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This work will help you learn how to invest in Cardano and other popular Proof-of-stake coins. You will also learn from this work the advantages of investing in proof-of-stake coins.
What are Proof-of-stake coins
Proof-of-stake Coins refer to those Cryptocurrencies that utilises the consensus mechanism to validate transactions on its blockchain. This method gives the right to validation of transactions to the highest stakeholders of the coin. Here investors earn the right to validate transactions based on the number of coins they have staked on the blockchain. This makes the process less rigorous compared to the Proof-of-work mechanism which requires hard work and solving large puzzles to add new blocks.
How do the Proof-of-stake coins function
The proof-of-stake mechanism is designed to allow investors to stake compatible coins on the blockchain to earn rewards. Staking here gives investors the right to validate transactions on the blockchain. Thus, there can be more than one validators on the blockchain. When a coin is staked, it is locked up on the blockchain and adds more liquidity for transactions. At the end, when the owners decide to unstake, their transactions are processed using the validator nodes and the network rewards them for their contributions to the blockchain.
Similarly, adding new blocks using the proof-of-stake mechanism depends largely on the number of coins one has staked on the blockchain. Though the selection for adding new blocks is made randomly, however, only the highest stakers are more likely to be selected to add new blocks to the blockchain. Nonetheless, the process also give preference to the duration a coin has been staked on the blockchain. This gives those who have staked only a little amount, the opportunity to become validators too after a long time.
List of ten most popular Proof-of-stake coins today
- Ethereum (ETH)
- Cardano (ADA)
- Solana (SOL)
- Polkadot (DOT)
- Tron (TRX)
- Avalanche (AVAX)
- Angorand (ALGO)
- Tezos (XTZ)
- EOS (EOS)
- Hedera (HBAR)
How to stake coins on the Blockchain
Staking involves adding up one’s holding of a given Cryptocurrency to the blockchain to facilitate transactions. This offers the staker some rewards in return over time. However, before proceeding to stake, the holder needs to confirm that the coin supports staking.
To stake a given coin, the holder will need to pledge his coin to the liquidity pool on the blockchain and next generate the masternode for unlocking the smart contract. All the staked coins are therefore locked up on the blockchain. Stakers earn new coins added to them whenever a new block is created on the blockchain. The more coins pledged, the higher the rewards offered for staking.
Advantages of investing in the Proof-of-stake coins
- The proof-of-stake coins consume less amount of energy to validate transactions compared to the Proof-of-work coins.
- They are very eco-friendly.
- The transactions fee is very low
- Offers fast transactions
- Can withstand a large number of transactions at the same time
- Rewards users for staking coins on the blockchain.
- Highly scalable.
Disadvantages of investing in the Proof-of-stake coins
- Gives more preference and validation rights to large holders of the coins.
- Staking bears risk as the value of the coin might fall in the future reducing the investor’s returns.
Is staking a good investment package?
Staking has become one of the popular methods of investing in cryptocurrency today which allows investors to earn passive income on their holdings without trading. The reward is usually based on the amount staked. However, one of the major disadvantages associated with this form of investment is that the prices of the staked coins might fall in the future will reduces the investor’s profits.