Introduction to Proof of Stake

cam-crypto (41)in #bitcoin • 7 years ago

Proof of Stake

Simply put, Proof of Stake is using your coins to verify transactions on the network and getting a reward for it. Unlike Proof of Work, where you have to buy expensive mining equipment and have outrageous electricity bills, PoS is very minimalistic. There are a couple ways to do it.

Download an official wallet from the coin you want to stake, deposit your coins in the wallet, encrypt and then unlock the wallet for staking, and leave the wallet online 24/7.
Register with an online stake pool and deposit your coins there.

Let me explain Proof of Stake a little more in depth.

So the blocks in the blockchain are created by transactions and storing information. Miners (PoW) create blocks by trading huge amounts of power to solve algorithms which secure the network, verify transactions and store information in a block. Whereas Forgers (PoS) create blocks by offering their coins as 'collateral', securing the network, verifying transactions, and storing that information. All you need for staking is a laptop or an old computer that you don't mind be turned on 24/7 (depending on the method you choose to stake). So you buy these coins on exchanges, send them to your desktop wallet or an online pool, and you're in business. Coins do have a maturity time before they can start to stake, some take a couple hours and others may take up to a month. After the coins are matured they are eligible for staking. And for offering your coins as 'collateral', you get a reward whenever you help create a new block based off your 'stake' (amount of coins you are offering). Depending on the coin, it can either be a lottery type system, where the more coins you have, the better chance you have of being selected. Or, it is a completely random process and it doesn't matter if you hold 1 coin or 1 million coins. But with both scenarios, the more coins you hold, the larger your reward will be, since it's a % bonus.

Staking using an online pool

The easiest way to stake certain coins is through an online pool like BTCpop or StakeUnited. (I made a guide for using BTCpop that can be found here, and a guide for StakeUnited found here). All you have to do is find the stake-able coin list on their webpage, buy the coin you want on an exchange, and send it to it's applicable wallet on the online pool. That's it. Coins start to mature when they are deposited and then start to stake after they are mature. You don't need to be online or have a laptop on. And because it's a pool, you're putting your coins in with hundreds of other people, so you're part of a much bigger 'stake' with the network and can generate more blocks, therefore getting more rewards. The biggest downside is it's not as secure as a desktop wallet, and your funds are in the hands of someone else. You can withdrawal them whenever, but someone else essentially has control. Higher risk, higher reward. (I'm talking 50-12,500% ROI with online pools versus 0.5-70% ROI with wallets.)

Staking using a desktop wallet

So not every coin can be thrown into an online stake pool and you'll need an online wallet. It's easy to do, very easy, the only downside is you have to leave the wallet online 24/7 while you want it to stake. Take HyperStake (HYP) for example. You'll have to go to their website, download their wallet for whatever desktop you have, go to an exchange like CoinExchange or Cryptopia, buy HYP there, and then send it to the wallet you downloaded. Once it's in the wallet, you'll have to set it up for staking, which you can find the instructions on the website. (It is VERY simple to do). Using a desktop wallet puts you in control of your funds and it's a very secure way to hold them.

FYI sometimes when staking using your wallet you'll get a stake reward that says "Generated but not accepted". Generated but not accepted means that you found a block but someone submitted it before you, it was generated but rejected by the network since it can't have two identical blocks. It does not disturb your staking process.