What is Proof-of-Stake (PoS) and Proof-of-Work (PoW)?
Before we explain PoS staking, let us begin by reviewing the umbrella concept of consensus mechanisms. Put simply, consensus mechanisms are the process by which transactions are validated and encoded into the blockchain. In Bitcoin, this is done through Proof-of-Work, a process that delegates transaction validation authority to “miners” that compete for it by solving mathematical puzzles. The first miner to solve the puzzle validates the next set of transactions (aka the “block) and is rewarded for their work in BTC. The logic behind PoW is that, because miners need to spend a great deal of money to win validation authority, attacking the chain (i.e., winning validation authority and using it maliciously) would be prohibitively expensive for almost anyone. PoW has been criticized for needing a great deal of electricity and computing power to maintain the chain (at the expense of the environment and other industries in need of computational power).
Proof-of-Stake (PoS) works in a similar fashion to PoW, but is more sustainable and does not require nearly as much computational power. In PoS systems, miners compete for validation authority by “staking” their coins, proving that they own a particular amount of the cryptocurrency in question, the logic being that miners with very large holdings of the coin would be incentivized to act legitimately as not to jeopardize the value of their own holdings.
We believe that many cryptocurrencies will eventually pivot towards a PoS-style system, be it a hybrid form of PoS and PoW or a full transition like Ethereum network.
How do I stake my PoS coins?
To stake on most major PoS chains, users typically need to operate or join a node, masternode, ticket pool, etc.
However, the barrier to entry is typically quite high for one or more of the following reasons:
All nodes usually require an initial stake of the respective coin. For example, Dash, one of the most popular staked chains, requires an initial staking amount of 1,000 DASH (roughly 89,000 USD) in starting capital, to operate a node.
The node has to operate 24/7, failing which will result in losing the staking reward. This require some degree of technical knowhow, computational resources, etc.
A node must be constantly monitored and maintained. Roughly half of ZCoin’s nodes allegedly went down during an urgent hard fork, potentially due to poor maintenance and response time.
Can I still earn rewards from PoS coins if I don’t run my own masternode?
If you don’t have the necessary time, capital, or technical interest to operate your own masternode, you’re in luck. Cobo Wallet offers a custodial solution, allowing you to earn from just staking your PoS coins with Cobo Wallet. With just a minimum of 0.01 DASH or 0.1 XZC, Cobo users will be able to participate in the staking.
August 20, 2019
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