What is staking? A basic guide on staking for beginners

By F | Experience

What is staking

When it comes to first generation Blockchain 1.0 is Bitcoin, then comes the next generation 2.0 rep Ethereum, we are all familiar with the term PoW (Proof of Work) or proof of work.

This is understood as the way to validate transactions within the Blockchain network by using computational power to solve problems. In particular, high configuration computers, expensive are often used for this.

In 2011 we first heard of the concept Proof of Stake (PoS) through discussion on bitcointalk. By 2012, the Peercoin project was the pioneer of the Proof of Stake consensus algorithm.

And so far, the term PoS - Proof of Stake, also known as Proof of Stock, has been very popular in the Crypto market. It is considered the consensus mechanism of the future, which will replace PoW, which requires high hardware and power consumption.

In this article, let us learn about Staking (Proof of Stake) and how to profit from Staking.

Before talking about Staking, I would like to recall the concept of Proof of Stake (PoS).

Proof of Stake (PoS) is the consensus algorithm in Blockchain. In it, participants will stake their (coin) bets on the Blockchain network to validate transactions and create new blocks.

Rewards (including block rewards and transaction fees) will be given to PoS participants to motivate their contributions.

To learn more about PoS, please read the article on PoS mechanism Coin98: What is Proof of Stake (POS)? How to mine POS coin?

Staking An act of keeping a certain amount of coins in a wallet or Nodes / Masternodes of a Blockchain project for a period of time to receive a reward. This award is based on the effort spent including: the amount of coin stake, duration of stake.

Staking classification

Here I also want to clarify the 2 concepts of Staking.

[1] Staking in PoS consensus mechanism (*): A certain amount of coins are bet to guarantee a certain task.

In the PoS mechanism, brothers stake coins to ensure, demonstrate their ability to handle transactions and create blocks. At the same time, receive rewards for the effort. This staking directly affects the Blockchain network.

Typical examples are Blockchain Platform projects like TomoChain, IOST, OneLedger (OLT), WAX, Tron (TRX) ...

[2] Staking to receive a Reward: Users use their tokens to stake back into the project's system (not their own Blockchain).

This staking is not directly involved in verifying transactions or any other task related to network activities. However, the project is still called stake.

In fact, it means more like locking. The longer a user locks, the greater the reward.

For example: stakes KCS on the floor (hold) to receive more KCS. The amount of KCS as a reward is taken from the profits gained by the exchange, not from the creation of new blocks or transaction fees.

KCS is ERC-20 Token on Ethereum and Staking KCS does not have any impact on Ethereum's Blockchain network.

Note: (*) PoS is the most general and general consensus mechanism of the form of "Bet coins to perform tasks". In addition, it has many other variants such as PoSV, DPoS ...

However, they all work based on coin bets. Therefore, in this article, I will use the term PoS to refer to the consensus mechanisms using this form of coin betting.

Who benefits when Staking?

For participants (staker)

Generate passive income & increase coins during Staking

This is the first and most obvious benefit anyone can see.

Instead of being on the exchanges without getting an increase in the number of coins, you can put in the stake and get more coins during the stake.

Of course, this will suit the brothers who want to hold the coin for long. And if you want to trade, buy and sell continuously, it won't be appropriate.

Cost savings compared to the PoW mechanism

Compare the latest ASIC with a high configuration computer. To participate in Staking of course, you must meet some conditions of the project.

Not only is the number of coins taking stake, but also the requirements for the configuration of machines to participate in stake.

Especially those who want to become Nodes, the main Masternodes in the Blockchain network, will definitely need higher configuration computers.

However, you do not need a lot of computers to run Nodes but almost only need 1 computer and install 1 time. The remaining is to increase the number of Staking coins inside it.

This is different and much more economical than PoW - the more highly configured computers the more it digs.

Security

Staking is done safely because of a backup.

At the same time, before the official Staking, the brothers were able to calculate their profit rate after that Staking period.

The date and time you are unlocked, or if you want to un-stake halfway, how long will it take you to receive the coin.

For the project
  • Staking in PoS is a way for platform blockchains to create decentralization for their networks. The power and power of the network will now be shared among the participants (Node, Masternodes ...).
  • Make use of outside resources join the operation of the network through the nodes.
  • Motivation (Incentives) Network participation: Staking stake and getting rewards will help participants maintain their activity.
  • Network safety: To make the attacks, hackers must hold 51% of the network's power. Scattering that power at different nodes will make it nearly impossible to gather their power to create strikes.
  • Staking will also somewhat affect the price of the coin, I will analyze more clearly in the section below.

The risks of Staking

Staking is a form of investment that brings regular returns, but they also have certain risks:

  • During Staking, the amount of coins participating in the stake is locked. You will not be able to make any buy / sell or trade with this coin.

    The un-stake will prevent you from achieving the original reward.

    Often to un-stake brothers will also take some time to get back the number of coins brought away stake. Maybe when you get that coin, the opportunity is over.
  • Staking doesn't always make a profit. The biggest risk you can face is the down coin price.

    For example: brothers stake 1,000 coin X (price $ 0.1 / X) with an interest rate of 30% / year. By the time you receive the profit, the total number of coins will be 1,300 coins X. But if the price is only $ 0.07 / X, the total value is now $ 91 dollars (lower than the $ 100 invested initially).

Invite you to learn about how to Staking to maximize the profits in the sections below.

What is the impact of staking on coin prices?

Staking users for projects using PoS consensus mechanism is crucial for the whole Blockchain network. That is obvious.

But for projects that use PoS, when starting to enable Staking, how does it impact the price of that coin?

Some effects on supply and circulation that you can immediately see:

The amount of coins taken to stake will be locked during that period. This means that these coins cannot be traded or traded on exchanges.

Therefore, it causes the amount of coins circulating in the market to decrease.

Basically, when the quantity supplied in the market decreases, its scarcity increases, it will cause the price to rise. This is the basic law of supply and demand.

Let's take a specific example as follows with $ TOMO:

  • On December 10, 12, TomoChain announced the program for candidates running Masternode.
  • On December 14, 12, TomoChain officially launched the Mainnet and allowed Masternodes to stake TOMO coin. Also for other users to vote for these Masternodes.
  • By the time I made this article (August 08, 08), there are 2019 TOMO (accounting for 39,851,005% of the total circulation in the market) that are being stake to participate in the PoSV consensus mechanism. TOMO price increased by 64.5% in the period from the beginning of the Staking permission.

Notice:

  • TomoChain uses a PoSV (Proof of Stake Voting) consensus mechanism: there will be Masternodes responsible for transaction validation and block creation.

    To become a Masternode they must meet a number of conditions. It requires 50,000 TOMO to become a candidate.
  • Other users can use TOMO voting for their candidates. If the candidate becomes a Masternode, they will also receive a corresponding reward.
  • At the time of writing, the amount of TOMO required to stake in order to maintain a fully operational Masternode has reached 190,000 TOMO (information provided by TomoChain Vietnam).
  • The TOMO appreciation of 300% is not entirely due to the impact of Staking. Apparently during this time, the price of TOMO also fluctuated many times.

    However, the effect of staking on the price of TOMO is real and relatively clear when its total circulation has decreased by 64.5% due to its participation in Staking.

Parameters to note when Staking

CPI

This is the ratio of new coins to the number of coins in circulation.

In the Staking of PoS mechanism, the reward for staker comes from 2 sources is the transaction fee and the newly generated block. That is, there will be new coins being born into the market that generate inflation.

This inflation rate directly affects the volume of traffic and the price of that coin. For coins with a PoS mechanism, this inflation rate is always there.

Lock time

This is the time the coin is locked. This time you can choose from the beginning. Often projects will give options from the start. For example: 1 month, 3 months, or 1 year ... After this time, you can get back the amount of coins that have joined the stake.

With Node or MasterNode participating in stake, it is always determined to lock during the Node making period. During that time, they received a reward as a revenue stream.

Unlock time

Most of you can un-stake before the end of the stake process. However, you will not be able to get back the coin immediately after pressing the "un-stake" button which will usually take a certain amount of time.

Projects create this rule so that un-stake does not affect the normal operation of the network and they have time to handle if the amount of un-stake coins is too large.

For example: In TomoChain, the voter for Masternode if you want to unstake will receive after 48 hours. For Masternodes that want to stop working, they will only receive TOMO after 30 days.

Interest rate

This is probably the parameter you care about most. This is the interest rate you receive after a period of Staking. The greater this number, the greater the amount of coins received after stake.

However, to optimize, in addition to the high interest rates, we need to consider other indicators.

Minimum amount to join stake

This is the minimum amount of coins for a user to start participating in Staking. Depending on the project, this number may vary.

For example: TomoChain requires 100 TOMO, Decred (DRC) needs a minimum of 5 DRC to start Staking.

Coin age

The amount of time a coin is put on stake until it can participate in the official staking (the time the coin begins to be profitable).

Depending on the project, this may take several hours to several days.

Weight

Weight includes coin age and number of coins. Here you can understand it as the weight of a coin.

The higher the Weight value (the larger the coin amount and the longer the time the coin participates in the stake), the greater the ability to gain the right to process transactions and create blocks.

Therefore, it directly affects the reward that you will receive in the future.

How to make Staking profitable?

Based on the parameters directly affecting Staking above, you can somewhat know how to adjust these indicators to get the most reward, highest profit.

In this section, I will mention how to participate in the most profitable Staking.

Classify

The first is to sort by demand and amount of coins held:

For those who have a small amount of coins (not enough as a Node or Masternode):

The best option is to participate in voting, or Staking into existing Nodes to receive a reward from that Nodes.

This includes staking right on the wallet, or on some support floor.

For those who have a small amount of coin, determine long-term holdings, the Staking will help them earn an additional amount of coins during that time.

For those who hoard large amounts of coins:

They can also apply the above method if they want to be flexible during the lock coin process.

Or maybe candidates as nodes or masternodes directly involved in transaction processing and block creation.

This will help the staker get more rewards. But of course it will also require higher hardware installation and connectivity.

Implementation steps

For both groups, you need to perform the following steps:

Step 1: Choose a coin with Staking mechanism

Of course, before choosing a brother you need to consider the parameters mentioned above, to balance your needs, capital, expectations and interest rates.

Step 2: Install wallet or computer configuration to prepare for Staking

Step 3: Add coin to your wallet / computer, or exchange to start Staking

For staking from cold wallets, you must always ensure this wallet is connected to the network environment 24/7.

Step 4: Wait for the coin to mature and start receiving interest

Note: To optimize profits, you pay special attention to the parameters: Interest rate, coin inflation, coin price, weight.

Top 10 best profitable Staking projects at the moment

The first is the top 10 projects with the highest score according to the rankings of stakingreward.com August 07, 08.

This is a sorted list of blockchain based projects that use the PoS mechanism and other blockchain-based projects. But, also allows users to stake to receive reward (Profit Share).

The score is this page with a combination of criteria of profit from Staking, difficulty / complexity to participate in Staking, risk, the minimum number to participate in Staking ...

Notice: The above 10 coins have KCS paying interest in the form of Profit Share. That is, they take the floor's operating profit to reward the staker, not the newly created block and divide it to the participants.

You may refer to some of Coin98 About 10 coins above:

If you are more interested in Staking profits, you can refer to the following list:

Staking trends in the future

Staking to compete Node, Masternode

This trend is clear and ongoing. A lot of blockchain platforms recently launched have used the Staking consensus mechanism.

Competition occurs mainly with those who want to participate between Nodes or Masternodes positions in the Blockchain network.

For those who just need to staking on these nodes and get rewarded, it is much simpler.

Staking right on the wallet

This is a trend that has started and developed since the end of 1. Wallets have a large number of users and their coins are stored on it.

Often wallets will team up with projects with Staking to allow block and stake locking right on their wallet.

Some wallets that are supporting this include: Cobo Wallets, Haskey Wallet, Trust Wallet, Coinomi, Crypto ...

Above is a list of coins trustwallet is supporting Staking to date.

Or even the individual wallets of projects allow this simple Staking participation: TomoWallet ...

3rd party Staking services

Here, coin holders can send their coins to these 3rd party Staking Pool.

They will use that coin to nominate as a node in the Blockchain network and pay the reward corresponding to the participants who contribute.

For example: stakewith.us, stake.capital, P2P.org, mycontainer ...

Staking on the exchanges

Simply holding / trading coins on a platform that supports this feature will be counted as participating in Staking and receiving rewards.

This coin is still in your brother's wallet and it's not directly based on price and block creation or transaction validation.

For example: Last time, both Binance , and Kucoin are promoting this campaign, the number of coins supported is increasing.

Binance: XML, KMD, ALGO, QTUM, STRAT

Kucoin with Soft Staking: ATOM, EOS, TRX, IOST, NEBL, ONION, NGR, NULS, TOMO, LOOM.

This method will motivate users of the exchange to both participate in trading on the exchange and receive new coins without having to lock the coin for a long time.

This may be a new trend of Staking in the near future.

Frequently asked questions about Staking?

Where to join to learn about Staking?

As I mentioned above, Staking is now very popular and easy to join on the floor or wallet.

However, before officially joining this form, you should learn about it.

Here are some information channels about Staking that you can refer to:

stakingrewards.com: Here is a summary of other pool staking data.

You can come here to check information on interest rates, stake time, minimum quantity, and compare the pool staking with each other.

stakingvietnam.com: This is the first website specializing in Staking in Vietnam + Telegram

@vietnamstaking: Group chat discussed by Vietnamese Staking community.

How to compare the rewards of different coins?

You can directly access the website of the project you want Staking to find information.

Or you can go to stakingreward.com to search.

How to configure the machine to be able to start Staking?

Each coin requires a different hardware configuration for staking.

However, the need for a computer with a separate VPS for Staking is usually for Nodes or Masternodes.

As for small investors who want to flexibly invest their coins, but still want to participate in stake, you do not need to pay too much attention to the machine configuration, because you can stake right on the wallets or exchanges.

As far as I know, Binance and Kucoin are expanding to support this form of Staking.

Specifically, Binance is supporting Staking of XML, KMD, SOMETHING, Qtum. Kucoin has a Soft Staking form for coins: ATOM, EOS, TRX, IOST, NEBL, TOMO, LOOM.

If I don't want to stake, can I withdraw the coin?

OK!!

You can fully un-stake in the middle. However, I do not recommend this unless force majeure reason.

The un-stake will prevent you from receiving the full reward. At the same time, you will have to take a certain amount of time to get back the full amount of coin staked.

Should buy VPS to stake?

Yes.

You should use a VPS solution to make Staking more stable and easier to reserve the right to process transactions and create more blocks.

However, it is not necessary for Staking brothers on the floor or on the wallet. This solution is suitable for bulk Staking brothers to become Node, Masternode.

What is a Staking Pool? People who have a small number of coins but still want to stake to make profit, how?

Staking Pool means that many people can contribute their coins into that Pool to become a Node or a Masternode.

When these Nodes or Masternodes officially operate in the network, the reward will be redistributed one part to the above-mentioned Pool participants.

The amount of reward they receive will be proportional to the amount of coin Staking.

Is Staking to get interest the same as depositing money in a bank and getting it back monthly?

From a fundamental perspective, you can all see that they are relatively similar. Users must "bet - close" a certain amount of money (coin) and know the corresponding amount of interest, however, there will be a difference in nature.

Staking in the PoS mechanism, coins will directly participate in transaction validation and block creation. That is the impact on the operation of the Blockchain system.

Meanwhile, the money that users send into the bank does not affect the operation of the network.

Banks have their own transaction processing network.

It does not work based on the user's deposit. The method of depositing banks to receive interests will be more like Staking receiving airdrops (reward).

Summary

Above is my article about Staking. Hope the article is useful for you guys.

After reading, what do you think about Staking? Please leave your comments in the comment section for us to discuss.

Or you can discuss with ~ 10.000 brothers in Coin98 Research Group.

Goodbye and see you again in the next article!

F

AI, Machine Learning, Big Data & Blockchain are 4 pillars of the current Technology Development.