Complete Guide to Staking Crypto & Proof of Stake
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Have you heard about that you can stake cryptocurrencies? Or maybe the blockchain model called Proof of Stake? And now you might wonder what it means? And also why you should pay close attention to it.
Because did you know that you could earn a passive income from staking cryptos? By simply holding cryptos in a wallet you can earn kinda like interest from it daily? That’s pretty awesome.
So in this guide, we will explore the topic of staking cryptocurrencies. How it works. What the blockchain model known as Proof of Stake is. And we will also give you some insights into which coins you could stake and earn money from.
About staking cryptocurrencies
To start staking cryptocurrencies you first need to buy, or in another way acquire cryptos that have the staking option. We will in this guide explore some of the most popular staking cryptos.
After that, you will have a few different choices for how you start staking them. Don’t worry we will cover everything you need to know to start staking crypto.
Then you need to hold your cryptocurrencies in a wallet with the staking option enabled. This could be your own personal wallet, or sometimes an exchange wallet.
Then you leave your cryptos in the wallet and simply wait and get staking rewards. That’s it! Let us now explore everything you need to know about staking cryptocurrencies.
Proof of Stake or PoS is a consensus method used to secure a blockchain network and validate the transactions on it. Without it, the blockchain wouldn’t be able to function.
Proof of Stake is a blockchain model that uses a different type of consensus algorithm compared to Bitcoin’s model which is a Proof of Work model.
In the Proof of Stake model, new blocks are forged either by:
- Coin age (how long it has been staking for)
- Randomiser (that looks to find staking wallets, a formula set for lowest hash value and staking size
This is how staking works
Users that stake their coins put them into a wallet that is connected to the blockchain. This wallet needs to be connected to the blockchain all times (traditionally, there are exceptions with cold staking now).
By staking your cryptocurrencies you help to secure the blockchain and keep it going. With PoS the owners of the cryptocurrencies running on that blockchain stakes their coins and those coins are used to validate transactions and create new blocks.
The users who stake their coins in a Proof of Stake blockchain are known as forgers. You might have heard of miners, which refers to the users securing the blockchain that operates on a Proof of Work type of blockchain. Bitcoin famously runs on PoW.
In the Proof of Stake systems, creators of new blocks are created in a “pseudo-random way, depending on the user’s wealth, also defined as ‘stake’” (Hackernoon guide on Proof of Stake blockchains).
Different Proof of Stake setups
With Proof of Stake blockchains, there are variations of how their setup works. For example, there are differentiations with how new blocks are made and transactions are verified based on (from Medium article)
- Randomized block selection – a model created to find a user with the lowest hash value and size of staking to be selected as a forger
- Coin age-based selection – the selection of ‘forger’ based on days stake * coins staked
- Inflation amount – an added inflation rate model based on the number of coins staked (more or less than 50% could be a cut-off number – Medium article on inflation)
Masternodes a newly invented add-on for staking crypto
Another addition to Proof of Stake blockchains (and Proof of Work) is the introduction of Masternodes. Now Masternodes acts as a different type of user in the PoS blockchains. They are often lumped together with regular staking users, but their roles are very different.
- With Masternodes you stake or deposit your coins (which works as collateral). But you don’t validate new transactions, Masternodes are incapable of that. Instead, they focus on security aspects such as rejecting new blocks.
- With traditional staking users, they can help to create new blocks without the added extra security role in the network
Both of them generate passive income for their participation (learn more about a Masternode setup).
Is Proof of stake more secure than Proof of Work?
One of the most common risks with blockchain is the 51% attack. This refers to an event where miners with more than 50% of the computational power of a Proof of Work blockchain would essentially control the blockchain.
And be able to prevent new transactions from happening, and able to reverse transactions. And they would be able to double-spend coins. Which fundamentally destroys the concept of an immutable blockchain record. So that’s obviously something that every keen blockchain promoter doesn’t want to see happen.
Which fundamentally destroys the concept of an immutable blockchain record. So that’s obviously something that every keen blockchain promoter doesn’t want to see happen.
With the 51% attack on a Proof of Work system, the miners need to have more than 50% of the computational power. I.e. the hardware, which for Bitcoin is near impossible.
And on a Proof of Stake system, you need to control more than 50% of all the coins available. Which for Ethereum or other bigger blockchains are near impossible.
The risks around both are more probable for smaller cryptocurrencies. But any attack of smaller cryptocurrencies would essentially destroy the value of that coin and ultimately act as a deterrent.
There are some clear advantages to Proof of Stake and staking crypto. The methods used to keep the blockchain operating compared to traditional PoW can be more efficient and secure.
Here below we have listed some of the benefits and advantages.
1 ) Less energy consumption
The big issue when it comes to mining Bitcoin and other cryptocurrencies is the amount of energy used to keep the hardware mining machines operating. When Bitcoin started out the amount of computational power and hardware needed was what many families had at home.
Now there are specialised mining rigs that drain huge amounts of energy in order to make more than they spend. PoS cryptocurrencies are far more energy-efficient in comparison to Proof of Work and much better for the environment as they need less energy to function
2 ) Cheaper equipment
No need to invest in expensive mining rigs as most of the staking can be done via a cheap Raspberry Pi, a mobile phone, your own personal computer or a hardware wallet like a Ledger Nano S for cold staking cryptocurrencies more easily.
3 ) Decreased risk of 51% attack
Potentially this factor comes to life for cryptocurrencies like Bitcoin, Ethereum and other major coins. As the concept of someone getting hold of more than 50% of all of Ethereum’s cryptocurrencies seems near impossible.
4 ) Easier to start staking than mining
It is much easier to start staking your cryptos today than it is to start mining. Staking is still fairly new but many new innovative features is coming along with staking. Staking is available at crypto exchanges like Coinbase and KuCoin. And with features like cold staking, it means the entry point to get started is much lower compared to mining.
1 ) First, you need to decide on which coin you want to stake.
We have compiled a list below in our eyes the best coins to stake in 2019. There are more PoS cryptocurrencies, but these have been and approved by Go Cryptowise researched by us. Find more cryptocurrencies with staking options here.
2 ) Find out if there any necessary requirements?
When you have decided on the best coins to stake, then you need to find out what the requirements are to get started? Usually, there’s a minimum requirement of how much you need to have in order to be able to stake.
3 ) If you want to use a computer to stake crypto
Traditionally for most PoS coins, you need a computer with a wallet connected to the blockchain all at times. So if you have a spare computer lying around this could work perfectly for that.
Another option is to buy a Raspberry Pi or similar which costs about $50-70 and use that for staking cryptocurrencies. There are several guides on how to get started on the internet for that (guide here).
4 ) If you prefer to use a Virtual Private Server or VPS
If you don’t have a spare computer lying around, or concerned about the electricity costs then running a virtual server is another option. There are many services where you can run a private server on the cloud.
Allowing you to set up a wallet on that private server and have it running 24/7 without a computer needed for you at home. This might be a bit trickier to get started but there are guides on the internet available.
5 ) Easy crypto-staking (only for some cryptos)
Some PoS or PoA (Proof of Authority) coins let you stake by holding the cryptocurrencies in a simple dedicated wallet and that’s it (maybe you need to click yes to staking or similar). Both Neo and VeChain let you do this for example.
6 ) Cold staking (only for some cryptos)
Another new and interesting feature is cold staking. Which basically means that you can begin staking cryptocurrencies from a wallet that can be offline.
No need to keep a computer, mobile phone, or Virtual Private Server running for 24/7 wasting energy and money.
A look into some of the most popular Proof of Stake coins
Of course, we need to include a list of good coins in our complete guide to staking cryptocurrencies.
Here below we have listed some of the most popular coins which you can use for staking.
Do your research into each coin and select the one you like the most. Ask yourself again why this is a good coin to invest in. You can find out where you can get hold of these coins in using Coinmarketcap and find a suitable exchange where to buy them here.
- NAV (NavCoin) 2.5% annual ROI. Useful links – Medium article to get started, Nav Reddit – Buy at NAV at Binance
- NEO – 5% annual ROI Similarly like VeChain by staking NEO you in return receive GAS another coin used on the NEO blockchain. Useful links – NEO to GAS profit – Buy NEO at Binance, OKEx, eToro, Kucoin, Bit-Z
- ICX (ICON) up to 12% annual ROI. Useful links – ICON toolbox with several guides – Buy ICX at Binance, OKEx,
- VET (VeChain) and VTHO – 2-6%. It’s actually a PoA (Proof of Authority) but it works similarly like other PoS coins. By staking your VET you receive in return VTHO which works like gas. VTHO is required to pay for transactions on the VeChain blockchain. Useful links – VeChain website, VeChain subreddit (lots of tips), VeChain staking calculator – Buy VET at Binance, Kucoin
- PIVX 5-8% annual ROI. PIVX website, PIVX staking calculator – Buy PIVX at Binance
- ARK 10% annual ROI. Useful links – ARK staking calculator, ARK Reddit – Buy ARK at Binance, Bit-Z, OKEx
- LSK (Lisk) 4% annual ROI. Useful links – Lisk website, Lisk Reddit – Buy LSK at Binance, Bit-Z, OKEx, Kucoin
- NEBL (Neblio) 10% annual ROI. Useful links – Neblio website, staking explained – Buy NBL at Binance, Kucoin
- ONT (Ontology) 5% annual ROI. Useful links – ROI rewards, How to guide for staking – Buy ONT at Binance, Kucoin, OKEx, Bit-Z
- KMD (Komodo) 5% annual ROI. Useful links – ROI rewards, stats, guide – – Buy KMD at Binance
- STRAT (Stratis) 1.46 annual ROI. Useful links – Stratis website with guides, Statis cold staking – Buy STRAT at Binance
- And in the future Ethereum will move from Proof of Work to Proof of Stake. Useful links – Ethereum article on Constantinople (the major change to the Ethereum blockchain) – Buy ETH at Binance, Kucoin, Bit-Z
Recommended Crypto Exchanges to buy the crypto from
When you have decided which cryptocurrency you want to stake it’s time to find out where you can buy it.
You need to find a reliable crypto exchange in order to buy some of those cryptocurrencies that you wanted to use for staking crypto.
You can use Coinmarketcap to find out this information. And you can use our exchange comparison tool and reviews to find the best exchange that fits your needs. The exchanges we have reviewed have been vetted by us.
- OKEx – OKEx is the second biggest exchange for cryptocurrencies when comparing trade volume (24h). OKEx offers fiat-to-crypto and crypto-to-crypto trading on more than 100 digital currencies.
- Binance – Binance is right now the leading exchange if calculated by volume (via Coinmarketcap). Binance offers perhaps the biggest selection of coins and one of our favourite exchanges
- Bit-Z – Bit-Z is one of the worlds biggest exchanges when it comes to trading volume and amount of supported coins, after Binance. Bit-Z founded in 2016 in Hong Kong. Bit-Z has established branches in 10 countries and regions including Singapore, Japan, and South Korea.
- Kucoin – Kucoin launched in 2017 and fairly quickly made a name for itself in the crypto world due to its early adoption of certain altcoins and their own coin called Kucoin Shares (KCS) which is a passive income coin, where you as a holder of KCS gets a percentage of the trading fees from the Kucoin exchange
- Bittrex is another very popular cryptocurrency exchange – it is located in the U.S and it is open for U.S customers and international customers also. They have fiat on and off-ramps
Find more exchanges where you can buy Best Proof of Stake coins of 2019 at out Exchange Comparison tool.
What is cold staking?
There’s a new method that was released not too long ago, and that’s called cold staking. This means that you no longer need to stake your cryptocurrencies via a hot wallet (a wallet that is constantly connected to the internet).
This has been one of the common hurdles keeping people away from staking their coins. It’s difficult for most people to find another computer. Have it run at all times, and it’s not as secure as with cold staking.
Cold staking means that you can start staking cryptocurrencies but hold them on a secure wallet that is not connected to the internet at all times. Which is much easier and more secure.
This means that we will see many more cold staking options in the future for more cryptocurrencies.
Cryptocurrencies with cold staking option:
- Stratis – a guide on how
- NAVCOIN – a guide on how
- Bonus cryptocurrencies:
- DIVI (guide on one click staking – the super-easy way)
Benefits of cold staking
- Keep your cryptocurrencies on a secure hardware wallet and avoid hacks, scams and other risks
- One of the easiest ways of getting started with staking cryptocurrencies
- No need to have computers or other devices running at all times, fewer costs spent on energy, devices and better for the environment
What is Proof of Authority – PoA blockchain?
Proof of Authority is a type of Proof of Stake blockchain method but with a different consensus model. In PoA you stake your cryptocurrencies as with PoS.
But with PoA only certain nodes are allowed to validate new blocks. So instead of the focus and priority are given to nodes and holders with more cryptocurrency staked (PoS). They give priority to pre-selected and trusted validators.
VeChain is an example of a cryptocurrency that runs its blockchain on a PoA model.
With PoA everyone can still stake their coins and get the rewards, but not everyone can validate transactions and create new blocks.
How exactly the validators are selected and their identity is given public or not is up to each community and blockchain to further discuss on.
Important tips to remember before getting started
- You need to lock up all your coins when staking. That means you can’t use or spend them without disrupting the staking. At least if you want to maximise return when staking cryptocurrencies
- Only invest your staking efforts into a cryptocurrency that you believe in. No point having lots of coins that in a few year’s time will be worthless?
- Check out cold staking options which are starting to appear more often. Sometimes this is timed with cryptocurrency projects that have really good apps with nice UX/UI that makes staking more secure and easier than ever.
- The value of your cryptocurrency can both appreciate and depreciate in value during the time of staking. This can have its benefits as you’d get more coins for your effort when it’s worthless. But you need to always re-evaluate the future value of your cryptocurrencies.
We hope you liked this article on staking and that you know what is needed to get started and which cryptocurrency to use.If you have any questions or suggestions please leave a comment below.
Also please share the article if you enjoyed it.
Check out some of our other articles on getting income from crypto. One is about the top ways of earning passive income from crypto, and the other is our 15 best ways for making money from crypto. With airdrops, mining, staking being a few of them.
Other popular guides:
- The top crypto exchanges
- The most popular privacy coins
- What is a crypto market cap – all you need to know!
- How to use Bitcoin ATMs
Per Englund – Founder of Go CryptoWise a cryptocurrency and tech fan that want to see better and smarter products and services that make our lives better and easier