In this article, we will explore the best staking coins currently available on the cryptocurrency market and how you can best profit from them.
Blockchains have different methods of rewarding users for participating in their networks. When Bitcoin got introduced, PoW (Proof of Work) rewarded miners for confirming transactions. A few years later, in 2012, the concept of PoS (Proof of Stake) was introduced as well.
In this article, we will talk about the rewarding process of PoS Ethereum and review the best staking coins for 2020. After reading this guide, you should have a good idea of the technology behind these coins, their requirements for staking, and how you can earn passive income.
How does Staking work?
Staking is an incentive mechanism that rewards holders of certain cryptocurrencies for their contribution to the network. The size of the reward depends on the number of coins these network participants are holding in their wallets.
This rewarding process takes a more democratic approach, unlike mining. Here, everyone has a good chance of compensation whereas, in PoW, only the most powerful miners have that privilege. Staking also gives an additional reason to hold onto specific coins for longer periods of time.
Moreover, PoS Blockchains do not rely on mining hardware to verify transactions. They allow their participants to become validators, simply by depositing and locking a certain number of coins on the network.
Overall, PoS presents several benefits when compared with PoW:
- Better Energy Efficiency – To get coin rewards you don’t necessarily need mining equipment. Only a selected number of validators (top representatives) require these.
- Democratic reward system – Every user that is staking receives a part of these rewards depending on their coin holdings.
- Lower upfront cost – Unless you are running a validator node, all you have to do to start making profits is to invest in a coin.
- Better scalability – PoS achieves better speed with less computation, bandwidth, and storage.
To summarize, in a PoS environment, validators are rewarded based on the number of coins they hold. The more coins they lock in the network, the higher their potential rewards.
Best Staking coins for 2020
Ethereum is one of the most popular cryptocurrencies, coming second in market capitalization, after Bitcoin.
Its main goal is to provide a “decentralized supercomputer”, allowing anyone to develop and deploy dApps and smart contracts
Currently, Ether (ETH), the native cryptocurrency of the Ethereum Blockchain is received as a reward through GPU mining on a PoW system (much like Bitcoin is mined).
However, as we mentioned before, PoW doesn’t do well with scaling.
For Ethereum developers, this became most apparent with the popularity increase of Cryptokitties, slowed down transactions leading to an increase in gas limits by Ethereum miners.
Due to these events, it was decided that Ethereum will switch to a PoS blockchain in January 2020. Let’s see how this will work and why ETH might become one of the best staking coins in the market.
How to stake ethereum on will work
Current information indicates that the validators on Ethereum’s PoS network will be rewarded by earning interest on their locked-in Ether on an annual basis.
The minimum amount of ETH required to become a validator is 32 ETH, an amount which roughly equates to $4700 at the time of writing.
This might sound a bit expensive, and not everyone will be able to afford this many Ethers on their own. Thankfully, staking pools help with that. By joining a staking pool you can start getting rewards with as little as 1 ETH.
The expected annual rewards for Ethereum staking is between 4.5% and 10.4% per annum. This number depends on the amount of Ethereum that gets locked up for staking. As such, and due to the coin’s popularity, it is best to assume that you will receive the low end of the rewards.
Also, it’s important to remember that running a node will cost about $120 a year and running a validator client costs around $60 a year. This is an additional expense you need to keep in mind.
To conclude, Ethereum 2.0 is a really positive event for the community. It is expected that the value of the tokens will increase thanks to Ethereum’s new money-making potential.