Proof of Stake, also referred to as Staking or simply PoS, is a common method used by digital currency projects to maintain their networks. Staking is a simple way to increase the value of your crypto holdings. It does not require very much work to set up, can be done with any computer on the Internet, and many coins can be staked at once on a single machine. The rewards simply show up in your wallet periodically as additional coins.
Some digital currencies reward contributors to the network with ridiculously high returns. If we can find them in time there is a great deal of money to be made from Staking.
What is Proof of Stake?
Proof of Stake and Proof of Work are the two primary means of processing transactions and writing the latest block to the end of a Blockchain. Bitcoin is an example of a currency using Proof of Work (PoW), which is where a network of computer systems compete to be the first to complete and place the latest block. This can turn into an expensive endeavor as people spend thousands of dollars to build ever faster systems to compete on the network.
Proof of Stake works differently. Rewards for contributing to the network are based on the percentage of coins you own and hold in your crypto wallet. An average return for staking is 5% per year, so if you are staking 100,000 coins you can expect a reward of approximately 5,000 coins (I am not taking into account compounding in this example).
The actual percentage earned through Staking is often higher than the published number. This is because 5% of coins are created for Staking Rewards and distributed to all contributors, but not 100% of all coins are Staking on the network. If half of the coins are offline or on an exchange, you may expect to receive 10% over the course of the year for your participation.
How can I take advantage of PoS?
A few coins are using Proof of Stake as a way to distribute coins early in the life of their currency. Imagine if you were starting your own currency and only introduced 100 new coins each week. It would take years to have enough coins in circulation to sustain a market. To get many coins into people’s hands initially, some projects are drastically pumping up the Staking percentages early on.
The first currency I found with incredibly high percentage returns was RAIN. I bought very early on when it was worth almost nothing and started staking. At the time I thought there was no way RAIN would ever increase in value because so many RAIN coins were being created by staking. I assumed all of those coins would be sold bringing the price way down.
What I found instead was the incredibly high staking rewards lured other people to buy RAIN to start staking for themselves. At one point the demand for this coin far exceeded the supply for sale, significantly increasing the price. This same demand has been repeated for many other high percentage staking coins in the past year. The combination of coins with high rewards coupled with increasing value cannot be ignored as an easy way to earn more Bitcoin.
One follow up note on RAIN, and any other coin you choose to invest in… more than a high PoS reward is required for success. If the developer disappears and nobody is running the show, a coin is going to fall in value. I do not suggest buying RAIN at the moment. I do not see it increasing in value. You need to monitor any coin you invest in to make sure there is a team behind it and active interest from the community. If either of these start to lag, it is time to get out and find a better option.
How do I start staking?
To Stake the most coins possible, you need to have a computer online 24 hours a day. It is possible to stake many coins at the same time on a single machine, and the specs of the machine are typically not important. It just needs to be reliable. Remember, you are making a percentage, regardless of your contribution. 10% is 10% no matter what. If you start staking a coin and notice it takes up a large portion of your system’s resources, you may want to consider another option.
The process is similar for all coins I have staked. They all ultimately use the same copy of the same QT wallet with changes to the settings and icon layout.
- Download the wallet for your system (Windows, Mac, Linux)
- Open the wallet to sync the Blockchain (can take a long time)
- Encrypt your wallet (enter your password)
- Move your coins into the wallet
- Unlock the wallet for Staking Only
- Sit back and wait for your Staking Rewards to show up
There are other more details you will discover as you become more experienced. For example, you may want to apply the bootstrap instead of downloading the entire Blockchain depending on the age of the currency and speed of your connection. I also like to check the Bitcointalk Announcement or ask the community how to set up the Config (.conf) file. Adding Nodes will help you sustain more connections.
Different coins take different lengths of time for the rewards to show up. It could happen in many small payments throughout the day, or one large payment every couple of days. Be patient. The first payment typically takes longer than subsequent payments. Moving new coins in or taking coins out of your wallet will often reset the timer for your staking, causing the longer wait for the first payment to be repeated again.
It is always a good idea to backup your wallet after the first payment arrives.
How do I find the right coin to Stake?
Here is where you need to do some research to find the coins to stake returning the the highest rewards. We are trying to find a coin with potential to increase in value we can stake to receive the maximum number of coins back in staking rewards. There are three criteria I look for, and the combination can be a challenge to find together.
The first is price. Staking currencies often have a minimum number of coins required to receive a reward. Let’s say the minimum number of coins is 1000. Depending on the value of your portfolio, it is much easier to afford 1000 coins worth a few Sats (fractions of a Bitcoin) than one already having achieved a high value. This means we are looking for one most people have not discovered yet. Price is also important because the more we can buy up front, the greater our rewards will be.
Second, as I mentioned briefly earlier, we want a coin with an active development team and community. We are not looking for the next Bitcoin or Dash here, so it is not important what the plans are… only that there are updates. Maybe just a new website or Roadmap. At the first sign the team has fled the scene, take your profits and run before everyone finds out. There will be another coin to invest in with more promise somewhere. Do not become too emotionally attached to a coin you buy simply to reap staking rewards for.
Lastly, you need to locate the coins with the high Staking payout. This can be the biggest challenge. We are looking for the massive payouts of 100% or more. The coins I have seen have payout tiers that achieve large rewards for a set number of blocks, then scale down as the main distribution of coins has been completed.
Ask around in various Slack communities in the #trading channels for suggestions. Use search engines by limiting your results to the previous Month and using search criteria such as…
Proof of Stake ANN Bitcointalk
You will have to sift through the results looking for the best return, an active community, and do research on the price. You may need to look at the Block Explorer for the coin to see what block it is on, and compare it to the PoS payout schedule. Here is an example I found for OPCoin (OPC) (https://bitcointalk.org/index.php?topic=2401268.0).
Looking at the Block Explorer for OPC I can see it is near block 50k at the moment. This tells me for the next 100,000 blocks I can rely on receiving amazing returns over 1000% for my Staking. This is definitely a candidate I want to look into further.
TrezarCoin (TZC) and TheresaMay Coin (MAY) are a couple others you may want to look into. At the time I am writing this article, both are rewarding Stakers with excellent returns.
I hope you found this informative and maybe discovered a new revenue stream. I am always interested in new coins to stake. Please let me know if you find any you have purchased for yourself or want my opinion on below.