crypto passive income, Tezos XTZ should be one of the point of sale coins you invest in this year.
2. Algorand (ALGO): 5.1% Annual ROI
The Algorand blockchain and the ALGO token aim to solve scalability, security and decentralization in one go. The blockchain consensus is achieved through pure point of sale, which means investors and users can earn passive income by staking ALGO. In addition, the project emphasizes transparency to ensure the success of all ALGO users.
This pure POS guarantees high transaction speed, full participation and protection within a fully decentralized network. Algorand competes with popular payment and financial systems, but may have a competitive advantage due to decentralization.
ALGO staking is simply to send ALGO to a personal Algorand wallet on your smartphone. Holding ALGO in the wallet automatically generates rewards. The minimum amount required for staking is 1 ALGO. Holding 100 ALGOS for a year will likely earn you 10 ALGO as a reward depending on how often you trade and how much your balance changes. Currently, the annual interest of ALGO staking is 5.1%.
3. Chromia (CHR): 20% Annual ROI
Chromia is a crypto platform that focuses on solving the problem of scalability of decentralized applications. The platform is relational and designed primarily to facilitate the generation of decentralized applications (dApps). CHR is Chromia’s utility token.
Current use of the decentralized app in Chromia is for real estate, finance, healthcare, and gaming. Chromia has strategies in place that can increase its popularity and usage. These strategies include the organization of gaming conferences, meetings and workshops within the blockchain.
Second, they will provide tutorials for interacting with decentralized application developers. Continuously engage the crypto community through the various social media channels and facilitate staking for Chromia CHR.
Chromia’s blockchain consensus is achieved through delegated points of sale. Investors have the opportunity to mine their crypto through staking. Chromia is currently offering staking rewards. CHR Staking is where earning this passive income comes in. The annual Staking Reward for CHR Staking is now 20%.
The latest news on Chromia shows plans to team up with Pool X (crypto exchange platform) for a staking campaign. The campaign is for users who stake out CHR and earn up to 30% APR. Additionally, users will receive daily mining rewards of 250,000 POL during the staking period. As it continues to gain more users, CHR looks like a good investment opportunity.
4. Decred (DCR): 6.16% Annual ROI
Decred attempts to achieve the best results using both proof of stake and proof of work in an innovative hybrid. This makes it more secure than blockchains using pure POS or pure PoW. It has a system that allows the blockchain to change at the will of stakeholders while gradually integrating new technologies.
DCR rewards are split so that POW miners get 60% of the rewards while POS DCR ticket holders get 30%. Ten percent goes to the project treasury. The stakeholders delegate the validation work to Stakepool. Stakepools cannot steal or spend DCR. Stakepools have no access to your funds.
Delegation is appropriate, especially since for passive income you don’t have to be always online. The Decred website provides a list of voting service providers that can be delegated.
Currently, the annual DCR staking reward is 6.16% and would be a good investment. The minimum required for staking is 138 DCR. The minimum blocking period for DCR is 28 days.
5. Fantom (FTM): 42% Annual ROI
Fantom (FTM) is another Proof of Stake coin that focuses on resolving speed and scalability. It aims to provide fast transactions and a secure network. Fantom uses the POS algorithm to secure its system and validate transactions.
You can participate by staking FTM as a source of passive crypto income. In exchange for staking, you will be rewarded with FTM tokens. When staking out, there is no need for specific devices or materials. You can stake out from your smartphone or personal computer.
The steps for FTM staking involve downloading a mobile app if you are using an Android phone. You can also access a web wallet from your PC browser. The second step is to transfer FTM from an ERC20 wallet or exchange to the new opera address. The last step is to find a good validator and click on the stake.
Fantom encourages users to bet by locking in rewards until the lowest network bet amount is reached. This smaller bet amount decreases by 1% each week. It is exciting that the percentage of interest you earn by staking FTM is as high as 42%. This makes it one of the best cryptocurrencies for staking.
6. Cosmos (ATOM): 8.34% Annual ROI
Cosmos focuses on scalability, usability and interoperability. At the same time, Cosmos enables an innovative blockchain network. This will allow developers to create new blockchains as well as applications.
The different blockchains communicate with each other via the Tendermint protocol on which Cosmos is based. The Tendermint core is made up of 4 modules, namely; POS module, governance module, fees and rewards module and inter-blockchain interaction module.
Cosmos ATOM is one of the POS coins that investors can mine by staking. Ownership of ATOMs gives you the right to delegate, vote or validate. There are two options for earning the desired passive crypto income and stake rewards by investing in Cosmos. You can either delegate Cosmos ATOM or run a validator node. Delegation is a way of staking out.
When you put your ATOM tokens, the rewards are automatically generated. Currently, the annual rewards are around 8%. Considering Cosmos’ relevance in solving both interoperability and scalability, it is set to become more popular over time.
7. Fusion (FSN): 19% Annual ROI
Fusion is a crypto platform aimed at bringing together all blockchains. It provides inter-organizational, cross-data-source, and cross-chain smart contracts, thereby providing an inclusive crypto platform. Additionally, it provides the infrastructure for financial functions on the blockchain.
Connecting to the Fusion Network is pretty easy, all you need is to buy Fusion parts. You have different options for staking: staking with one of the Fusion pools, staking with wedefi.com, staking on exchanges, or running your own node.
8. Loom (LOOM): 17% Annual ROI
Loom Network is a crypto platform intended to allow Ethereum-based dApps to run on side chains. It aims to make scaling dApps easier and faster while staying on the Ethereum network.
For Loom, blockchain consensus is achieved through delegated proof of stake. Staking is the only way to earn passive income within the Loom Network.
The available LOOm token is around 300 million. The percentage of wagering rewards will increase depending on the wagering period. It will vary between earning 5% reward for two weeks and earning 20% for a one year stake period.
At the time of writing, Loom Network has a 24 hour market volume of $ 6,528,923 and the annual staking reward is 17%. Just like most of the other POS coins on the list, it uses delegation for staking. The process is simple.
9. Synthetix (SNX): 52.5% Annual ROI
Synthetix is a platform for trading tokens and is based on Ethereum. It allows users to create real world assets such as stocks, precious metals, stocks, currencies, and other crypto assets. SNX investors earn rewards every week. The latest report on Synthetix Dashboard showed that as of February 2020, around 80% of SNX tokens were staked.
To receive rewards, you must maintain your Guarantee Ratio above 800%. However, some services can monitor this for you, such as Staked. They send you to reward updates as well as updates on your warranty ratio.
Synthetix performed well, especially in 2019 when it almost hit $ 1 billion in trading volume. Additionally, there has been rapid growth in SNX’s collateral value and many dApp upgrades. Synthetix aims to compete with Wall Street, which are the main players in the exchange of stocks and other assets. Since it offers more in terms of security and transparency, the adoption of SNX may soon increase rapidly.
The annual reward for staking is 52.5% which is a high percentage compared to other POS parts. Considering how well this token has been received by investors, perhaps now is the time to include SNX staking as your source of passive income.
10. Icon (ICX): 13.43% Annual ROI
Icon focuses on building a decentralized blockchain network powered by cryptocurrencies. Often it is called a “digital nation”.
Icon uses a delegated point of sale consensus mechanism to choose which nodes can add blocks to the blockchain. Users can leverage their ICX by creating new blocks or voting. You can earn more Icon Coins by staking ICX, running a P-Rep subnode, and running the P-Rep master node. Of the three, staking has the highest reward. Currently, Icon’s annual ROI is 13%.
As you can see, there are a number of Coins available for staking, and we’ve only touched on the best (in our opinion). There are many other staking Coins to explore and this is by no means an exhaustive list. Keep in mind that if you are choosing a coin, it should not be based solely on the performance of staking.
Some users may find it quite complicated to play solo with the command line wallets and the basic wallets for some of the choices. Exchanges such as Binance offer their own staking services where they will be the delegator that you can bet your coins on. All you really have to do is keep the coins in your Binance wallet and allocate them to the stake pool.
Of course, these services are not free, and exchanges charge a fee that could eat into your staking returns. It also means that the project is becoming centralized as the staking pools are increasingly controlled by large exchanges. You will have to decide if the compromise is really worth it.
Either way, adding some of these to your portfolio can help even out any coin price volatility, and also provide a way to create a passive income stream while being more stable than the trading activity.