For many years after their inception, the major blockchains operated on a consensus mechanism called Proof of Work, whereby the native cryptocurrency of the blockchain was mined by using computer processing power to perform complex mathematical calculations.
Historically, Ethereum and Bitcoin both operated as Proof of Work blockchains, although Ethereum has transitioned to Proof of Stake, and many newer blockchains such as Solana and Cardano are also Proof of Stake.
Bitcoin remains and will remain a Proof of Work blockchain. To cut a long story short: it cannot be changed.
Proof of stake (PoS) is a consensus mechanism used in some cryptocurrencies and blockchains to validate transactions and add new blocks to the chain. It's an alternative to the more common proof-of-work (PoW) mechanism used by Bitcoin.
Instead of miners using computational power to solve puzzles and earn rewards, PoS relies on validators. These validators are essentially holders of the cryptocurrency who "stake" their coins as collateral. The more coins a validator stakes, the higher the chance they have of being chosen to validate the next block.
When a new block needs to be added to the chain, validators vote on its validity. They use their staked coins to vote, and if the majority agree that the block is valid, it gets added to the chain.
There are different variations of PoS, but they all share some common benefits:
More energy-efficient than PoW: PoS doesn't require the same level of computational power as PoW, so it's much more energy-efficient. This makes it a more environmentally friendly option.
Faster transaction speeds: PoS can validate transactions much faster than PoW, leading to faster transaction times for users.
However, PoS also has some potential drawbacks:
Security concerns: Some experts argue that PoS is less secure than PoW, as it could be vulnerable to attacks from validators who control a large portion of the staked coins.
Centralization risk: If a small number of validators control a large portion of the staked coins, it could lead to centralization of the network.
Staking is the process of locking up your cryptocurrency holdings to support a blockchain network and earn rewards in return. It's like putting your crypto in a high-yield savings account, but instead of a bank, you're contributing to the security and operation of a blockchain.
Typically holders of a cryptocurrency on a Proof of Stake blockchain can begin staking by following this process:
Some cryptocurrencies such as NEAR Protocol’s NEAR token, offer auto-compounding rewards that are paid out several times per-day, resulting in a much bigger yield than traditional interest payments.
Benefits of staking:
Things to consider:
You won’t find old-school cryptocurrencies Bitcoin and Ethereum on this list, and Ethereum only joined it recently having undergone a significant change to how that blockchain operates called “the merge”.
1. Ethereum (ETH): Ethereum, the second-largest blockchain by market cap, transitioned from PoW to PoS in 2022, significantly reducing its energy footprint and opening doors for further scalability.
2. Cardano (ADA): Cardano prioritizes security and sustainability with its Ouroboros PoS protocol. Its rigorous research and development process makes it a reliable and future-proof choice.
3. Polkadot (DOT): The PoS network of interconnected chains. Polkadot's unique architecture allows various blockchains to seamlessly communicate and collaborate, fostering innovation and interoperability.
4. Cosmos (ATOM): The "internet of blockchains" on PoS. Cosmos enables developers to build customized blockchains using its Tendermint consensus mechanism, creating a diverse ecosystem of interconnected PoS chains.
5. Solana (SOL): Solana boasts impressive transaction speeds and scalability thanks to its innovative Proof-of-History consensus mechanism.
Some blockchains such as Oraichain, a newer AI-focussed blockchain, offer high staking rewards of over 16%!
Many cryptocurrency investors use calculators to determine how much passive income they stand to generate via staking.
Stakingrewards.com is one of the most comprehensive staking resources available on the internet, and can calculate the potential staking rewards of many different coins that are worthwhile investigating.
It also includes less-known projects, liquid staking and more.
Beyond the benefits listed above, In 2023 and 2024, new crypto projects have made waves by airdropping their tokens to the stakers of specific cryptocurrencies such as ATOM, driving an increasing number of crypto enthusiasts to not only purchase but then delegate Proof of Stake blockchain coins to validators, staking them for not only high-APY rewards, but also the chance to earn airdrops.
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