In 2009, the release of Bitcoin popularized the concept of proof-of-work (PoW), rewarding miners with coins for confirming transactions on the network. In the years that followed, a new consensus mechanism, proof-of-stake (PoS), was introduced to the ecosystem as well. With this concept, coinholders receive rewards by storing tokens in their wallet. The concept is more commonly known as staking.
In this article, we explain how staking works and the best staking coins you can invest in. We also delve into their potential as an investment, and the steps you need to follow to start staking them.
Before we dig into our guide, explaining how to start making passive income through staking, let’s start with some basics.
What is staking and how does it work?
Staking is a blockchain incentive mechanism that rewards users for securing the network by locking their crypto holdings. This is only possible on PoS blockchains, and anyone with a certain balance of the network’s token can participate.
The first practical application of PoS appeared in a paper published in 2012 and was later applied to a cryptocurrency called Peercoin. The main goal of this project was to solve the problem of Bitcoin’s high energy consumption.
Even though the original “staking coin” didn’t manage to survive, it opened up a viable alternative to mining by presenting some key advantages:
Better energy efficiency - PoW blockchains require enormous amounts of computing power and electricity for the validation process. With staking, users can start earning rewards by storing tokens in their wallets.
More democratic reward system - with PoW, only the most powerful miners (or farms) have a realistic chance of getting the rewards for discovering new blocks. In PoS, everyone that participates receives a reward proportional to their holdings.
Increased scalability - PoS blockchains are able to achieve higher transaction speeds, using less storage and bandwidth.
Reduced investment costs - unless you want to run a validator node, there’s no need for expensive hardware to start earning. Opening a wallet and storing your coins is enough to start receiving staking rewards.
There are also a couple of disadvantages that you need to keep in mind when locking your funds:
Increased risk - cryptocurrencies are highly volatile assets and you will be unable to sell them if they suddenly start dropping in value.
Reduced usability - when locked, the coins can’t be used for payments or trading, which reduces their liquidity.
Decreased rewards over time - by design, as more tokens are locked for staking, the smaller the rewards become. Therefore, it’s nearly impossible to predict the actual rewards you’re expected to receive.
Best staking coins in 2021
Now that you have a better idea of the basics, it’s time to dig into our list of the best staking coins of 2021.
Locking your funds temporarily is usually pretty simple. However, each blockchain has its own unique characteristics. The following list lays out the best staking coins of 2021, and how you can start earning rewards.
Ethereum is the second-most popular cryptocurrency by market cap and the most used blockchain, counting more than 1 million transactions per day.
This open-source platform is widely used to create decentralized applications (dApps) and new crypto tokens through its smart contract implementation. Ether (ETH), the native cryptocurrency of the blockchain can be currently obtained through GPU mining.
As we previously mentioned, PoW has two main weaknesses, scalability and energy consumption. To address these issues, the Ethereum network is undergoing a switch to a PoS consensus mechanism, named ETH 2.0. Ethereum developers will implement this important update through various phases during 2021.
This important change will provide a scalable and future proof platform for mass usage of Ethereum. Given the sheer popularity of Ethereum, its token will beyond doubt become one of the best staking coins of 2021.
How does ETH staking work?
Ethereum holders will be able to lock their tokens for a projected ROI of 5.26% per annum at the moment of this writing. When withdrawing their tokens, users will be put in a queue, and there is at least an 18-hour waiting time. This timeframe is dynamically adjusted in accordance with the number of people withdrawing at that moment.
To become validators, users need to own a minimum of 32 ETH in one wallet. This is a considerable investment for most people (around $15.000 at the moment of writing). That being said, third-party providers will allow you to stake smaller holdings through them. A great example of this is Lido. Furthermore, decentralized platforms like Blox.Staking should emerge shortly after ETH 2.0’s release, allowing free partial staking.
Keep in mind that Ethereum’s staking model is not final. Developer guidelines are subject to changes upon release.
ETH Year-To-Date performance
In the chart below, you can see Ethereum’s price performance on a yearly basis.
With a +180% increase, ETH has proven to be one of the best assets to invest in 2020. And with the upcoming ETH 2.0 release, it is should remain in a bullish trend throughout the next year.
Tron is a decentralized entertainment and content-sharing platform. It attempts to bridge the gap between content creators and content consumers by eliminating third parties.
Created by controversial crypto personality Justin Sun, TRX constantly hovers in the top 20 cryptocurrencies by market cap. In addition to its open-source ecosystem, Tron also offers its users a way to stake their holding on the network.
How does TRX staking work?
TRX uses a slight variation of the PoS consensus mechanism known as delegated proof of stake (DPoS). This system uses voting and election processes to protect the blockchain from centralization and malicious usage.
Here, instead of being randomly chosen by the system, network participants choose validators by voting them in.
Tron users are divided into three main categories:
Token Holders or Voters - any TRX holder.
Super Representative (SR) Candidates - 127 individuals elected through voting by the token holders. Votes are updated once every 6 hours.
Super Representatives (SR) - 27 node validators chosen among the candidates. SRs play important roles such as producing blocks and packing transactions and receive rewards for this.
Each of the SR teams rewards different amounts of TRX tokens to the users that vote for them. You can use Tokengoodies to calculate the rewards offered by each SR. At the moment, the average ROI per annum for TRX is around 4%.
Here’s a quick guide on how to begin staking on the Tron network:
Visit tronscan.org and open a cryptocurrency wallet.
Use an exchange to buy some TRX tokens and send them to your newly created TRX wallet.
In your Tron wallet, use the “Votes” function to “freeze” the desired amount of tokens. The more tokens you lock, the higher the voting power and rewards will be.
Finally, select the SR of your choice to start receiving TRX rewards.
TRX Year-To-Date performance
Let’s check out Tron’s YTD performance.
TRX has performed quite honorably in the past year, with a 75% increase in value. Entering only its 4th year of existence, the potential of the TRX token is yet to be unlocked.
VeChain is a blockchain platform designed to streamline the supply chain and business processes. It was founded in 2015 by Sunny Lu, the former CIO of Louis Vuitton China.
Since its inception, the platform has ensured a large number of strategic partnerships such as automobile manufacturers BMW and Renault, as well as worldwide logistics giant DB Schenker.
Two separate tokens can be found on VeChain’s network:
VET - the main transfer-of-value token.
VTHO - used to pay the costs of running operations on the blockchain.
Holding VET will reward users with VTHO tokens. Let’s see how staking on the Vechain network works in detail.
How does VET staking work?
The Vechain blockchain introduces yet another consensus protocol, called proof of authority (PoA). This model relies on a limited number of validators, which cannot be anonymous. This way, they stake their coins together with their reputation.
Earning VTHO (VeThor) can be done in two different ways. The first one is quite simple, as it requires the acquisition of any number of VET, storing them in an eligible PoS wallet such as Atomic Wallet, and activating the staking process. This method should net you around 1.6% of profits per annum. It’s similar to a high-yield savings account.
The second way to stake VET is by running a masternode. There are two types of masternodes that you can make use of:
Authority Nodes - used to validate all blockchain transactions (min 25.000.000 VET). There are only 101 authority nodes and they require a full identity verification procedure and a very large upfront investment.
Economic Nodes - which offer stability to the ecosystem and are separated into 3 different categories
Mjolnir Nodes, with a minimum requirement of 15.000.000 VET and a 30 day lockup period
Thunder Nodes, with a minimum requirement of5.000.000 VET and a 20 day lockup period
Strength Nodes, with a minimum requirement of a1.000.000 VET and a 10 day lockup period
Users can upgrade or downgrade nodes at will, once the lockup period is over.
VET Year-To-Date performance
In the chart below we can see VET’s performance in 2020.
Thanks to its multiple strategic partnerships, Vechain has gained almost 300% in value in 2020. It is one of the cryptocurrencies that is believed to continue making progress since it seems to be severely undervalued. If this trend continues, it could rally once again in 2021, making it one of the best staking coins available.
Tezos is a smart contract platform that is mainly used to deploy dApps. Due to its nature, it competes with platforms such as Ethereum, EOS, and Cardano. Its mainnet launched in 2018, after a long legal battle between its creators, Katheleen and Arthur Britmann, and the appointed head of the Tezos Foundation, Johann Gevers.
The Tezos platform functions upon an on-chain governance model that allows stakeholders to easily vote and implement changes to the software without creating hard forks.
How does XTZ staking work?