What exactly is proof of stake? What is the difference between proof of stake and proof of work?Simply put, proof of stake is another way to 'mine' cryptocurrency, similar to proof of work; however it does this in a different way, as instead of mining with computer power you mine with your 'stake', which are your own holdings that you lock in to the network. The more coins you hold, the higher your stake is and the higher your rewards.
The way this works and is done varies between coins, as some coins such as Tron have you stake your coins and then vote for a representative, who helps to maintain the network and distributes rewards to you. (Also referred to as DPoS or delegated proof of stake)
How do I stake?You have a few options for staking, you can either:
1. Stake your coins in a staking pool
2. Stake your coins in your own wallet
Note: I highly recommend you to stake in your own wallet where you control the private keys, as trusting your money to a 3rd party staking pool for a long period of time is not wise.What is a staking pool?A staking pool is where a group of people come together and combine their holdings into a 'pool,' similar to pools in proof of work. See the next point to understand why people might use pools.
If staking pools are bad because you don't have full control of your funds, why do people use them?People use staking pools for multiple reasons.
One of these reasons being that one individual person might not have enough coins to stake as some coins require you to stake a minimum number of coins.
A popular example of this is Ethereum, which is beginning to transition to proof of stake. Ethereum requires stakers to have a minimum of 32 eth to be able to stake, which at the moment is around ~78k USD, which for many people is not doable. The solution for these people is to join a staking pool where tens, hundreds, or thousands of people can pool together enough ethereum to meet the minimum 32 to be able to stake.
If you do decide to use a staking pool (
Again, not recommended as you are not in control of your cryptocurrency) it is very important to do research into the pool and make they are reputable and have been around for a while.
PenaltiesOne thing to keep in mind is that some coins may have penalties in the event of things such as nodes going offline or for taking part in malicious rule breaking. This is also referred to as slashing.
Before staking any coin, you should familiarize yourself with the coins penalties if there any; in addition to this, if you are staking coins through delegated proof of stake, it is very important to do research into the representative you vote for, for this reason.
How do I find proof of stake coins?If you are looking for proof of stake coins there are several lists you can find online, on websites such as coinmarketcap.
Here are a couple lists:
https://coinmarketcap.com/view/pos/https://cryptoslate.com/cryptos/proof-of-stake/Different types of Proof of StakeI briefly mentioned delegated proof of stake above in an example using Tron; and there are several other different types of proof of stake.
Just a few of these are:
- PoSe - Proof of Service; in this type you can maintain things like masternodes.
- PoS - Proof of Stake; in this type you hold/stake your funds to earn rewards.
- DPoS - Delegated Proof of Stake; in this type you delegate your stake to a representative who maintains the network
Things to keep in mind:- The coin you stake could go down in value, causing you to lose more money then you gain from staking
- Keep in mind the rate of returns you get, if a coin offers 1000% yearly returns, it will constantly be multiplying itself and the coin will be worthless; however, a coin with a 3% yearly return will be far more sustainable.
- Before staking a coin please do research and your due diligence into things such as penalties, etc
I hope that I was able to help someone learn something, I am eager to share my knowledge with the community. Thank you for reading.
