What is token staking?
If you recall, earlier in this course there was a homework assignment:
Why would some blockchain projects choose proof of stake instead of proof of work?
Did some of you skip the homework? As a refresher on the differences:
Proof of Work (PoW)
Proof of Work is the mechanism that allows transactions to be gathered into blocks. The blocks are linked together to create the blockchain. Miners compete to solve a complex mathematical puzzle, and whoever solves it first gets the right to add the next block to the blockchain (and receive the mining reward).
Proof of Stake (PoS)
Proof of Stake works by participants locking coins (or staking), and at particular intervals, the protocol randomly assigns the right to one of them to create the next block (and receive rewards). The larger the number of tokens staked, the higher the probability of being chosen. If the next block is incorrect, the stake is forfeited.
Holding a certain quantity of a utility token can grant you special privileges with the issuer and this too will oftentimes be referred to as “staking”.
Proof of Stake rewards
Both Binance.US and Coinbase have programs which will do most of the heavy lifting for you in terms of earning staking rewards, all you have to do is deposit your tokens. However, there are only a few PoS blockchains that I currently feel confident putting money in. Selecting tokens will be discussed in further detail in the next section. My recommendations:
- Algorand (ALGO)
- Received a large boost (price and volume) after Circle and Tether released their USD stablecoins to run on the Algorand blockchain: https://www.algorand.com/what-we-do/use-cases
- Binance.US passes on 3-8% APY in staking rewards when you deposit your ALGO with them: https://www.binance.com/en/earn/algo
- Ethereum 2 (ETH)
- The ethereum community has been working for some time to move from PoW to PoS. For the first round you have to stake 32 ETH to become a validator, but if you don’t have that much ETH, you can add your ETH to a pool.
- Coinbase has 3% APY when you join the ETH 2 staking rewards program: https://www.coinbase.com/staking