What is cryptocurrency staking?

22 Mar, 2020 Endy Callahan

Most investors in digital currencies seek to build passive income without spending money on the purchase of expensive equipment. Coins, the mining of which uses the PoW algorithm, do not allow to achieve this goal, since obtaining of blocks becomes more complicated. Here, the PoS consensus mechanism has clear advantages. Such cryptocurrency mining is sometimes called staking.

What is cryptocurrency staking

With this method of making money on cryptocurrency, digital money is stored on a wallet that is connected to the network. The amount of income and methods of data processing are different and depend on the rules of PoS. This method of cryptocurrency mining is simplest; it does not require the purchase of expensive equipment. The user is expected to have a wallet, the right amount of coins on it and a computer connected to the Internet.

Cryptocurrency Staking Hallmarks

To understand the peculiarities of coin staking, one should have an idea about the operation of the PoS algorithm (the article “What is PoW / PoS Transactions?” will help to learn more about this consensus method). When it is implemented, remuneration to network participants is assigned taking into account the amount of cryptocurrency that is available on their wallets. So, if a miner's account is equivalent to 2% of all coins, then after the appearance of a new element of the chain, 2% of the total reward will be credited to him. Of course, in different cryptocurrencies this principle may differ, but in general, companies use this approach.

Staking has an increased security, it became possible due to the features of PoS - higher resistance to attacks and hacks. Earnings of a miner is directly proportional to the number of coins at his account. As a result, the conditions are created in such a way, when cryptocurrency users compete, and powerful motivation is created to maximize income.

For staking, at least 2 conditions should be met:

  • The cryptocurrency wallet must be synchronized, connected to the network and work.
  •  A certain number of coins should be on the account, they should not be spent within a certain period for any transactions. If the user performs any actions with digital money, no reward will be charged.

What you should know about the hallmarks of staking

If you are considering the possibility of starting making money on staking, it will be useful to get general information about this type of mining:

  • Fixed commission (most often).
  • The amount of income is relatively small, to increase it you need to have as many coins on your wallet as possible.
  • Remuneration is transferred after each created block.
  • The availability of expensive equipment is not necessary for making money on staking - the capacities of a regular computer are often more than enough.
  • The age of the cryptocurrency affects the income of the miner. This parameter reports the period of time during which the coins are on the wallet. Usually the minimum requirement is 1 month.
  • Limitations on the volume of cryptographic currency on the wallet could be established.

Advantages and disadvantages of cryptocurrency staking

The advantages of PoS mining are:

  •  High security.
  • Lack of costs for the purchase of expensive "farms". This money can be spent on buying coins.
  • Any Internet user can use staking. Its setup is simple and does not require special knowledge and skills.
  • The lack of monthly colossal energy costs, the consumption of one computer of small capacity is very small.

Staking cons:

  • Decrease in turnover, as miners keep coins in their wallet for as long as possible in order to generate income.
  • Risks of concentrating a significant share of coins in the hands of large investors. “Young” coins of low cost are especially susceptible to this.

The best coins for staking in 2019 and 2020

NAV (NavCoin)

The blockchain is open source. The coin is focused on confidentiality, the system is known for minimal commissions and fast transactions. Since 2018, the function of cold staking has been working - PoS mining can be carried out from the user's cold wallet. This is convenient because there is no need to have a permanent Internet connection.

Main advantages of NavCoin:

  • Remuneration: 5% per year
  • Listing on famous cryptocurrency exchanges, including Binance
  • High transaction speed - few seconds
  • The minimum amount of commissions - less than a cent
  • Confidentiality - information about the user is provided only with his permission

NEO

It is an open source of the smart-contract platform. Supports the creation of various digital assets and certificates. The reward for mining is carried out by a special token - GAS.

NEO Benefits:

  • Mining does not require a separate computer
  • Remuneration: 2.5% per year
  • Digital certificates and identity cards
  • Support for a large number of crypto exchanges
  • Ability to use dApp in decentralized applications
  • Support for smart contracts

PIVX

The coin is a fork of DASH, it is focused on privacy. The platform allows you to carry out operations as quickly as possible with minimal fees.

Advantages of PIVX:

  • Remuneration: up to 8% per year
  • High speed operations
  • Transaction Confidentiality
  • Effective work of the system of self-government, voting and making proposals

Cryptocurrency staking itself has many advantages. It is less harmful to the environment, safe, reliable and creates a motivation for buying coins. Many projects built on PoW mining have announced the transition to staking. If you are thinking of mastering the last, this is not difficult. You can start with startups that allow you to start earning with very little investment. Production setup is usually simple and straightforward.