What is Staking? Staking Guide for Beginners
What is Staking? What parameters should Staking pay attention to? How to get the most profit when Staking Coin? Find out right here!
When it comes to the first generation of Blockchain 1.0, Bitcoin, and then to the next generation of 2.0, Ethereum, we are all familiar with the phrase PoW (Proof of Work) or proof of work.
This is understood as a way of validating transactions inside the Blockchain network by using computing power to solve math problems. In which, expensive, high-configuration computers are often used for this.
In 2011 we first heard about the concept of Proof of Stake (PoS) through a discussion on Bitcointalk. By 2012, the Peercoin project was the pioneer to apply the Proof of Stake consensus algorithm.
And so far, the term PoS – Proof of Stake or Proof of Stake 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 configuration and consumes energy.
In this article, let’s learn about Staking (Proof of Stake) and how to make a profit from Staking.
What is Staking?
Staking is the act of holding and locking a certain amount of coins in order to receive rewards from them. These coins can be locked in the wallet or nodes of a Blockchain project for a period of time.
The reward will be based on the user’s effort, including: staked coin amount & stake duration.
Proof of Stake is the consensus algorithm in Blockchain. In it, participants will stake their coins (staking coins) into the Blockchain network to validate transactions and generate new blocks.
Rewards (including block rewards and transaction fees) will be given to PoS participants as an incentive for their contributions.
Classification of Staking
Here I also want to clarify two concepts:
Staking in the PoS . consensus mechanism
That is, a certain amount of coins will be wagered to guarantee a certain task.
In the PoS mechanism, brothers stake coins to secure and prove their ability to process transactions and create blocks, and receive rewards for their efforts. This staking has a direct impact on the Blockchain network.
Typical examples are Blockchain Platform projects such as TomoChain, IOST, OneLedger (OLT), WAX, Tron (TRX),…
Note: PoS is the most general and general consensus mechanism of the form “Staking coins to perform tasks”.
In addition, it has many other variants such as PoSV, DPoS, etc. However, they all work based on coin staking.
Therefore, in this article, I will use the term PoS to refer to the consensus mechanisms that use this form of coin staking.
Staking to get Reward
Users will use their tokens to stake back into the project’s ecosystem. This staking is not directly involved in validating transactions or any tasks related to network operations.
However, the project is still called stake. In fact, it’s more of a lock-like meaning. The longer a user locks, the more reward they will receive.
For example: Stake KCS on the exchange (hold) to receive more KCS rewards. The amount of KCS as a reward is taken from the exchange’s profits, not from the creation of new blocks or transaction fees.
KCS is an ERC-20 Token on Ethereum and staking KCS does not have any impact on the Ethereum Blockchain network.
Benefits of Staking: Who is the beneficiary?
For staking participants – Staker
Benefits of Staking for Stakers:
Create a passive income source and increase the amount of coins during Staking: This is the first and most obvious benefit that everyone can see.
Instead of leaving it on exchanges without receiving an increase in the number of coins, you can put in the stake and receive more coins during the staking process.
Of course, this will be suitable for those of you who want to hold that coin for a long time. And if you want to trade, buy and sell continuously, it will not be suitable.
Cost saving compared to PoW mechanism: This is easy to see when comparing the latest ASIC rigs with a high configuration computer.
To participate in Staking, of course, you must satisfy some conditions of the project. Not only the number of coins to be staked, but also the machine configuration requirements to participate in staking.
Especially those who want to become Nodes, the main Masternodes in the Blockchain network will definitely need higher configuration computers.
However, with PoS, you don’t need a lot of computers to run Nodes, but almost only need 1 machine and install it once. The rest is to increase the number of Staking coins inside.
This is different and much more economical than PoW – the more high-end computers, the more mining.
Safety: Staking is done securely because there is a backup.
At the same time, before officially Staking, you can calculate your profit rate after that Staking period such as when you will be unlocked, or if you want to unstake in the middle, how much will you lose? long time to receive coins.
Benefits of Staking for projects:
- Staking in PoS is a way for foundational Blockchains to create decentralization for their network. The power and strength of the network will now be divided among the participants (Node, Masternodes…).
- Take advantage of external resources to jointly operate the network through Nodes.
- Incentives to join the network: Participating in staking and receiving rewards will help participants maintain their activity.
- Network security: To carry out attacks, hackers must hold 51% of the network’s power. Dispersing that power in different nodes will make it nearly impossible to gather their power to create attacks.
- Somewhat impact on the price of the coin, I will analyze it more clearly below.
Risks of Staking
Staking is a form of investment that offers steady returns, but they also have certain risks:
During the Staking period, the amount of coins participating in the staking is locked.
You will not be able to do any buying/selling or trading with this amount of coins. The un-stake will prevent you from achieving the original desired reward.
Usually to un-stake you will also have to take a period of time to get back the amount of coins that have been staked. Maybe when receiving that amount of coins, the opportunity has passed.
Staking is not always profitable. The biggest risk you can face is the price of the coin going down.
For example: You stake 1,000 coins X (price $0.1/X) with an interest rate of 30%/year. Until you receive interest, the total amount of coins received will be 1,300 X coins. But if the price is only $0.07/X, the total value is now $91 dollars (less than $100 of the initial investment).
Impact of Staking on coin price
Staking users for projects using the PoS consensus mechanism is decisive for the entire Blockchain network. That is obvious.
But for projects applying the PoS mechanism, when starting to allow Staking, how does it affect the price of that coin?
Some of the effects on supply and circulation that you can see immediately:
The amount of coins that are staked will be locked during that time. This means that these coins cannot participate in circulation, trading on exchanges.
Therefore, it causes the amount of coins circulating in the market to decrease.
Basically, when the supply in the market decreases i.e. its scarcity increases, it will cause the price to increase. This is the basic law of supply and demand.
Let’s take a specific example as follows with TOMO coin:
- On December 10, 2018, TomoChain announced the program for candidates running Masternode.
- On December 14, 2018, TomoChain officially launched the Mainnet and allowed Masternodes to stake TOMO coin. Also let other users vote for these Masternodes.
- As of the time of writing this article (August 8, 2019), there are 39,851,005 TOMO (accounting for 64.5% of total market circulation) being staked to participate in the PoSV consensus mechanism. The price of TOMO increased by up to 300% in the period from the start of staking.
- TomoChain uses PoSV (Proof of Stake Voting) consensus mechanism: That is, there will be Masternodes responsible for transaction validation and block generation. To become a Masternode they have to satisfy some conditions. Including the requirement to have 50,000 TOMO to become a candidate.
- Other users can use TOMO voting for their candidates. If that candidate becomes a Masternode, they will also receive the corresponding reward.
- The 300% increase in TOMO coin’s price is not entirely due to the impact of staking. Apparently during this time, the price of TOMO also went up and down many times. However, the impact of staking on the price of TOMO is real and relatively obvious as its total circulation has decreased by 64.5% due to participating in staking.
Parameters to pay attention to when Staking Coin
This is the ratio of new coins born to the amount of coins in circulation.
In Staking of the PoS mechanism, the rewards for stakers come from two sources: transaction fees and newly generated blocks. That is, there will be a new amount of coins born into the market, causing inflation.
This rate of inflation directly affects the amount of circulation and the price of that coin. For coins with PoS mechanism, this inflation rate is always there.
This is the time the coin is locked. This time you can choose from the beginning. Often projects will give options from scratch. For example: 1 month, 3 months, or 1 year… After this period, you can get back the amount of coins you have staked.
With Nodes or MasterNodes participating in staking usually determine the lock for the duration of the Node. During that time, they receive rewards as a source of income.
Most of the brothers can un-stake before the end of the staking process. However, you will not be able to get your coins back immediately after pressing the “un-stake” button, which will usually take a certain amount of time.
Projects create this rule so that the unstake does not affect the normal operation of the network and they have processing time if the amount of unstake coins is too large.
For example: In TomoChain, Voters for Masternodes who want to unstake will be received after 48 hours. As for Masternodes who want to stop working, they will only receive TOMO after 30 days.
This is probably the parameter you are most interested in. This is the rate of interest you will receive after a period of Staking. The larger this number, the larger the amount of coins received after staking.
However, to be optimal, in addition to the high interest rate, we also need to pay attention to other indicators.
Minimum amount to participate in staking
This is the minimum amount of coins for a user to start participating in Staking. This number may vary from project to project.
For example, TomoChain requires 100 TOMO, Decred (DRC) requires a minimum of 5 DRC to start Staking.
Is the period of time the coin is put into staking until it can participate in the official Staking (the time when the coin starts to earn). Depending on the project, this time can range from a few hours to a few days.
Weight (Age of coins and number of coins)
Weight includes coin age and number of coins. Here you can understand it as the weight of the coin.
The higher this Weight value (the larger the amount of coins and the longer the time the coin participates in staking), the greater the possibility of gaining the right to process transactions and create blocks.
Therefore, it directly affects the reward (reward) you will receive in the future.
How to optimize profit when Staking?
Based on the parameters that directly affect Staking above, you can partly know how to adjust these indicators to get the most rewards and highest profits.
In this section, I will talk about how to participate in Staking to get the most profit.
Determine the right method
The first is to classify according to the need and amount of coins held:
For those who have a small amount of coins (not enough to be a Node or Masternode):
- The best option is to participate in voting, or Staking on existing Nodes to receive rewards from those Nodes. This form includes Staking right on the wallet, or on some supported exchanges.
- For those who have a small amount of coins, determined to hold for a long time, 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 in the process of locking coins. Or you can apply to be Nodes or Masternodes directly involved in transaction processing and block creation.
- This way will help stakers receive more rewards. But of course there will also be higher requirements for hardware installation and connection.
Steps to take
With both groups above, you need to do the following steps:
- Step 1: Choose a coin with a Staking mechanism. Of course, before choosing, you need to consider the parameters mentioned above, to balance your needs, capital, expectations and interest rate expectations.
- Step 2: Install wallet or configure computer to prepare for Staking.
- Step 3: Load coins into your wallet/computer or exchange to start Staking. For cold wallets, you must always ensure that this wallet is connected to a 24/7 network environment.
- Step 4: Wait for the coin to mature and start receiving interest.
Note: To optimize profits when staking, you need to pay special attention to the following parameters: Interest rate, coin’s inflation, coin price, weight.
Top 5 most profitable staking coins at the moment
The first is the top 5 projects with the most locked assets according to the ranking of stakingreward.com on August 13, 2021.
This is a sorted list that includes platform Blockchain projects using PoS mechanism and other Blockchain-based projects. But also allows users to stake to receive reward (Profit Share).
Cardano is an outstanding technology platform Blockchain with high scalability, good interoperability and sustainability to balance the interests of miners/nodes with the development team.
ADA is the official cryptocurrency of Cardano. So far (August 13, 2021) there have been 13.8 billion ADA used as staking rewards for ADA staking participants.
Cardano Website: cardano.org
Ethereum 2.0 is the final destination of the Ethereum network in the process of upgrading from Proof of Work (PoW) to Proof of Stake (PoS) consensus mechanism, while applying Sharding to improve transaction processing speed. translation of Ethereum.
ETH or Ether (symbol: Ξ) is the official cryptocurrency of the Ethereum blockchain. In Ethereum’s network, ETH acts as the fuel to execute transaction-related activities (Gas fees).
To stake ETH, you need to have:
- Minimum 32 ETH per validator.
- The computer has sufficient hardware specifications.
- Strong Internet connection.
See all the details about Ethereum network coin and ETH coin with our overview article What is Ethereum?
Ethereum website: ethereum.org
Solana is a high performance open source blockchain platform with scalability up to 700,000 transactions per second and 400ms block time, without applying complex solutions like sharding. database fragment) or Layer 2.
SOL là đồng coin chính thức của Solana Blockchain. Rủi ro khi Staking SOL gần như bằng 0.
Website Solana: solana.com
Polkadot is a Blockchain platform or multi-chain technology (multi-Chain), heterogeneous and highly scalable. Polkadot allows blockchains to connect with each other to share data and form a decentralized network.
DOT is the official coin of Blockchain Polkadot.
Polkadot Website: polkadot.network
Binance Smart Chain (BNB)
Binance Smart Chain is a Blockchain that works in tandem with Binance’s Binance Chain.
Binance Smart Chain is a blockchain clone of Ethereum on Binance, it can do smart contract creation, compatible with Ethereum’s EVM virtual machine, and at the same time, BSC also supports Crosschain with Binance Chain.
BSC does not use a new token, but always uses Binance Coin (BNB) as the main token. Besides, because there is no inflation, the reward when Staking coin BNB will also be lower than that of other Blockchains.
Binance Smart Chain Website: www.binance.org/en/smartChain
In addition to the 5 coins above, you can also refer to some of the coins that are staking a lot today such as: USDC coin, DAI, Terra (LUNA), Algorand (ALGO), Avalanche (AVAX).
Staking trend in the future
Staking to compete Node, Masternode
The trend is clear and ongoing. A lot of recently launched blockchain platforms already use the staking consensus mechanism.
The competition occurs mainly with those who want to join between Nodes or Masternodes positions in the Blockchain network. As for those who just need to Staking on these nodes and receiving rewards, it is much simpler.
Staking right on wallets
This is a trend that has started and developed since the end of 2018. The wallets have a large number of users and their coins are stored on them. Often wallets will combine with projects that have Staking to allow coins to be locked and staked right on their wallet.
Some wallets that are supporting this include: Cobo Wallet, Haskey Wallet, Trust Wallet, Coinomi, Crypto…
Coins supported by Trust wallet staking
3rd Party Staking Services
Here, coin holders can deposit their coins to the Staking Pool of these 3rd parties. They will use that amount of coins to nominate to become a node in the Blockchain network and pay rewards accordingly to the participants who contribute.
For example: stakewith.us, stake.capital, P2P.org, mycontainer…
Staking on exchanges
Simply, brothers who hold/trade coins on an exchange that supports this feature will be counted as participating in Staking and receive rewards.
This amount of coin is still in your wallet on the exchange and it is not directly related to the price and the process of creating blocks or validating transactions.
For example: Recently, both Binance and Kucoin have promoted this campaign, the number of coins supported is increasing.
- Binance: XML, KMD, ALGO, QTUM, STRAT.
- Kucoin with Soft Staking program: ATOM, EOS, TRX, IOST, NEBL, ONION, NGR, NULS, TOMO, LOOM.
This method will create motivation for the users of the exchange when they can both participate in trading on the exchange and receive new coins without having to lock the coin for a long time.
This may be the new trend of Staking in the near future.
Liquidity unlocking project
It is easy to see the disadvantage of Staking that will make you imprisoned during the Stake period. Therefore, there are many projects born to solve this situation.
Not the first name in the field, but Lido is the most famous project for supporting Stake ETH 2.0
Users can get their respective stETH assets back while still being able to deposit ETH into Stake. stETH can still be traded and borrowed normally, but not all places accept stETH.
Between 2021 – 2022, projects begin to focus on auctions for Parachain on Kusama and Polkadot.
This requires locking up a huge amount of KSM and DOT. Since then, there have been projects that support unlocking liquidity for KSM and DOT like the way Lido does with ETH, which is Stafi.
Frequently asked questions about Staking?
Where to learn about Staking?
As I mentioned above, currently Staking is very popular and easy to join on both exchanges or wallets. However, before officially participating in this form, you should learn about it.
Here are some information channels that you can refer to:
- stakingrewards.com: This is the aggregator of other staking pools’ data. You can go here to check the information about interest rate, staking time, minimum amount, and compare staking pools with each other.
In addition, now the exchanges have a section about Staking, you can go there to find out which assets are being Staking supported on the exchange, how much APR, lock time, etc.
How do staking coin rewards compare?
You can directly access the website of the project you want to Staking to find information. Or you can go to stakingreward.com to search.
How to configure the machine to Staking coin?
Each coin requires a different hardware configuration for staking. However, the need for a computer with its own VPS for staking is usually for Nodes or Masternodes.
As for retail investors who want to be flexible with their coin amount, but still want to participate in staking, you do not need to be too concerned with machine configuration, because you can stake right on wallets or exchanges.
Can I withdraw coins if I don’t want to stake? Okay!
You can completely unstake midway. However, I do not recommend this unless the reason is force majeure.
The un-stake will prevent you from receiving the full reward. At the same time, it will take you a certain amount of time to get back enough staked coins.
Should I 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 blocks.
This solution is suitable for brothers Staking large amount to become Node, Masternode.
What is Staking Pool? People who have a small amount of coins but still want to stake to make a profit, what to do?
Staking Pool is understood that many people can contribute their coins into that Pool to become 1 Node or 1 Masternode.
When these Nodes or Masternodes officially operate in the network, the reward will be divided in part to the above Pool participants. The amount of rewards they receive will be proportional to the amount of Staking coins.
But gradually, Staking Pool can be understood more broadly as decentralized projects that support Staking like Lido or Stafi I mentioned above.
Is Staking to receive interest the same as depositing money in a bank and receiving it monthly?
From a basic perspective, you can see that they are relatively similar. Users have to “bet – close” a certain amount of money (coins) and know the corresponding profit in advance, but there will be a difference in nature.
Staking in the PoS mechanism, the coins will directly participate in transaction validation and block generation. That is to affect the operation of the Blockchain system.
Meanwhile, the money that users deposit in the bank does not affect the operation of the network. Banks have their own transaction processing network.
It doesn’t work based on user deposit. The form of bank deposit to receive interest will be more similar to Staking receiving airdrop (reward).
Above, I have introduced you to all the necessary information about staking coins and answered the most frequently asked questions. After reading, are you confident to “skin in the game” with Staking to make money?
If you have any questions or comments, please comment below, or join the idolmeta.net Chat group to discuss and exchange ideas with the admin and many other brothers!