For anyone interested in passive income with cryptocurrencies, staking is a big thing. It’s pretty much the easiest form of passive income. You just buy coins, leave them lying around and get money.
But staking doesn’t always mean staking. I usually refer to any coin that gives me returns on a schedule as a “staking” coin. But a good friend on Twitter schooled me (rightly so) that this isn’t correct.
So I figured I write this post, so you know what you are actually buying!
You might be familiar with the classic Proof-type Proof-of-Work which is used by Bitcoin (and most coins really). Transactions get validated by solving difficult computational puzzles. That’s what we call “mining”.
Proof-of-Stake uses a holders “stake” in coins to validate transactions. Depending on a
When you mine coins, you are rewarded with the coin you are mining. For lending your computational power. This is passive income (you keep the rig running and thus create coins) and that’s why we love mining so much.
So, the basic incentive for people to stake coins is obviously the reward.
Coins that actually do the true Proof-Of-Stake consensus are for example:
But not all coins actually care that much…
Dividends, the traditional staking
Some projects just like to give you a bonus for holding their coins. Just like company shares in the traditional markets. You don’t get any voting rights or get picked to validate transactions with your stack. You just get a certain amount of coins depending on how much of them you already hold.
This is sometimes also referred to as Airdrops.
There are multiple different proof types and forms of paying out these dividends. I always referred to all of them as staking coins. But as I said in the beginning, I got schooled on that and I have to agree. They do work differently.
If you just don’t care about decentralization or crypto in general, and you just want the money. Then all these coins are the same for you, they pay you passive income in form of dividends. How they do it or why, doesn’t bother you.
The issue with these coins is that they are actively fighting what Bitcoin was introduced for. A means of payment. Since the age and size of your stack is relevant for staking, you are contributing to the decentralization by not moving the coins for ages. This sentence sounds stupid, but that’s the crux with it. To be eligible for validating the transaction, you should have them lying around for ages.
But a means of payment is constantly moving. Changing hands. Bitcoin was introduced for exactly that. And staking basically fights that. As weird as it is. There are advantages, like not using up the energy of a whole country. But is it really worth it?
You could argue that dividend coins are actually more ethical. If that even means anything. They don’t care about validation at all and are purely a speculators decision to take a part in the project’s journey by supporting them. Through buying and holding their coins. Again, it is different to company shares since you don’t get a say in what the company does. But it gets close.
What to stake from this
I will be using the proper terms in the future and you should too. However, if you just care about making money, this probably won’t bother you too much. There are also a multitude of different staking consensi. The market is still flooded with new tech, and you will be able to see live which ones will break through and thrive and survive.