Staking is all the hype in the crypto world right now. Gone are the days of investing in ICOs (Initial Coin Offerings) – these days, it’s all about staking projects.
To understand what staking is in crypto, and why investors and crypto enthusiasts are interested in staking projects, you must first understand Proof-of-Work and Proof-of-Stake. When Bitcoin launched in 2008, the consensus system chosen to secure the network was a Proof-of-Work algorithm. A Proof-of-Work algorithm relies on solving cryptographic problems with computational resources to secure the network and validate blocks. But it faces certain problems due to the heavy usage of resources to mine and reach consensus. As a result, Proof-of-Stake, or staking, was introduced as a way to solve the inefficiencies of the Proof-of-Work system.
Proof-of-Stake takes an entirely different approach to reach consensus. Proof-of-Stake algorithms rely on an election process that selects the node (participant) required to validate each block. The election process can be random or use various factors, including the number of coins held in the staking wallet, and the staking period of coins.
The other significant difference between Proof-of-Work and Proof-of-Stake algorithms come in the creation of cryptocurrencies and rewards for staking participants. With Proof-of-Work, miners receive newly created cryptocurrency as a part of the mining process’s rewards in the blockchain. With Proof-of-Stake blockchains, staking participants receive rewards through the transaction fees.
The Proof-of-Stake algorithm allows users to participate in the forging process of the blocks that make up the blockchain by locking coins as their stake. The size of this stake determines if an individual node will be selected to validate and forge the next block. The larger the stake, the greater the chance of becoming the next validators of a block and receive a reward. This is thus creating a self-sustained economy where the blockchain benefits from increased participation and participants benefit from simply holding the blockchain’s native crypto.
Why is Staking Popular?
Many investors and crypto holders who don’t want to trade crypto turn to staking instead. The primary benefit of staking is that you, as a holder, retain full ownership and control of your digital assets. You can withdraw them at any time and that will only result in loss of the staking reward but not the staked funds. Staking also offers a much safer way to receive passive income through a reward or forging system whereas trading carries significant risks.
That being said, not all staking projects are created equal. It depends on where and how staking takes place. Staking in a native wallet, for example, is the safest form of staking as you own your private keys. But not all staking projects support it. There is also third party wallet staking, which is a good option if you find a reputable wallet, such as: Exodus, Atomic, Huobi, Guarda, etc. The final option is Exchange staking but this is the least safe of the three as you don’t own the keys to your coins and therefore can lose access to them at any point.
Best Staking Projects in 2021
There are hundreds of staking projects but some stand out due to the length of their operation, size of the community behind it and the amount of the rewards. We have listed our picks for the top staking projects in 2021 below.
Tezos is the largest staking project at the moment, with over 80% of token holders staking. The majority of popular exchanges like Coinbase, Binance, and Kraken are currently supproting staking on their exchanges for this project.
The XTZ token is the native currency of the Tezos network and is created through the “baking” process. This is essentially the same as the forging process in Proof-of-Stake algorithms. Bakers put up deposits and receive rewards for signing and publishing blocks. Witnesses or ‘delegators’ are then used to validate the blocks, and if a baker is dishonest, they lose their XTZ deposits. The rewards for bakers are 6.19%, while delegators earn 5.56%.
After raising $17 million in its ICO in 2017, Cosmos currently sits in the top 25 of the total market cap in the crypto space.
In addition to trying to build the Internet of Blockchains, Cosmos has another appeal – the size of its staking rewards for the ATOM token. The staking reward for Cosmos is 9.25% but can go as high as 20% if the proportion of ATOM staked falls below two-thirds of the total supply.
Staking with Cosmos is also very easy as you simply need to hold ATOM in a supported wallet and then choose a validator to delegate to.
Icon was able to reach a valuation of over 4 billion in just three months from its token launch in 2017 Since then, the project has come a long way technologically. The LFT2 consensus algorithm is second to none in the blockchain ecosystem, as well as their POS mechanism. Icon’s network is powered by the ICX cryptocurrency. The algorithm that supports the Icon network is a proprietary Loopchain blockchain engine that is scalable to hundreds of transactions per second.
The staking model of Icon rewards participants with 6% to 36% on an yearly basis as the rate is determined by the total amount of ICX staked in the network.
After several updates, Cardano finally became a PoS blockchain and now allows staking of its native ADA coin. However, there are some steps you need to take if you want to stake ADA. Users that want to delegate their ADA holdings to a stake pool and take part in the consensus process on the Cardano network first need to have a Daedalus wallet installed. Staking ADA also comes at a cost. The available take pools retain some of the staking rewards for themselves when their pool is chosen as a slot leader. These fees can vary greatly and range anywhere from <1 percent to 100 percent, however, the majority of pools are charging less than 10 percent.
When it comes to the rewards users can reap from staking ADA, the Cardano protocol offers a 4.56 percent yearly return.
These are the top 4 staking projects that have never failed to deliver what they promised and should be considered one of the most solid projects in this crypto space.
Their staking profitability is pretty high compared to other available staking projects and they are relatively easy to partake in. Rewards are paid out automatically at set periods and the assets of the addresses are never locked. Calculations for these staking projects are done daily so it the algorithms consider participants’ transaction history throughout the entire period. This makes them very low risk.
Users can choose what to do with their staking rewards. They can either ‘re-invest them in the staking pool to increase their stake or transfer their staking wallet balance to a fresh wallet address. The process is as simple and safe as any other normal transaction on the blockchain.