How to Stake Altcoins: A Quick Guide

  • Proof of Stake (PoS) digital assets make it possible for investors to generate passive revenue without shady, high-risk investment schemes.
  • PoS allows users with coin holdings (stakes) to sign new blocks and to earn rewards.
  • The PoS consensus mechanism is in some ways superior to bitcoin’s “classic” Proof of Work (PoW).
  • PoS aims to solve bitcoin’s energy consumption/efficiency problems.
  • The profitability of the PoS investment model is questionable during bear markets.

What Is Proof of Stake and How Can it Create Passive Revenue?

PoS is a consensus mechanism, through which users of a blockchain confirm digital asset transactions. To paint an accurate picture of PoS, it is best to compare it with bitcoin’s better-known PoW consensus mechanism.

Bitcoin miners are required to solve intricate mathematical puzzles through a brute-force approach. Only miners who manage to solve these puzzles get to sign and place new blocks into the blockchain. This system promotes competition among miners and it is extremely resource-intensive. It needs specialized equipment and it consumes copious amounts of electricity.

The PoS mechanism validates transactions in a radically different way. It considers holders of a given digital asset as stakeholders in the system. The more of this given coin one holds, the more likely he/she is to be allowed to sign new blocks and thus to earn rewards.

Let us consider the following simple example:

Josh, George, and Judy are the only holders of digital asset X. Josh has 50 Xcoins, Judy has 40 and George holds 10. They all keep their balances in online wallets and allow staking.

With his 50 Xcoins, Josh is the dominant staker. He will earn the most since he has a 50 percent chance of signing each new block. Judy will likely do well earnings-wise too. George, on the other hand, will only get to sign 10 percent of the new blocks. He will, therefore, earn less.

This is a very simplistic model, of course. PoS digital assets…

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