With a market cap of over $20 billion, calling Polkadot’s DOT token “popular” is an understatement. Currently sitting at number 4 on Coinmarketcap.com, DOT is an ambitious project created by some of the top people in the crypto world.
Not only is it popular, but DOT is a proof-of-stake cryptocurrency. That means participants can earn regular rewards by staking – without the need for expensive mining hardware.
Polkadot is offering good returns on your investment at the moment, That’s why we’ve put together this guide to simplify how staking works and how to get started.
What is Polkadot?
The easiest way to think of Polkadot is as an Ethereum competitor. The project aims to support countless features and blockchain types thanks to its open design. The software powering DOT is a relatively new product called Substrate from Parity Technologies.
One of the main selling points behind Polkadot is that it aims to eventually replace or compete with the existing tech oligopoly.
The official website describes the project, suggesting that it will “enable a completely decentralized web where users are in control.” Further, the group behind it says Polkadot “[seeks] to free society from its reliance on a broken web where its large institutions can’t violate our trust.”
Polkadot definitely has a strong pedigree. Unlike other projects that are formed by anonymous individuals, Polkadot’s founders include a co-founder and current CTO of Ethereum, Dr. Gavin Wood. Dr. Wood is also the president of the Web3 Foundation – a group that funds research and development of a decentralized internet.
The project’s native currency, DOT, is currently trading at over $20 each. There are just over 900 million DOT on the market today.
The Fundamentals Of Staking DOT
If you’ve tried your hand at staking before, your experience probably went something like this. You downloaded an official wallet app to your computer, downloaded the entire blockchain, deposited some coins, and left the wallet running on your computer. Then, depending on how many coins were in your wallet, the stake rewards would start rolling in periodically.
For better or worse, that’s not how staking works on Polkadot. Instead of all network participants simply being stakers, they are divided up into two groups – validators and nominators. The very simplified explanation of these two groups is that validators are the ones actually creating the blocks, and nominators vote on who gets to be a validator. Validators get the biggest rewards, but being a nominator is a lot easier and cheaper.
Being a validator is expensive, requires dedicated hardware, and is essentially for experts only. For that reason, we are going to focus on the more casual side of the equation – the nominators.
To become a nominator you will need to have at least the minimum amount of DOT required by the network. This number changes based on network conditions. At press time, the current minimum DOT to be a nominator is 121.40. At today’s prices, that’s about $2,500. What’s more, the minimum DOT amount seems to always be going up, albeit somewhat slowly. If you’re serious about staking DOT, you should expect to have at least 150 DOT ready – or possibly more for the long term.
Now let’s go over getting your account set up, as well as how to nominate validators.
Creating Your DOT Staking Account
The first thing you’ll need to do to stake DOT is to set up an account within the official Polkadot web app: polkadot.js.org/apps. On the top menu, select the Accounts drop down, then click on Accounts. This page will show your current list of accounts. If you don’t have a Polkadot account, you’ll need to set one up now.
To make an account, click on the Add Account button. This will create a new seed phrase that secures your account. You’ll need to save it securely as it allows you to recover your account, open it on another device, and so on. The web app recommends “storing your account in a signer such as a browser extension, hardware device, QR-capable phone wallet (non-connected) or desktop application for optimal account security.”
The next step is to fund your account. Polkadot requires a minimum of 1 DOT in order for an account to be considered active. To fund your account, you can either send DOT to your new account, or just import an account that is already funded. If you want to use the web app interface, click on the Send button and follow the prompts.
Choose Validators To Get The Best Rewards
Now that you’ve got an account set up and funded, it’s time to choose which validators you are going to nominate. There are a number of different factors you need to consider as making the wrong choice could result in no rewards or the loss of some of your stake.
In the web app, choose the Network drop down, then click on Staking. On this page, click on Targets from the white menu towards the top. This page shows all of the validators on the network vying for your votes. Now we need to determine which validators to choose from.
First, we need to look at the validators total stake. This is the amount of DOT the validator has put on the line. Higher DOT stakes generally means the validator is more trustworthy. If the validator misbehaves, they stand to lose a lot more with a bigger stake.
Next up, we should look at the commission rate. This is the percent of the rewards the validator will take off the top, and could be anywhere from 0% to 100%. For a nominator, we want a validator with a low commission rate. 100% commission means the nominator gets nothing.
After that we need to look at how many nominators the validator already has. If a validator wins, the rewards they earn will be divided up equally between their nominators, minus their commission. If a validator has hundreds of nominators, the rewards for each individual nominator will be lower than if they had fewer nominators.
Lastly, you may want to choose validators that share some identity information. That could be a name, a website, a social media handle, and so on. It’s not essential, but knowing who you are supporting might be a good idea. to use this feature, turn on the only with an identity slider.
Make Your Votes Count
As a nominator, you get up to 16 votes. If you vote for a good validator that wins a block, you’ll get a part of the reward. If you vote for a validator that only has a few votes and wins, you’ll get an even bigger reward than voting on a popular validator.
It’s important to remember, though, that voting for a bad validator – someone out to trick the network or make bad blocks – will cost you a part of your stake. That process (known as slashing) is designed to motivate you to choose carefully.
If you nominated a winning validator, you’ll earn a pay out at the end of the era (a 24-hour period). If none of your validators won, you can change your nominations for the next cycle or keep them. Unlike staking with other coins, staking with Polkadot is just as much art as it is science.
What’s your strategy for picking the best validators? Let us know in the comments below.