What is Proof of Stake?
It's a type of consensus algorithm adopted by some cryptocurrencies in their effort to achieve distributed governance.
This type of algorithm is applied to cryptocurrencies that are pre-mined. With coins ready, it becomes easy for users to stake coins for a profit.
Before we delve deep into the details of Proof of Stake (PoS), lets first understand how it compares with its predecessor, the Proof of Work algorithm.
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Proof Of Work vs Proof Of Stake
Early cryptocurrencies like Bitcoin and Ethereum used the Proof of Work (PoW) consensus, taken to mean that they use mining as a way of validating transactions.
Mining is a rather straightforward affair.
All a miner needs is to confirm a transaction or to generate a new block. To do this, they need advanced, high-end computer hardware as this involves solving of computational cryptic puzzles.
In a PoW coin, any miner who solves a complex computational problem is rewarded with new coins. In contrast, mining or forging of POS coins doesn't need any expensive computer hardware.
To mine a PoS coin, all you need is an open wallet with some coins which you stake to confirm transactions, essentially earning a percentage of the staked coins.
Staking out is similar to how money in a bank account earns an interest.
You might ask, does the person with the highest number of coins control PoS mining?
Essentially, selecting the next block generator using account balances results in centralization as the richest person will have an advantage.
To end this undesirable result, PoS coins use various block selection variants, including Randomized Block Selection and Coin-Age Selection.
In the end, the POS miners secure the network and generate new coins without using significant computational power like PoW miners.
It's worth noting that PoW mining is centralized as the richest member of the pool can buy expensive rigs to control mining, while PoS mining is decentralized and everyone with some coins on their wallet stands a chance to mine coins for a profit.
Overall, PoS mining turns out to be energy-efficient when compared to PoW mining, which consumes lots of electricity.
Given the many benefits of PoS mining, most new coins are adopting this consensus algorithm while others are coming up with hybrid algorithms that combine both PoW and PoS concepts.
What is Coin Staking?
Coin staking is another name for mining PoS coins.
It starts when you load your wallet with coins and unlock it for staking.
When the coins in your wallet mature, your wallet starts to compete with others to validate transactions and to generate new cryptocurrency blocks.
In case your wallet successfully validates transactions or creates the next block, you earn a certain percentage of your staked coins as profits.
Why Choose Proof of Stake
Staking coins is beneficial to investors as they get passive income for just having coins in a bound wallet.
Compared to other consensus algorithms like PoW, PoS mining is decentralized and gives every investor a chance to earn an extra income, without the need to invest in high-end computers.
The other reason why you should choose PoS mining is that your coins do not depreciate, regardless of the fact that they generate an income for you.
In contrast, PoW hardware rigs depreciate and become obsolete in a few years, despite the high initial cost of acquiring them.
Sidenote: For a tad bit more info on mining rigs, click here.
With PoS, you wont really need to invest in a new rig every few years.
The other reason for choosing PoS mining is to conserve the environment by conserving energy.
As mentioned earlier, PoS mining doesn't really need any power, unlike the power-hungry rigs that PoW coins rely on.
Finally, PoS mining cuts by half the threat of attacks because coin holders own the coin and therefore work hard to secure the network.
Top 10 PoS Coins
It comes with features such as PrivateSend and InstantSend which allow for speedy transactions.
It's basically peer-to-peer digital cash that promises to deliver the liquidity of traditional currencies with the enhanced security features and speeds of the blockchain.
The cryptocurrency allows investors to make a profit by running masternodes.
The only catch is that you'll need to hold a minimum of 1000 DASH to be a masternode.
With a unit of DASH going for $185, running a masternode does seem like a huge investment.
The upside of it is the 7.5% dividend that you'll pocket every year.
Staking DASH seems like a brilliant investment idea for early investors who might be having thousands of DASH.
Instead of watching the coins gather some dust, why not stake them for a profit?
Formerly known as Antshares,
NEO was the first open source blockchain project to be launched in China. It brands itself as a distributed network for smart economies.
Other than the Neo platform, there's the NEO cryptocurrency which has two tokens; NEO and GAS. GAS is a reward token and can be staked in a Neo wallet. The beauty of staking Gas is it gives you a mouth-watering return of 5.5% per year.
There's one other benefit that comes with staking GAS; your wallet doesn't have to stay open all the time. Mostly, PoS coins will need you to unlock your wallet for staking, after which it stays open for the entire staking period.
Sidenote: NEO and 4 others were recently chosen by us as the best long term crypto holds.
Another PoS cryptocurrency, PIVX is known for its enhanced security features. It's an abbreviation for; Private Instant Verified Transaction. PIVX was forked out of DASH in 2016.
It allows users to stake any amount of PIVX units to start earning a passive income. You can also earn extra income by running a PIVX masternode.
To do this, you'll need to hold 10,000 units of PIVX. These earn you a 5.5% income every year.
Lisk was forked out of Crypti in 2016. The blockchain project aimed to address the scalability issue surrounding most cryptocurrencies at that time, including Bitcoin.
It's cryptocurrrency token trades as LISK. The good news is you can stake your LISK tokens in exchange for a profit.
However, its important to note that LISKs PoS model slightly differs from most others as only the top 101 delegates are allowed to forge blocks. To earn any profit for forging a coin, you'll need to make it to the list of the 101 delegates.
Forging LISK is best done via the LISK Nano Wallet. According to LISK delegates, the rewards vary from month to month, but many report that they get up to 10% of their investment every year.
Launched in 2014, OkCash is designed for micro transactions. When it comes to staking, it's one of the most profitable cryptocurrencies.
It gives an impressive annual return on investment of 10% of the staked coins.
All that's needed of you is to move OkCash to a staking wallet and watch as it generates an annual income.
Formerly known as BitBean, this PoS coin has made a name as a blockchain company with some of the lowest fees and fast transaction speeds.
It's made of large blocks which are generated every 60 seconds.
Thanks to its fast speeds, Bean Cash is ideal for every day transactions.
It uses a consensus model known as Proof of Bean that largely functions the same way as PoS.
Bean users refer to staking as "sprouting". To sprout Bean Cash, the first step is to deposit some Bean Cash coins into the Bean Cash Core wallet.
With a monthly reward of 4%, sprouting Bean Cash is definitely a lucrative activity that earns you a passive income.
It allows for anonymous crypto payments.
They provide Tor masking and stealth transactions, appealing to the quintessential user who values anonymity.
The most outstanding feature of Linda is its ability to offer cross-currency trades without the need for an exchange.
Linda could be the best paying PoS coin as it rewards investors with up to 70% in form of annual profits.
To start your staking journey with Linda, all you need is to get hold of the latest Linda wallet, load it with coins and wait for the coins to mature.
This could take up to 24 hours after which you start earning more Linda coins as profit.
Masternodes get the largest share of Linda returns; up to 99% ROI.
Nebilo is advocated as an open source blockchain that allows enterprises to build distributed applications.
The platform bases its staking model on coin-age selection.
With this selection variant, investors whose coins have stayed in wallets for the longest period get the largest reward.
To keep users active all the time, they insist that coins must remain idle for 24 hours before staking and that they stop gaining weight after seven days of staking.
It gives up to 10% ROI per annum.
Like with most other cryptocurrencies, you'll need to leave your wallet open .
Nebilo doesn't ask users to have a minimum number of coins to start staking.
Stratis' main objective is to simplify the development of C# applications. It's base cryptocurrency is STRAT. Like most PoS coins, Stratis allows users to stake their coins.
At between 0.5 and 1%, Stratis profits are among the lowest compared with what its peers have on offer.
The only benefit that you get for choosing Stratis is that you get to stake any amount of STRAT as there's no specific cap for staking.
Reddcoin is built for social networks. It intends to be the greatest tipping platform for social networks.
With Reddcoin, you can tip anyone who provides content that you like on social media.
Because it's also a PoS coin, it can be staked in a wallet to generate a handsome reward of 5% per year.
Now that's the end of our selection for the best Proof of Stake projects out currently. As the projects evolve and we hear of new ones that are worth paying attention to, we'll update this article.
But before we go, let me ask you...
What PoW project do you think has the best chance of continuing its success?