- This renewed excitement surrounding cryptocurrency staking doesn’t appear to be slowing down.
- Widely hailed as the successor to Proof-of-Work (POW), the Proof-of-Stake (POS) consensus algorithm is an energy sparing approach to achieving consensus and transaction finality.
In the last few months, the word staking has been thrown around more than usual, and has become somewhat of a buzzword as of late.
This renewed excitement surrounding cryptocurrency staking doesn’t appear to be slowing down either, as an increasing number of people look to the new staking economy as a way to safely turn a profit from their crypto investments.
Why All the Commotion?
Widely hailed as the successor to Proof-of-Work (POW), the Proof-of-Stake (POS) consensus algorithm is an energy sparing approach to achieving consensus and transaction finality. In other words, POS is an alternative way to keep blockchains secure.
Rather than relying on tens of thousands of dedicated miners to ensure blockchain integrity like POW, POS blockchains instead require validator nodes to stake coins to participate in block validation. Nodes are forced to stay honest and report accurate data since any coins staked are considered collateral, which can be eroded if the node fails to do its job properly.
Thanks to the unique properties and advantages of Proof-of-Stake, the dominance of POS coins has almost doubled in the last two years, while the second-most popular cryptocurrency, Ethereum, is due to transition from POW to POS in the near future.
I responded to the response!— vitalik.eth (@VitalikButerin) December 10, 2019
The most important thing is this section of the PoS FAQ: https://t.co/zchFV2TMQJ
Besides being a more environmentally friendly way to secure a blockchain, a large part of its appeal is owed to the new way it allows stakeholders to generate a passive income. Individuals staking tokens, whether directly as a full node, or indirectly to node holders, are typically rewarded handsomely for their efforts in the form of block rewards.
In a time where cryptocurrencies are experiencing extreme volatility, staking provides investors with a way to grow their portfolio without bearing the additional risks of trading or lending, making it suitable for both bear and bull markets. Since staking rewards are paid out in the same cryptocurrency being staked, it also ensures coin holders benefit from any appreciation in its underlying value.
Staking is Now More Accessible Than Ever
A large part of the reason staking has entered popular discussion lately can be attributed to the fact that it’s now easier than ever before to benefit from staking rewards. For one, several prominent exchange platforms have added staking support in recent months, allowing traders to easily earn staking rewards.
Beyond this, though the addition of staking rewards to major exchanges is a major step forward for many POS cryptocurrencies, other industry players have been working behind the scenes to bring much safer, non-custodial solutions to users, allowing staking participants to retain full control of their assets while earning rewards.
Among these, Switchain is doing more than most to make cryptocurrency staking as accessible as possible by providing a simple staking API that can be incorporated into practically any wallet. Once added, wallet users will be able to access a non-custodial staking solution within their favorite wallet, earning a passive income while their coins never leave their wallet.
It isn’t just wallet users that benefit from this simplified staking protocol either. Wallet developers also benefit from integrating Switchain’s non-custodial staking API, since they can earn a cut of staking rewards while also helping to promote the staking economy.
The Safer Way to Grow a Portfolio
According to statistics gathered by Staking Rewards, the total USD value of staked cryptocurrencies has skyrocketed in the past year and is now valued at upwards of $8.5 billion—growing by more than 1,000% in less than a year.
At least part of this growth can be attributed to the generous ROI that can be achieved with staking, since 6-10% APR is easily achievable with many staking coins. Beyond this, for those that aren’t afraid to stake less established cryptocurrencies, it can be possible to earn even more.
However, although less established staking coins can offer a higher yield, they are often more volatile, which can make them riskier to hold long term. With that in mind, it’s safest to stick with more battle-tested crypto assets, since these often have a more developed ecosystem that can sustain rewards for the foreseeable future.
With that said, risks due to volatility are practically eliminated with the advent of the dollar Neutrino—the first stablecoin that can be staked.
For example, the US dollar-pegged dollar neutrino (USD-N) stablecoin currently offers an estimated annual yield of more than 13%, whereas both Tezos and Waves come in at a still-respectable 6% per year. Nonetheless, it is wise to maintain a diverse portfolio of staking coins, to both spread risk and ensure redundancy.