There are two main consensus protocols in the cryptocurrency world – proof of work and proof of stake. Ignoring for a moment the relatively small spectrum of hybrids and offshoots, these two protocols essentially define the cryptosphere. They can be thought of, from an income-generating perspective, as active and passive income sources. Proof-of-work is sometimes derided as work for work’s sake, and it essentially is – the long chains of algorithms modern hardware must solve to create new coins eat up large amounts of computing power and environmentally expensive electricity to create unique cryptographic hashes. This ensures that something – in this case, computing power and electrical costs – limits the creation of new coins, so inflation doesn’t spiral out of control.
Proof of stake is a more passive means of income generation and more environmentally friendly from an electrical perspective. Proof of stake basically rewards coin holders for performing essential actions on the blockchain, in exchange for tying up substantial amounts of those coins. This contributes to blockchain security, by keeping ownership relatively decentralized among a number of stakers. It also incentives smaller holders to hang on to their coins, rather than gamble them away in the open market.
We’re going to take a brief survey of the proof-of-stake field as it stands in 2018. It’s impossible to decide what makes for the “best” proof-of-stake coin, but we’ll be taking a look at the requirements to stake, expected revenue, ease of use, and other factors to narrow the field. Hopefully, we’ll arrive at a collection of proof-of-stake coins that could provide the average investor with at least some passive income.
These coins are listed in no particular order to avoid the appearance of favoritism or listing bias. We’ll do a summary review at the end.
NavCoin is an open-source fork of Bitcoin that was created in 2014. As one of the earliest adopters of the proof-of-stake model, it’s also one of the most reliable earners at 5 percent per year. There is no minimum to stake. That being said, the larger the number of coins you stake, the higher your potential rewards and the faster you will earn them. A tiny stake of just 50 NAV, for example, will take between 150 and 200 days to stake a block and earn a reward. It should also be noted that the 5 percent figure assumes that your wallet is online and staking 24/7, 365 days per year.
While not a pure proof-of-stake coin, Dash uses a masternode system that permits holders to collect dividends. In that respect, then, it is synonymous from an investment standpoint from dyed-in-the-wool proof-of-stake coins. The return is also rather large, further warranting its inclusion here – up to 7.5–8.4 percent, plus any price appreciation attributable to the coin itself. The main hitch is the large investment needed to become a masternode. As of October 2018, a minimum of 1,000 DASH is needed, at a price of approximately $162,000.
The so-called “Chinese Ethereum,” NEO is a proof-of-stake coin with smart-contract capabilities. This makes it, like Ethereum, an ideal launch point for decentralized applications and initial coin offerings. NEO and its related coin GAS can be staked, but they must be staked in a wallet you hold and not an exchange, with the exceptions of Binance and Kucoin. Not all wallets are created equal, however, so it’s important to know before you jump in whether your chosen wallet will let you accrue GAS rewards. Annual rewards are between 4–6 percent. NEO is unique among cryptocurrencies in that it cannot be divided into fractions smaller than a single NEO – which, incidentally, is the minimum amount needed to stake. As for the key differences between NEO and GAS, it’s helpful to think of NEO as representing an ownership share in the NEO blockchain, while GAS is the “fuel” for that blockchain, or the right to operate on it.
PIVX, which stands for Private Instant Verified Transaction, is a fork of Dash that came about in 2016. PIVX offers holders the option of running a masternode, which requires an investment of 10,000 PIV or roughly $12,000 as of October 2018, or simple staking. There is no minimum to begin staking PIVX, although the wallet must remain active. PIVX masternodes can expect average yearly returns of about 5.5 percent, while simple stakers can expect about 4.8 percent, according to PIVX’s own staking guide. PIVX’s staking guide is thorough, making it an optimal choice for newcomers to the staking scene. The team also is upfront about the randomness inherent in staking, which has been compared to a lottery in which the number of crypto coins you hold is equivalent to holding a given number of lottery “tickets.”
“The reward system by design has a lot of randomness built into it. This is done for security purposes, but it can make calculations a bit tricky,” PIVX’s team wrote. “With that said, a masternode requires 10,000 PIV, and each masternode should be getting a reward approximately every 1-2 days, but this may vary depending on the number of currently active masternodes. For staking, a very general rule of thumb is that for every 1,000 PIV (slightly over that in fact), you can expect a staking reward once every 30 days, but remember that this is a completely randomized process. You may go for 15 days without a reward and then get two in one day.”
Reddcoin was founded as a tipping method for various social networks. As such, it can be staked in a wallet for an annual return of about 5 percent. There is no minimum to begin staking, but the amounts required to earn the 5 percent figure are reportedly quite high – as much as 200,000 RDD. Luckily, current prices for RDD are hovering around $0.003193 – so 200,000 RDD translates to about $640.
The latest iteration of VeChain Thor aims to be an enterprise decentralized application platform, in another bid to knock number 2 crypto Ethereum out of its position. There are two tokens involved – VET, or the core VeChain tokens, and THOR, which is the THOR Power token. These are analogous to the more familiar NEO and GAS.
VET holders can generate THOR by staking, much the same way NEO holders generate GAS. There is no minimum to begin generating THOR, and some exchanges even support THOR generation by holding VET in their wallets. Pure staking rewards are rather low, around 1.68 percent, though VeChain does offer users the ability to become masternodes for 10,000 VET.
Okcash has been floating around the cryptosphere for a long time, having first made its appearance in 2014. It also boasts a relatively high return on investment for staking of up to 10 percent. There is no minimum to begin staking, though you’ll need to leave your wallet open (as you will for almost all proof-of-stake coins). As for use-cases, OK was created to drive micro-transactions, as opposed to its big-ticket cousins, like Bitcoin.
“Okcash on mobiles is a perfect way to tip, share OK or pay for products and services on the go,” the team wrote. “It allows you to pay in a real easy and fast way by either scanning a QR code to make the payment, or by typing the address directly to send the coins. No need to sign up, swipe cards, type a PIN, or anything else.”
This clearly definable and fairly narrowly defined use-case illustrates one of the finer points of staking; since rewards are often paid in the currency in which you stake, it’s a good idea to make sure that you want more of that coin. To put it more simply – there’s no point in staking a coin that you don’t see a future in.
The Ark project is unique in that its development team doesn’t envision it as a be-all, end-all currency. Rather, ARK serves as a means to an end. The Ark project aims to link together disparate blockchains via its SmartBridge technology, which acts like a smart contract that can be executed across blockchains with wildly different protocols, like Bitcoin and Ethereum.
The Ark project also stands out from its peers in that it uses a delegated proof-of-stake system in the manner of Lisk. In fact, Lisk is a direct descendant of the current Ark project. As such, users do not stake directly. Their staked ARK are used to vote in 51 delegates, which then share their block rewards with their voters. While the average ARK staking reward for the common voter is about 10 percent, some of the delegates offer personal reward percentages as high as 90–100 percent. That means substantially all of their staking rewards get turned over to their voters, who then divvy up the remainder according to vote weight.
One small detail regarding Ark voting; Ark only allows a wallet to vote for one delegate at a time. This is ostensibly to prevent centralization or gaming of the voting system. If a potential voter holds 1 million ARK, for example, that voter could have 1 million ARK’s worth of weight for voting, but only for a single delegate. To vote for two delegates, the ARK user would have to split his or her holdings into two wallets, each with just half the voting power of the original. Again, this is to prevent mega-holders of ARK from voting in a chosen slate of delegates and potentially corrupting the blockchain.
KuCoin Shares is linked to the popular centralized exchange KuCoin. The Hong Kong-based exchange takes 90 percent of its collected fees each day and distributes them to KuCoin holders, putting a twist on the traditional proof-of-staking model. In fact, it’s not really fair to call this proof of stake, so much as simply staking – KuCoin pays a dividend to its KCS token holders in exchange for holding the coin, with no minimums. The tricky part is it’s difficult to calculate an average return, as the amount of fees collected varies day to day and the bonuses are assigned by the number of KCS held.
The former BitBean is notable in the blockchain space for having fast confirmations and low fees, making it a preferred choice for day-to-day transactions. Despite some of the silly language the coin uses, like “proof-of-bean” and “sprouting,” it uses the same classic proof-of-stake model as longer-standing coins. Coins are “sprouted” or staked from a Bean Cash core wallet. Average estimated rewards are about 4 percent per month, with a bonus 1,000 BEAN paid for each discovered block. Although there’s no minimum needed, Bean recommends holding about 100,000 BEAN to stake successfully each week.
Now that we’ve had a look around the field and seen the diversity of staking options available – from pure proof-of-stake to some of the hybrid delegated methods to regular old dividend investing – we have to circle around to the question – why stake at all?
There’s certainly the profit motive, and plenty of the coins described above offer fairly robust returns for relatively low investments. While it’s certainly true that you’ll always earn more if you stake more, the ability to try out staking with no minimums is a highly attractive feature that just doesn’t translate well to proof-of-work coins. Even proof-of-work coins with low barriers to entry, like the Nimiq project or NIM, require at least a working knowledge of mining and a little software installation, plus the wherewithal to keep the miner up and running. And that’s before the associated electrical and capital equipment costs.
There are two side attractions to stake versus mining that are worth discussing. The first is staking’s environmental friendliness. While staking does require some electricity just to keep a wallet open and active, it is a small fraction of the power needed to keep a CPU, GPU, or an ASIC running full blast solving cryptographic algorithms. This translates to less total power consumed by the network as a whole, which, in turn, means less electrical draw on a network largely powered by coal and other fossil fuels. Thus, proof-of-stake coins bring an air of environmental stewardship to cryptocurrency, which may help to improve its long-term chances for adoption at the institutional and governmental levels.
The second big attraction of staking is really putting your money where your mouth is, technology-wise. Staking is, at heart, the purest form of holding. By holding on to your coins for the chance to earn more, and simultaneously strengthening the network, you’re demonstrating your belief in the underlying technology of the coin itself. As we briefly touched on earlier, there’s no real point in staking a coin that you don’t want to accrue more of. By staking, you’re essentially signaling your belief in the viability of the project, its team, and its end-use.
That’s a powerful statement to make, even if profit is your main motive. It can even be extended to cryptocurrency as a whole. There are plenty of speculators in the cryptosphere who are only in it for a quick buck – mostly day-traders eager to flip coins locked in nebulous pump-and-dump schemes. These are not true crypto believers. Miners don’t even necessarily demonstrate the same level of commitment to the tech since hardware can be bought and sold and mining proceeds immediately sold off for fiat cash. However, a staker is accruing the coins for their own sake. They can certainly be sold off, just as a miner might, to pay electrical bills or even just to turn a profit. But the fact remains that a portion of the stake must be retained to continue earning. In some cases, the minimum requirement to stake or even to become a masternode is so high that one essentially puts their own money up as collateral against the future success of the blockchain.
Choosing the right coin to stake, then, is both a numbers game and a gut feeling. If you choose to begin staking, definitely begin with research on minimum amounts, staking rewards, particular staking protocols, and the like. But also remember to pick a project that resonates with you and one that you expect will be around far into the future. After all, by staking, you’re helping to make that a reality.