Staking is a great way to earn a passive income and become part of the blockchain revolution in a more direct way. In a nutshell, all you have to do is to lock an amount of a specific token for a while and collect the reward based on the offered yield. However, you might be interested to know the technical part of the staking process and why a blockchain does need it at all. Thus, we can’t continue this post without briefly describing what Proof of Stake (PoS) is.
What is Proof of Stake?
PoS is a consensus algorithm that came out as an alternative to Proof of Work (PoW). The latter is used by Bitcoin and thus is the first implementation of a consensus mechanism in a distributed ledger system. The goal of both PoW and PoS is similar: to enable blockchain nodes to generate new blocks in a coordinated and secure manner. However, the two algorithms have very different approaches.
In 2008, the entity known as Satoshi Nakamoto introduced Bitcoin and described a new monetary system based on a distributed ledger powered by PoW. On a side note, the concept and even the term itself came before Bitcoin. In the early 90s, the mechanism of PoW was used in the fight against DDoS attacks, spams, and junk mail.
As you may know, PoW blockchains are constantly updated by miners, while PoS networks are maintained by so-called validators.
In the former case, the goal of miners is to secure a reward in exchange for their effort to solve a mathematical puzzle and win the right to create the next block. Today, the block reward in Bitcoin’s blockchain is 6.25 BTC. Every three and a half years or so, this amount is reduced by half during an event called halving. This is done to encourage Bitcoin’s scarcity and demand. Before May 2020, the reward size was 12 BTC. The node that wants to be chosen as a miner for the next block has to employ more computing power than competitors in order to solve the puzzle ahead of everyone else. Given that the competition is stiff, miners are forced to use very expensive machines, and that requires a lot of energy. This is why Bitcoin requires a huge amount of energy to maintain its operation. You can check the annual electricity consumption to run the largest cryptocurrency on Digiconomist. Still, the advantage of this mechanism is that it enables Bitcoin to maintain a deflationary model.
On the other side, the PoS (Proof of Stake) algorithm has a different approach. In fact, PoS was designed as a better version of blockchain compared to Bitcoin, as it solves the energy consumption problem and is more scalable. The PoS algorithm was first mentioned in 2011 on the Bitcointalk forum. One year later, it was adopted by Peercoin, which initially used PoW and then gradually switched to PoS.
Unlike in PoW blockchains, there are no miners in PoS networks, given that all tokens are created or pre-mined when the project is launched. Instead, the validation of new blocks in PoS blockchains is called ‘forging’, while the nodes that generate the new blocks are called validators.
If a PoS blockchain node intends to take part in the block generation process, it doesn’t need to employ expensive ASICs and other hardware. All it has to do is to lock the native token for the staking process. For this, the validators are rewarded based on a predetermined scheme, and this is a chance for both retail and institutional investors to generate a passive income.
How Does Proof of Stake Work?
There are many PoS blockchains today, though their aggregate market capitalization doesn’t exceed that of Bitcoin. Thus, the rules of PoS networks vary from case to case. Still, there are some general practices that are the same for most protocols. Specifically, if you are keen to become a validate, you have to lock up a minimum amount of tokens in a special digital wallet. Usually, you are not allowed to touch the tokens during the staking process. Next, you’ll have to agree with other validators on which transactions must be part of the next block – a process that resembles a game of guessing. If the protocol picks the block that you contributed to, you become eligible to receive a proportion of the transaction fees, depending on your stake size. Thus, the more tokens you stake, the higher the potential reward, though the yield is the same in most cases.
It’s worth mentioning that validators who try to cheat the system by approving invalid transactions may lose part or their entire stake.
Many blockchain projects are considering PoS over PoW due to the former’s energy efficiency and scalability. Most DeFi projects, which are booming in 2020, are employing a PoS algorithm or one of its derivatives, such as Delegated Proof of Stake (DPoS). Ethereum itself is now moving from PoW to PoS, which demonstrates that blockchains really need more scalability. Under these circumstances, investors have many options to choose from when it comes to staking.
Those who want to benefit from passive income amid close-to-zero interest rates from banking institutions should try PoS tokens. The size of potential rewards differs from token to token. Each PoS blockchain has its own rules in terms of reward calculation and distribution. Generally, PoS networks may consider the following when deciding the reward size:
- How many tokens you lock for staking;
- For how long you have been stating;
- How many tokens are staked on the network in total;
- The inflation rate of the token;
Other blockchains may use a simpler rewarding scheme and provide a fixed percentage.
If you lock your tokens for staking, there is no guarantee that you will become a validator. To boost the chances, candidates are gathering together in so-called staking pools, similar to mining pools. A staking pool is made up of token holders who are merging their tokens to increase the probability of becoming validating nodes and securing rewards. The staking pool shares the rewards proportionally to each contributor. There are many online entities that promote themselves as staking pools but are deceiving members. Thus, you should consider reliable pools like Binance. On Binance, you can stake a variety of tokens and earn generous yields.
Staking (Proof of Stake) on Binance
Binance is the most popular cryptocurrency exchange that provides spot, futures, and margin trading for both retail and institutional investors. The platform lists hundreds of tokens and enables users to stake dozens of them. Thus, the list of options to choose from is really impressive.
Staking on Binance is way easier than doing this independently on your digital wallet. All you have to do is to hold your coins on the platform and add them to a staking pool. The great thing about it is that Binance doesn’t charge any fees. You are not required to understand all the technical aspects of the PoS tokens you stake – Binance does it for you. The rewards are usually distributed at the beginning of every month.
Binance supports the following tokens for staking: EOS, Cosmos (ATOM), TRON, Tezos (XTZ), NEO, Algorand (ALGO), Ontology (ONT), Vechain (VET), Komodo (KMD), TROY, Fetch.ai, QTUM, Swipe (SXP), Kyber Network (KNC), TOMO, Ark, Arpa, Lisk, THETA, LOOM, KAVA, Harmony One, Stratis, Elrond, and Stellar (XLM inflation rewards).
While Binance offers the flexible staking option for all of the mentioned tokens, it also provides locked staking services for the following tokens: EOS, BAND, XEM, DASH, GSX, and Harmony One.
On top of that, Binance launched DeFi staking in August 2020. Users can stake DAI with annualized earnings of up to 12%.
You can always verify the rewards that were previously distributed for a given token under the Historical Yield tab on every project’s staking page.
5 Best Tokens to Stake on Binance
Here are the most popular, reliable and lucrative tokens that you can stake on Binance:
Algorand (8-10% Estimated Annual Yield)
Algorand is one of the blockchain projects that came out quite recently, which is why you probably learn about it only now. The mainnet of the project was launched in June 2020. The goal of Algorand is to build a global, borderless economy that relies on transparency and inclusiveness to generate prosperity everywhere. The crypto community trusts the project including because it was developed by Silvio Micali, who is an MIT Professor and Turing Award winner.
Algorand aims to create the ideal balance between decentralization, security, and scalability – a problem that hasn’t been fully addressed including by Bitcoin. The protocol has a unique infrastructure that allows it to produce new blocks in less than five seconds. Besides this, the protocol enables users to carry out atomic multi-party transfers without the involvement of smart contracts, which saves computational and transaction costs.
Binance started to take live snapshots of ALGO balances on July 27, 2019. Users must hold no less than two ALGO to become eligible for rewards. Distributions are completed before the 5th of each month.
|Token Name||Algorand (ALGO)|
|Estimated Annual Yield||8-10%|
|Staked Tokens||2,171,179,204 ALGO (22%)|
|Minimum to Stake on Binance||2 ALGO|
|Consensus Mechanism||Pure Proof of Stake|
Tron (7-9% Estimated Annual Yield)
Tron was created at the end of 2017 and fully deployed in mid-2018. The goal of the project is to offer users a decentralized borderless distribution network to hold a decentralized Internet. The protocol enables the deployment of smart contracts through its Tron Virtual Machine (TVM), which was built on top of Ethereum Virtual Machine (EVM), which makes EVM smart contracts compatible with TVM. The peer-to-peer network aims to better connect content creators and consumers by eliminating intermediaries.
Tron is relying on a Delegated Proof of Stake (DPoS) algorithm, which makes it even more scalable and flexible than Ethereum.
Tron has managed to become one of the largest blockchain networks – it ranks 15th on Coinmarketcap – thanks to aggressive marketing, partnerships, acquisitions, and communication with the crypto community. For example, Tron purchased Bittorent.
Binance provides Tron staking starting from October 1, 2019. Users must hold no less than 5 TRX in order to become eligible for rewards. Distributions are completed before the 10th of each month.
|Token Name||Tronix (TRX)|
|Estimated Annual Yield||7-9%|
|Staked Tokens||25,436,984,705 TRX (25%)|
|Minimum to Stake on Binance||5 TRX|
|Consensus Mechanism||Delegated Proof of Stake|
Tezos (6-7% Estimated Annual Yield)
Tezos is a Swiss-based blockchain that has been under development since 2014. It is the brainchild of former Morgan Stanley analysts Arthur and Kathleen Breitman. The project promotes itself as a general-purpose blockchain that enables smart contracts for dApps and has a self-amending protocol based on its governance model.
When the project started, the team raised $232 million via an initial coin offering (ICO), which was the biggest one at the time. Tezos relies on a DPoS-like consensus mechanism called Liquid Proof of Stake. It incentivizes users who contribute to the development of the platform.
Binance added the support for XTZ staking starting from December 4, 2019. Users have to stake at least 1 XTZ in order to become eligible to receive the reward. Distributions are completed before the 20th day of every month.
|Token Name||Tezos (XTZ)|
|Estimated Annual Yield||6-7%|
|Minimum to Stake on Binance||1 XTZ|
|Consensus Mechanism||Liquid Proof of Stake|
Cosmos (6-9% Estimated Annual Yield)
Cosmos is another general-purpose public blockchain that is aimed at developers who want to build dApps. However, Cosmos goes one step further by offering an ecosystem of parallel blockchains that can interoperate with each other within a distributed network.
Cosmos provides a consensus mechanism called Tindermint BFT, which merges the networking and consensus layers of each blockchain from the ecosystem, forming a single generic consensus engine. All in all, the algorithm is another version of PoS. It is easily adaptable to both public and permissioned blockchains. The application layer can then be connected to the generic consensus through the Application Blockchain Interface, using ready-made Cosmos Software Development Kits (SDK).
Cosmos’ ATOM is currently the 21st largest cryptocurrency by market cap, as per Coinmarketcap data.
Binance started to provide ATOM staking services at the end of 2019. Users have to lock at least 0.5 ATOM to be eligible for rewards. Distributions are completed before the 20th of each month.
|Token Name||Cosmos (ATOM)|
|Estimated Annual Yield||6-9%|
|Minimum to Stake on Binance||0.5 ATOM|
|Consensus Mechanism||Tendermint BFT|
Ontology (3-5% Estimated Annual Reward)
Last but not least, Ontology is another reliable blockchain network that provides generous staking rewards. It presents a new form of consensus protocol that enables better scalability without reducing the degree of security and decentralization. Ontology’s consensus algorithm, called VBFT, merges PoS, Byzantine Fault Tolerance (BFT) and Variable Room Functions (VRF) with a transaction speed of over 3,000 per second.
Ontology has three infrastructure pillars, including ONT Blockchain, which is the main infrastructure, ONT Blockchain framework, a customizable framework designed for various applications, and ONT Interaction Protocols, which helps the platform be compatible with different blockchains and devices.
|Token Name||Ontology (ONT)|
|Estimated Annual Yield||3-5%|
|Minimum to Stake on Binance||0.1 ONT|