If you’ve been in the crypto community, chances are good that you’ve heard of Proof of Stake (PoS) coins. You’re also probably aware of some of the more popular ones like Dash and NEO. But do you know what Proof of Stake really is? And how does it differ from other consensus algorithms like Proof of Work (PoW)?
Don’t worry if you can’t answer these questions. We’ll provide this information and more with our list of the best Proof of Stake (PoS) coins. We’ll visit several coins that offer some type of extra value proposition and tell you all about each one. If you’re not currently holding any PoS coins, we would highly recommend that you do so.
Proof of Stake
When you’re talking about Proof of Stake, you’re talking about an alternative way to reach a decentralized consensus, or agreement, other than Proof of Work. It came to the forefront by a user in a Bitcointalk forum in 2012. The idea behind it was that Proof of Work took up too much energy and electricity, which caused miners to feel that mining even one block was wasteful.
This line of thinking, along with some studies that suggested mining Proof of Work network costs the same as powering millions of houses, had those in the community searching for an alternative. This environmentally friendly option, Proof of Stake, came about as a result.
With a Proof of Stake consensus model, what matters is the number of coins you store in the system itself. The bigger your stake, the higher the chances that you aren’t going to breach the network. This is due to the fact that you have a stake in it performing as well as possible.
In the PoS consensus, users don’t mine blocks like they do with Proof of Work. Instead, they are minted or forged. Those participating in the system and have a significant amount of stake get randomly selected to forge and then add a block to the network’s blockchain.
The random selection occurs when several various factors are analyzed. This is to ensure that only people who have a significant stake are chosen. Some other factors taken into consideration are coin age and master nodes, while some are thoroughly randomized.
Proof of Stake coins are typically pre-mined. This means users already have access to coins for staking purposes. Therefore, PoS coins are fixed from the beginning, so there’s no forging reward or block mining like there is with Proof of Work coins.
Proof of Stake vs. Proof of Work
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So how do these two consensus methodologies stack up against one another? Let’s take a quick look at a few areas of consideration.
Risk of Centralization
A growing area of concern with blockchains that employ Proof of Work is the rising risk of centralization. With Proof of Work systems, the role of mining is more and more trending toward those with large-scale operations. This means the control of these networks is moving away from the crypto community and toward the few hands that can afford these types of outfits.
The Proof of Stake method offers the potential for a fairer solution. Network control for each participant directly correlates to the amount they invest in a PoS system. For example, if one investor has ten times more than another individual, then they’ll be given ten times the control on the system.
On the other hand, if a Proof of Work miner has ten times the equipment than others, they’ll get ten times the computing power. This is a direct result of purchasing in bulk along with the growth in how efficient high-end equipment has become. The byproduct then, is that fewer and fewer individuals can compete against large mining corporations.
Part of the fundamental ethos behind crypto is to reduce the centralization of those in control. Decentralization is vital to the distributed nature of the blockchain network. This is why the type of consensus mechanism a coin employs plays such an important role. In order to have a truly immutable, trustless, and distributed blockchain network, the proper consensus mechanism is a must.
Energy and Cost Efficiency
From a cost and energy efficiency standpoint, Proof of Stake methods have more potential than their Proof of Work counterparts. The amount of computational energy needed for a Proof of Work system is very high. For example, the amount of energy consumed while mining Bitcoin is equal to that of the entire country of Colombia.
Additionally, as mining continues to get more and more competitive, the cost of purchasing powerful computers continues to go up. At the same time, these computers are consuming more and more energy at an increasing rate.
Proof of Stake networks, however, require no mining which means no processing power is necessary to ensure that a new block is mined first. Therefore, Proof of Stake systems don’t need anywhere near the amount of energy that Proof of Work networks do. Lower costs mean easier network accessibility to anyone who wants to be part of the community, which is exactly the direction cryptocurrencies want to go.
Since Proof of Stake systems are newer to crypto than Proof of Work, it has yet to see the same amount of adoption. Therefore, the consensus method has yet to receive as much testing as Proof of Work has, which means there are a few security risks associated with Proof of Stake.
If a blockchain goes through constant forking, it can lead to an unstable network. With Proof of Work, when a blockchain forks, miners have to decide which fork to continue supporting. Do they stick with the original network or move to the new fork? If a miner wanted to support both, they would have to split their resources in half to give both equal computing power. Because of this, Proof of Work provides a deterrent to forking on a regular basis.
Nothing at Stake Problem
On the other hand, Proof of Stake networks don’t naturally discourage systems not to fork. When a Proof of Stake network forks, participants receive a double copy of their stake which resides on the new blockchain. A network validator could claim twice the number of fees and double spend their crypto if they decided to sign off on each part of the fork. This is regularly referred to as the “Nothing at Stake” problem.
A validator does not have to increase their investment in order to confirm transactions on several copies of a network. This means there is no built-in incentive like there is with Proof of Work systems to prevent questionable behavior.
One solution to the previously mentioned “Nothing at Stake” problem is to require a deposit that remains locked on the network for a set amount of time. Ethereum, for example, is planning on switching to a Proof of Stake system. consensus protocol will be called Casper, and it will require a minimum deposit from validators.
With the deposit in place, if the Casper protocol determines that a validator has broken the rules of the network, like validating on multiple forks, the system will confiscate the deposit. With this type of rule in place, Proof of Stake might be able to fix its “Nothing at Stake” issue.
Best Proof of Stake Coins
While there is no shortage of cryptocurrencies on the market today, there aren’t as many Proof of Stake coins from which to choose. We’ve done the dirty work and found some of the most solid options available when it comes to Proof of Stake. Here’s our list of the best Proof of Stake coins.
Perhaps the most recognizable Proof of Stake coin, Dash is a privacy coin that relies on a system of master nodes that gives holders the ability to collect dividends. Dash has a few desktop wallets you can use for investing and storing your coins, which you can find here.
Current returns hover between 7.5%-8.5%, plus any additional appreciation in Dash itself. While staking coins and running a node on the blockchain is an easy and straightforward process, there is a huge caveat to running a master node. You’ll have to invest in a minimum of 1,000 Dash if you want to participate in staking the coin.
If you do want to learn how to set up a master node, Dash offers a great guide to help you through the process. Additionally, if you’re interested in a staking calculator, you can use this one to give you an idea of how much you’ll earn based on the number of units of Dash you have.
Ark is a unique coin in that its team doesn’t view it as a currency to end all other currencies. Instead, Ark wants to serve as a means to an end. The project intends to link separate blockchains together by using its SmartBridge solution. This solution behaves like a smart contract which various blockchains can use, even if they have entirely distinct protocols.
The Ark coin also sets itself apart by using a delegated Proof of Stake network. With this type of system, users do not directly stake their coins. What they do instead is stake their Ark to “vote” for one of 51 delegates. The delegates then share their block rewards with those who voted for them. Payouts will vary based on your delegate and percentages; however, if you’re serious about Ark, you might be 10-12% returns.
Similar to Dash, Ark does have one caveat which investors might find a little aggravating. Ark only allows each wallet one vote at a time. So no matter whether you’re holding 10 Ark or 10 million, you can only vote for one delegate. You can, however, split your Ark into multiple wallets if you want to vote for multiple delegates, but by doing so, you’re splitting up your voting power.
The intent behind this restriction is to prevent those holding a lot of Ark from voting in specific delegates which could then potentially corrupt the network. You can find the Ark desktop wallet here if you’re interested in the project, along with a guidebook on the Ark site. If you’re looking for an Ark staking calculator, you can use this one to give you an idea of the type of returns you can expect.
Like Ethereum, NEO is a cryptocurrency which focuses on smart contracts. Unlike Ethereum (for now), NEO is a Proof of Stake coin. This makes NEO an easy launching point for those wanting to move from Proof of Work coins over to Proof of Stake for their decentralized applications.
Users can stake both NEO and its GAS coin. However, you must stake them in a NEO wallet and not on an exchange. Although there are a few exceptions with Kucoin and Binance. Users will usually see 4-6% returns each year. You can also use this calculator to determine your profits.
One feature unique to NEO that you don’t often find in cryptocurrencies is that its smallest fraction is one. This is also the minimum amount you need in order to stake. If you’re wondering about the difference between GAS and NEO, just think of GAS as fuel for the blockchain while NEO represents your share in ownership.
PIVX forked from Dash in 2016 and stands for Private Instant Verified Transaction. This privacy coin gives users the ability to run a master node by investing in 10,000 PIV. No minimum is required to start staking PIVX, which makes for a nice low barrier point of entry for the coin. However, your wallet must remain active to stake.
Master nodes on PIVX can expect to earn around 5.5% yearly, while those doing simple staking will see roughly 4.8%. If you want to learn more about rewards with PIVX, you can use their staking calculator for further information. The site also offers a master node guide for those interested in setting that up themselves.
The PIVX staking guide is thorough and provides great information for those new to staking. PIVX is forthright about the randomness involved with staking, which some have compared to the lottery in that the number of coins you have is the same as holding that same number of lottery tickets.
This is due to the fact that the PIVX reward system has intentionally built-in randomness. The coin did this for security reasons, but it does make calculating rewards a tricky proposition. When staking, it’s best to expect a reward once a month. However, remember that the process is randomized. You might get two rewards in one day and then go for two weeks without seeing anything.
Like Ark, Lisk uses a delegated Proof-of-Stake network, which is a small step down from a pure Proof of Stake system. Those with LSK use it to vote for their delegates. Only the top 101 delegates are allowed to forge blocks, which means they’ll receive the rewards associated with it.
Delegates can choose how they want to divvy up their rewards. However, this information is available to those staking prior to voting for a delegate. Rewards can range from 6% all the way up to 100% of the earnings a delegate receives. Since the delegated Proof of Stake method is a little confusing, we’d recommend checking out Lisk’s guide before getting started.
You can also use Lisk’s wallet to store and track your LSK. You do have to have a minimum of 4 LSK to cast a vote for a delegate. If you are interested in staking with LSK, you can use a staking calculator to get a good idea of the type of return you’ll see.
NavCoin was created in 2014 as a fork of Bitcoin. The coin was one of the first Proof of Stake adopters and is one of the more reliable coins out there as it consistently provides around 5% every year. With NavCoin, users have no minimum requirements when they want to stake.
However, the more coins you have to stake with NavCoin, the bigger your rewards and the quicker you’ll get them. Just a small stake of around 50 NAV will take approximately 200 days to earn a reward by staking a block. Keep in mind that the 5% return relies on you keeping your wallet online all year long.
Thoughts on Proof of Stake Coins
Staking Proof of Stake currencies is a great way to earn some passive income. With many of the currencies listed, the entry barrier to get started is low, so you don’t have to risk a lot of money right off the bat. Earning a 5% reward for not doing anything other than leaving your wallet open isn’t too bad.
A lot of banks in the US offer less for the interest on their savings accounts. Why not put that money to use by finding a Proof of Stake coin you like and earn some additional income that way?
These are just a handful of the Proof of Stake coins available in the crypto community. However, many of them have much lower rewards. That doesn’t mean you shouldn’t do a little research if one of the coins on our list doesn’t fit your needs.
There are also rumors that other coins like Ethereum, Cardano, and OmiseGo are considering the move to Proof of Stake. Regardless, by joining a Proof of Stake coin, you can earn rewards without the need to mine, which can cost thousands of dollars in equipment and hardware. So set aside $50, find a coin that works for you, and get to staking!