It has been quite some time now, that blockchain technology has been in existence and what has been fascinating for most people is its Consensus Mechanism. Consensus Mechanism forms a very important part of any blockchain as this is what ensures that the entire network collectively agrees to the content of the ledger.
While there have been many attempts to build a better consensus mechanism, the most popular ones are the Proof of Work (PoW) and Proof of Stake (PoS) systems. While Proof of Work was conceptualized way early in the ’90s, it is Satoshi Nakamoto that made it famous when he incorporated the same in the Bitcoin White Paper.
While PoW has its advantage, with time, people started looking for more energy- incentive mining process. This led to the invention of Proof of Stake (POS)- a system which proved to be a much greener option compared to Proof of Work systems. Apart from being greener, Proof of Stake also had the economic incentives which could do a better job of promoting network health.
What is Proof of Stake?
In general terms, Proof of Stake systems is consensus mechanisms which are used for validating transactions and achieving network approval collectively. Many may feel it is similar to Proof of Work systems, but it does not have any mathematical puzzle to solve. Instead, the creator of a new block is chosen in a deterministic way based on their stake. POS system also requires validators to own and support the currency they are verifying promoting skin in the game.
Another major point of distinction between Proof of Stake and Proof of Work is that under Proof of Stake, there is no new coin created by the process of mining. In its place, all of the coins are created at the very start. This means the validators must be fully rewarded through transaction fees as opposed to newly minted coins.
Investing in Proof of Stake Coins
While coins have a varied mechanism for consensus, buying POS (Proof of Stake) coins have been a fascinating proposition for many. Due to its energy-saving features, POS coins are considered to be the future of consensus mechanism, investors usually think of them like dividend paying stock. It’s like if the investor stakes more coins, he will get staking rewards similar to dividends. To draw a caution, this may sound a little too good to be true. However, there are some extra dynamics that go into it that the investors should be aware of before investing.
While there are many coins adopting this consensus mechanism, some of the POS coins have been darlings of investors already. Lets us look at the list of leading coins that use the POS mechanism.
Just like Ethereum, NEO too envisions to be a smart contract ecosystem. Being one of the few POS coins that provide a smart contract ecosystem, NEO becomes an easy launching platform and a perfect bridge for those wanting to move from Proof of Work consensus to a Proof of Stake mechanism for the decentralized applications.
NEO has some amazing features which are unique. Users have the option to stake both NEO and its GAS coin. Also, the smallest fraction for NEO is one and that is the bare minimum amount anyone needs in order to stake. If one is confused about the two coins staking approach between GAS and NEO, just take GAS as fuel for the blockchain while NEO represents a share in ownership.
DASH is a popular cryptocurrency known as digital cash. It is one of the top coins to implement a proof of stake consensus mechanism. Dash is unique as it resides on the Bitcoin Core but comes with additional privacy and quick transaction speeds- PrivateSend and InstantSend. Dash positions itself as a P-2-P decentralized digital form of money and envisions to replace the existing fiat by staying liquid. DASH also allows its HODLers to earn dividends in the form of DASH by running a Masternode. But the catch is that to run a Masternode one needs a minimum 1000 DASH units.
While there is a lot of debate around Dash not being a true proof of stake its Masternodes work in a very similar fashion.
A Dash Fork that separated out in 2016, PIVX is slowly emerging a strong POS coin that is attracting investors. PIVX, the anacronym for Private Instant Verified Transaction features out as a privacy coin that gives its users the ability to run a master node by investing in 10,000 PIV. PIVX doesn’t require any minimum holding to start staking PIVX that makes it an attractive low barrier point of entry. However, the user wallet needs to remain active for the purpose of staking.
The PIVX website is pretty comprehensive when it comes to explaining the staking mechanism for the coin. Along with the staking calculator, the site also offers a master node guide and a staking guide which is thorough and provides great information for those new to staking.
PIVX has unique randomness involved with staking, which is often compared to the lottery in which the number of coins is the same as holding that same number of lottery tickets. PIVX has intentionally built-in randomness in its reward system. The team behind the coin did this for security reasons but it does make calculating rewards a tricky proposition.
4. VET (Vechain)
VeChain is another cryptocurrency project and platform which can easily draw comparisons with Ethereum and NEO as it also works towards enabling smart transactions. VET has a strong focus on the supply chain industry and has been working on implementations in the pharma industry as well. With several partnerships in this space that has made VeChain infamous in the crypto community. VeChain has a Proof of Authority blockchain coin, which is similar to a Proof of Stake blockchain, but with a different consensus model.
Vechain also has two coin approach- VET and VTHO . For staking VETs, the Masternode receives VTHO. On Vechain, VTHO is the fuel while VET represents ownership. With different node levels, economic and X-nodes that gives bonuses, Vechain makes staking really easy with a slick mobile app.
Again a very similar coin to Dash, Ark offers a unique coin which wants to serve as 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.
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 for multiple staking a user may split his ARK into multiple wallets to vote for multiple delegates. This restriction is to protect the network from getting corrupted by people who are holding a lot of Ark.
Users need a minimum of 4 LSK to cast a vote for a delegate. 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.
NavCoin is an open source blockchain with a prime focus on privacy. It also has a very strong community focus but what makes Nav interesting is a three-folded feature. Being a privacy-based cryptocurrency is one, the other two is that it is really fast to send and cheap. It is a fully functional POS cryptocurrency operating since 2014 based on Bitcoin’s core code. the coin was one of the first Proof of Stake adopters and is one of the more reliable coins which has no minimum requirements for the user who are wanting to stake the coin.
Even though there is no minimum requirement, the more coin a user stakes with NavCoin, the bigger their rewards are and the quicker they get. In 2018 NavCoin added cold staking features which means you can easily and securely stake your coins from a cold wallet.
The future of staking is also likely to be bolstered by the eventual transition of Ethereum, currently the world’s second-largest cryptocurrency by market cap, from PoW to PoS. While staking is just picking up, one can see continued interest in PoS systems and also be sure that there will be more innovations and adjustments to the PoS model as old coins adapt and new PoS coins emerge.