Along with Bitcoin, Satoshi Nakamoto introduced the world «Proof of Work»- a consensus algorithm. Literally, it is translated as «Proof of ownership». In other words, the more computing power you provide to the network, the more likely it is to receive a reward for a new block. At first, this principle seemed quite logical, since in this way decentralization is achieved. It is safer, if there is the bigger hash of the network. However, after some time, people began to think about the associated problems. Firstly, mining equipment is expensive, and secondly, it consumes a large amount of electricity. As a result, a new Proof of Srate (PoS) solution was found – proof of ownership.
This consensus algorithm implies block validation through network nodes. The more cryptocurrencies there are in the wallet- the more chances there are to receive rewards for the new block.
Along with the concept of PoS, the concept of stacking also came. We suggest you to familiarize with this term in more detail in this article.
What is stacking?
Many don`t consider cryptocurrencies as an investment tool because of their speculative nature. Cryptocurrencies are not securities, they don`t guarantee dividends. Profit from this class of assets could be provided only due to fluctuations in rates. However, stacking is somewhat different. Stacking is an alternative way to mining. In short, you buy a coin, put it on your wallet and make a profit. Profitability may vary depending on the PoS rules that apply to this network.
What might be the benefits of such a consensus algorithm?
1) Stacking is much cheaper. If in the case of PoW you need to buy expensive equipment and pay for electricity, PoS requires minimal computing power. A normal old laptop is enough. It is only important to be connected to the network all the time.
2) Stacking is highly secure. Of course, you can redeem 51% of all coins and take possession of the network, but it is worthwhile to understand that this is not practical for the attacker. For example, if now the Ethereum moves to PoS and someone owns 51% of the network, what would happen? The price of an asset will fall, and the owner will lose the most money, because he has more than half of the coins. Therefore, an attack on the network is economically disadvantageous.
3) Stacking implies asset growth. Indeed, to get more rewards you need to have more coins. Conditionally, if you have 1% of coins, you get 1% of the mined block as a reward. If 1 you have 10% of coins, then the reward would be 10%. Such a mechanism involves the removal of an asset from circulation and, accordingly, growth. Although in practice this doesn`t work. A large number of projects, which functioning on PoS, collapsed in 2018 stronger than Bitcoin. For example, NEO.
4) No need to have specific knowledge. You only need to buy coins on the exchange and put on your wallet. Further, the system calculates the reward on its own.
What kinds of disadvantages could be?
Once more, there is a question-centralization. The creator of the project can keep more than 50% of the coins and fully control the network. Of course, it is unlikely that anyone will use it, but this could happens. For example, questions for EOS are being actively asked. According to various analytical services, less than 1% of EOS addresses contain 86% of all tokens. Accordingly, they play a key role in the appointment of validators. It is difficult to call such a network decentralized.
In part, PoS 3.0 solves this problem. If in the normal case the network connection time doesn`t matter, then it plays a key role. For example, Bob has 1000 coins and calmly mined them. Then Alice comes in, buys 10,000 coins in the market and puts them on her wallet. Her chances of getting a reward immediately become 10 times, then Bob has. Not fair. PoS 3.0 offers to reward not only for the number of coins, but also for the time they went on the wallet. Thus, the probability of earning depends on the number of people earning on the stack, the number of coins and their age. The more people mining- the greater profit for network participants.
What do you need to know?
You need to follow two simple conditions for getting profit from stacking:
1) The wallet must be active and synchronized 24/7/365.
2) The cryptocurrency that is on the balance cannot be transferred somewhere. If you transferred , then you will lost the reward.
It should be noted that:
1) The size of the award is small. Too small. For example, in NEO it is 4-6% per annum, DASH – 7.5-8.4%, PIVX – 5.5%, and so on. At the same time, volatility, as we have already found out, can wash away all profits and drive them into losses. For example, you buy DASH for $ 1,500 for mining, and it will be cost $ 60 in one year. I think the 8% received as a reward will not save you much.
By the way, interest on deposits in Ukrainian banks reach 18-20%. At the same time, the risks that the hryvnia will collapse in 25 times are extremely small. Of course, a devaluation of 10-15% is possible in an unstable situation, plus inflation a few percent, but still this is not a 94% drop. Therefore, stacking should be approached with caution.
2) Many projects have an entry threshold for stacking. For example, for Dasha it is 1000 coins.
By the way, about the second paragraph. You can use various pools for which the entry threshold is below the minimum for bypassing the entry threshold. Profit will depend on the contribution.
How it possible to make money on stacking?
We have already considered the easiest way. Buy a coin and keep it on your wallet. There are also a few more difficult ways. Choose a new project that functions on PoS, but has not yet been added to leading exchanges, and buy an asset in order to obtain speculative profit on growth. If a coin would be added, for example, to Binance, then there is the possibility of a pulse rate increase.
However, for this method, it is necessary to thoroughly analyze all the subtleties and determine whether there will be a demand for the asset.
Well, here is algorithm for earning on stacking:
1) Choose a project, which functions on PoS. Although this is an optional condition. Dash uses PoW, but allows to earn on the stack.
2) Install the wallet on the computer.
3) Waiting for the appearance of blocks.
4) Put the software client on the PC.
5) Launch the wallet.
As you can see, the algorithm of actions is quite simple. You can even use an old laptop.
What kind of projects can be considered for stacking?
Some of the most popular are:
1) NEO (5% per annum).
2) Dash (7.5-8.4% per annum).
3) KuCoin (distributes 90% of the exchange’s income between token holders).
4) PIVX (4.8% per annum).
5) Lisk (from 6.25% to 100% per annum).
6) ReddCoin (5% per annum).
It is worth highlighting some of the lesser known:
1) VeChain (1.68% per annum).
2) Ark (about 10% per annum).
3) Novacoin (has a complex calculation of profitability, which could reach 100%).
4) LEOcoin (10-20% per annum).
5) OKCash (10% per annum).
This way of earning money can be especially beneficial in the case of new coins, which are not so popular. They are cheap, and it is possible to buy them more. Along with the growth of popularity, the price will increase. In the case of already successful projects, it is necessary to have solid capital for stacking.
It should be noted, that Ethereum also plans to move to PoS. At first, it will be a hybrid PoW + PoS consensus algorithm, but then a full implementation to PoS. The campaign is scheduled for early 2019, but knowing this project, you can expect the rescheduling. Experts predict a full implementation only in a few years. Anyway, it can be a catalyst for growth. Now we can start purchasing ETH for future stacking. But this isn`t a call to action or recommendation.