Proof of Stake Explained

What is Proof of Stake?

The Proof of Stake consensus algorithm was introduced back in 2011 on the Bitcointalk forum to solve the problems of the current most popular algorithm in use - Proof of Work. While they both share the same goal of reaching consensus in the blockchain, the process to reach the goal is quite different.

How does it work?

The Proof Of Stake algorithm uses a pseudo-random election process to select a node to be the validator of the next block, based on a combination of factors that could include the staking age, randomization, and the node’s wealth.

It’s good to note that in Proof of Stake systems, blocks are said to be ‘forged’ rather than mined. Cryptocurrencies using Proof of Stake often start by selling pre-mined coins or they launch with the Proof of Work algorithm and later switch over to Proof of Stake.

Where in Proof of Work-based systems more and more cryptocurrency is created as rewards for miners, the Proof-of-Stake system usually uses transaction fees as a reward.

Users who want to participate in the forging process, are required to lock a certain amount of coins into the network as their stake. The size of the stake determines the chances for a node to be selected as the next validator to forge the next block - the bigger the stake, the bigger the chances. In order for the process not to favor only the wealthiest nodes in the network, more unique methods are added into the selection process. The two most commonly used methods are ‘Randomized Block Selection’ and ‘Coin Age Selection’.

In the Randomized Block Selection method the validators are selected by looking for nodes with a combination of the lowest hash value and the highest stake and since the size of stakes are public, the next forger can usually be predicted by other nodes.

The Coin Age Selection method chooses nodes based on how long their tokens have been staked for. Coin age is calculated by multiplying the number of days the coins have been held as stake by the number of coins that are staked. Once a node has forged a block, their coin age is reset to zero and they must wait a certain period of time to be able to forge another block - this prevents large stake nodes from dominating the blockchain.

Each cryptocurrency using Proof of Stake algorithm has their own set of rules and methods combined for what they think is the best possible combination for them and their users.

When a node gets chosen to forge the next block, it will check if the transactions in the block are valid, signs the block and adds it to the blockchain. As a reward, the node receives the transaction fees that are associated with the transactions in the block.

If a node wants to stop being a forger, its stake along with the earned rewards will be released after a certain period of time, giving the network time to verify that there are no fraudulent blocks added to the blockchain by the node.

Security

The stake works as a financial motivator for the forger node not to validate or create fraudulent transactions. If the network detects a fraudulent transaction, the forger node will lose a part of its stake and its right to participate as a forger in the future. So as long as the stake is higher than the reward, the validator would lose more coins than it would gain in case of attempting fraud.

In order to effectively control the network and approve fraudulent transactions, a node would have to own a majority stake in the network, also known as the 51% attack. Depending on the value of a cryptocurrency, this would be very impractical as in order to gain control of the network you would need to acquire 51% of the circulating supply.

The main advantages of the Proof of Stake algorithm are energy efficiency and security.
A greater number of users are encouraged to run nodes since it’s easy and affordable. This along with the randomization process also makes the network more decentralized, since mining pools are no longer needed to mine the blocks. And since there is less of a need to release many new coins for a reward, this helps the price of a particular coin stay more stable.

It’s good to remember that the cryptocurrency industry is rapidly changing and evolving and there are also several other algorithms and methods being developed and experimented with.

A Beginner's Guide to Earning Passive Income With Crypto

What is passive income?

Trading or investing in projects is one way to make money in the blockchain industry. However, that typically requires detailed research and a substantial investment of time – but it still won’t guarantee a reliable source of income. 

Even the best investors can experience prolonged periods of loss, and one of the ways to survive them is to have alternative sources of income.

There are other methods than trading or investing that can help you increase your cryptocurrency holdings. These can pay ongoing income similar to earning interest, but only require some effort to set up and little or no effort to maintain.

This way, you can have several streams of income that, in combination with each other, can add up to a significant amount.

This article will go through some of the ways that you can earn a passive income with crypto.

What are the ways you can earn passive income with crypto?

Mining

Mining essentially means using computing power to secure a network to receive a reward. Although it does not require you to have cryptocurrency holdings, it is the oldest method of earning passive income in the cryptocurrency space.

In the early days of Bitcoin, mining on an everyday Central Processing Unit (CPU) was a viable solution. As the network hash rate increased, most of the miners shifted to using more powerful Graphics Processing Units (GPUs). As the competition increased even more, it has almost exclusively become the playing field of Application-Specific Integrated Circuits (ASICs) - electronics that use mining chips tailor-made for this specific purpose.

The ASIC industry is very competitive and dominated by corporations with significant resources available to deploy on research and development. By the time these chips arrive on the retail market, they are likely already outdated and would take a considerable amount of mining time to break-even.

As such, Bitcoin mining has mostly become a corporate business rather than a viable source of passive income for an average individual.

On the other hand, mining lower hash rate Proof of Work coins can still be a profitable venture for some. On these networks, using GPUs can still be viable. Mining lesser-known coins carries a higher potential reward, but comes with higher risk. The mined coins might become worthless overnight, carry little liquidity, experience a bug, or see themselves hindered by many other factors.

It is worth noting that setting up and maintaining mining equipment requires an initial investment and some technical expertise. 

Staking

Staking is essentially a less resource-intensive alternative to mining. It usually involves keeping funds in a suitable wallet and performing various network functions (such as validating transactions) to receive staking rewards. The stake (meaning the token holding) incentivizes the maintenance of the network’s security through ownership.

Staking networks use Proof of Stake as their consensus algorithm. Other versions of it exist, such as Delegated Proof of Stake or Leased Proof of Stake.

Typically, staking involves setting up a staking wallet and simply holding the coins. In some cases, the process involves adding or delegating funds to a staking pool. Some exchanges will do this for you. All you have to do is keep your tokens on the exchange and all the technical requirements will be taken care of.

Staking can be an excellent way to increase your cryptocurrency holdings with minimal effort. However, some staking projects employ tactics that artificially inflate the projected staking returns rate. It is essential to investigate token economics models as they can effectively mitigate promising staking reward projections. 

Binance Staking supports a wide variety of coins that will earn you staking rewards. Simply deposit the coins on Binance and follow the guide to get started.

Lending

Lending is a completely passive way to earn interest on your cryptocurrency holdings. There are many peer-to-peer (P2P) lending platforms that allow you to lock up your funds for a period of time to later collect interest payments. The interest rate can either be fixed (set by the platform) or set by you based on the current market rate.

Some exchanges with margin trading have this feature implemented natively on their platform.

This method is ideal for long-term holders who want to increase their holdings with little effort required. It is worth noting that locking funds in a smart contract always carries the risk of bugs.

Binance Lending offers a variety of options that let you earn interest on your holdings.

Running a Lightning node

The Lightning Network is a second-layer protocol that runs on top of a blockchain, such as Bitcoin. It is an off-chain micropayment network, which means that it can be used for fast transactions that aren’t immediately transferred to the underlying blockchain.

Typical transactions on the Bitcoin network are one-directional, meaning that if Alice sends a bitcoin to Bob, Bob cannot use the same payment channel to send that coin back to Alice. The Lightning Network, however, uses bidirectional channels that require the two participants to agree on the terms of the transaction beforehand.

Lightning nodes provide liquidity and increase the capacity of the Lightning Network by locking up bitcoin into payment channels. They then collect the fees of the payments running through their channels.

Running a Lightning node can be a challenge for a non-technical bitcoin holder, and the rewards heavily depend on the overall adoption of the Lightning Network.

Affiliate programs

Some crypto businesses will reward you for getting more users onto their platform. These include affiliate links, referrals, or some other discount offered to new users that are introduced to the platform by you.

If you have a larger social media following, affiliate programs can be an excellent way to earn some side income. However, to avoid spreading the word on low-quality projects, it is always worth doing some research on the services beforehand.

If you are interested in earning passive income with Binance, join the Binance Affiliate Program and get rewarded when you introduce the world to Binance!

Masternodes

In simple terms, a masternode is similar to a server but is one that runs in a decentralized network and has functionality that other nodes on the network do not.

Token projects tend to give out special privileges only to actors who have a high incentive in maintaining network stability. Masternodes typically require a sizable upfront investment and a considerable amount of technical expertise to set up.

For some masternodes, however, the requirement of token holding can be so high that it effectively makes the stake illiquid. Projects with masternodes also tend to inflate the projected return rates, so it is always essential to Do Your Own Research (DYOR) before investing in one.

Forks and airdrops

Taking advantage of a hard fork is a relatively straightforward tactic for investors. It merely requires holding the forked coins at the date of the hard fork (usually determined by block height). If there are two or more competing chains after the fork, the holder will have a token balance on each one.

Airdrops are similar to forks, in that they only require ownership of a wallet address at the time of the airdrop. Some exchanges will do airdrops for their users. Note that receiving an airdrop will never require the sharing of private keys - a condition that is a telltale sign of a scam.

Blockchain-based content creation platforms

The advent of distributed ledger technologies has enabled many new types of content platforms. These allow content creators to monetize their content in several unique ways and without the inclusion of intrusive ads.

In such a system, content creators maintain ownership of their creations and usually monetize attention in some way. This can require a lot of work initially but can provide a steady source of income once a more substantial backlog of content is ready. 

What are the risks of earning passive income with crypto?

·       Buying a low-quality asset: Artificially inflated or misleading return rates can lure investors into purchasing an asset that otherwise holds very little value. Some staking networks adopt a multi-token system where the rewards are paid in a second token, which creates constant sell pressure for the reward token.

·       User error: As the blockchain industry is still in its infancy, setting up and maintaining these sources of income requires technical expertise and an investigative mindset. For some holders, it might be best to wait until these services become more user-friendly, or only use ones that require minimal technical competence.

·       Lockup periods: Some lending or staking methods require you to lock up your funds for a set amount of time. This makes your holdings effectively illiquid for that time, leaving you vulnerable for any event that may negatively impact the price of your asset. 

·       Risk of bugs: Locking up your tokens in a staking wallet or a smart contract always carries the risk of bugs. Usually, there are multiple choices available with various degrees of quality. It is imperative to research these choices before committing to one. Open-source software might be a good starting point, as those options are at the very least audited by the community.

Closing thoughts

Ways to generate passive income in the blockchain industry are growing and gaining popularity. Blockchain businesses have also been adopting some of these methods, providing services commonly referred to as generalized mining.

As the products are getting more reliable and secure, they might soon become a valid option for a steady source of income.

STAKECUBE NODECUBE - COLD-HOSTING

What is "NodeCube" Cold-Node hosting?

The Cold-Node setup option allows you to host cold masternode(s) for supported coins. StakeCube hosts, maintains and updates the masternode(s) but you keep the coins/collateral in your personal wallet. Basic technical knowledge needed to configure the node in your controller wallet.

What are the requirements for hosting a Cold-Node with "NodeCube"?

You will need the coins own desktop wallet and the collateral for a full masternode. You will also need some SCC available in your StakeCube balance on site for payment of fee's.

If you do not want to manage your own wallet and are looking for an easier site integrated option please see the NodeCube Hot-Node on site.

How much does the Cold-Node hosting cost?

The Cold-Node fee is paid in SCC at the value $1.50 per 30 days. This fee is paid in advance. Refunds are not possible for time or hosting not used.

How do I get and install my own desktop wallet?

If you click on the coin info from the wallet/dashboard page on site you will see links including GitHub. There you will find wallet links and instructions on how to install the desktop wallet.

Always make sure you are downloading from an official source!

How do I setup my Masternode collateral and masternode.conf file?

To setup the collateral in your desktop wallet send the exact amount of coins needed to a new receiving address. Wait for the transaction to have at least 16 confirmations.

Go to your wallets debug console and enter the command masternode outputs, take note of the txid and txindex.

On the NodeCube page click on the Cold-Node Details (i) button to view. Next from your wallet click on the tool tab -> "open masternode configuration file". On a new line paste the info from the Cold-Node details page and replace your_mn_lable (Example: MN01) with the name you want to set for your MN and then replace your_tx_id your_tx_index with the TX-ID and TX-Index you noted down earlier.

Make sure you follow the format example shown at the top of your masternode.conf file. Save and exit the masternode.conf file and then restart your desktop wallet.

How do I start my Masternode?

After all setup steps have been completed and your collateral transaction shows 16 conformations or more you can start the Masternode from the Masternode tab in your desktop wallet.

Within 15 minutes you should see the 'online' state in the NodeCube app and in your local wallet.

Can I cancel or destroy my Cold-Node setup?

Yes you can by clicking on the destroy Cold-Node button. Please note that the fee charged for Cold-Node services are paid in advance. After termination the node will stay online and is still usable until the period ends.

What happens if I don't have enough balance to cover the next payment?

The payment interval per node is 30 days. If you do not have enough SCC in your StakeCube account to cover the fee for the next runtime period, we will send you a reminder (via e-mail) 5 days before debit and ask you to fill. If there is still no credit available in time of charge, the masternode will be un-installed. Of course, your collateral will not be lost, your coins remain in your local wallet.

DELEGATED PROOF OF STAKE (DPoS)

Delegated Proof of Stake (DPoS for short) is a blockchain consensus designed with maximum decentralization and engaged users.

It was created as a direct response to the energy use of Proof of Work (PoW) cryptocurrencies and their tendency toward centralization. Users use their stake of coin to vote for Witnesses and Delegates (Some cryptocurrencies have one or the other or both) that govern the blockchain.

Witnesses essentially are trusted validators of transactions that as awarded for every transaction. This also creates network stability as missed blocks are automatically processed by the next Witness. Witnesses cannot change the content of transactions, and any malicious behavior is immediately handled by voting the Witness out of the position. If a Witness proves to be a unreliable validator and not having stable uptime, they can also be voted out of their position. Waiting in the wings are a large group (usually without limit) of backup witnesses looking to step into the limited active Witness slots to ensure the network continues to transact without instability. Backup witnesses are also compensated but at a much reduced rate than Active Witnesses.

Meanwhile Delegates are voted into power the same way Witnesses are however they are not responsible for validating transactions (and thus not paid) but instead are responsible for pushing changes to the blockchain covering things like transaction fees, witness pay, block intervals, block sizes, and other network conditions.

When a change is proposed by delegates, the network is allowed to vote on the changes to the network and the delegates themselves. The voting ensures that both Delegates and Witnesses are incentivized to act in the best interest of the network or risk reputational or financial loss. This makes DPoS unique in that every user's voice can be heard through the voting process when witnesses and delegates validate or change the network.

Unlike PoW where small miners cannot affect the network unless they gather together in large pools of miners which leads to further centralization of consensus and makes the network far less secure.

PoS likewise excludes the smallest of stakeholders from influencing network changes unless you reach a certain threshold which is largely undemocratic.

Proof of Stake

Proof of Stake (short-handed to PoS) is a blockchain consensus method originally intended to create an alternative to Proof of Work (PoW) which uses intense computation of mathematical puzzles to validate transactions and draft new blocks. Staking allows miners (known as Stakers) to create a fully distributed blockchain based around the random selection and length of time of a locked set of coins known as the Stake to validate transactions and create new blocks, rewarding users for holding coins in their wallets at predictable if somewhat random rate.

Another benefit of PoS over PoW is that it is energy efficient, only using enough energy to run the wallet software and the network connection to it instead of high intensity mining hardware designed to compute the puzzles that validate transactions in PoW. PoS only allows the staker to gain a percentage of the total amount of coins staking at that moment. For example, if you stake 10 coins and the total network has 100 coins staking then you would be rewarded for approximately 10% of the transactions in the network. The specifics of the amount rewarded differs from cryptocurrency to cryptocurrency, some coins will have an escalating series of rewards based on the block height (number of blocks transacted) whereas some coins will have a fixed interval over the life of the network. This creates a predictable rate of interest for the staker as well as the inflation rate of the coin as the network ages and gains maturity making it a popular choice for users who want long term cryptocurrencies that they can hold and help incentivize securing the network.

Additionally, because it is possible for even the smallest (although statistically unlikely) stakes to generate rewards this creates a much more egalitarian and fair distribution model as more participants in the network can be incentivized, this creates a stronger, more decentralized, and secure network. This is especially when compared to other consensus algorithms such as PoW where large spikes in mining difficulty can effectively remove small miners from the network due to infrastructure costs of running mining equipment far outweigh the ability of miners to generate revenue.

However Proof of Stake isn't without it's criticisms, many experts on blockchain argue that PoS creates an incentive for "Fake Stake" attacks in which poorly written or secured code can have negative repercussions on the network by allowing bad actors to essentially fake the size of their stake to generate rewards.

Another criticism of PoS is the inflexibility of transacting coins when staked in a wallet, unlike PoW where puzzles are solved by dedicated hardware and coins can transact freely. PoS requires coins to be locked often for long periods of time in order to generate rewards for the user for validating transactions. This has the plus side of making the network and often the price very stable but often at the expense of market volume and liquidity.

Delegated Proof of Stake (known as DPoS) attempts to address some of these concerns by adopting a model of trusted nodes called "Witnesses" that help secure the network from bad actors.

STAKECUBE - the shared masternode and POS pool

POS or Proof of Stake coins are growing more and more popular but a lot of people cannot afford to own enough coins to get a reasonable return or own their own Masternode. For the uninitiated, POS is where you hold your coins in wallet and 'stake' them and receive extra coins as a result. This can be quite profitable, but of course the value of a coin can itself decline as well as go up.

StakeCube is a POS Pool, probably the most user-friendly of all of them and have some unique POS pool benefits for being early adopters.

You can signup here

The benefits of staking in a pool is that you do not have to keep lots of wallets open 24/7 saving on electricity and you can benefit from higher rewards than if you staked alone. You can even stake small amounts of coins and benefit from being in a large pool.

You don't have any coin to stake? No problem, there is faucet features in StakeCube that you can claim some coins and automatically staking after your claims.

StakeCube taking 3% fee (from Stake profits - you never pay anything to them) and 1% for airdrops and lottery. Everyone will get an airdrop of all coins, even coins you don't hold and you can then stake these. You can see the compounding benefits of this.

The GUI / User interface is absolutely superb with all the information you would want, and literally everything is transparent and can be followed on the Blockchain. You can see what percentage of each pool you own. You can withdraw your coins at any time and with zero fees.

To deposit coins you simply click on the coin name and an in-browser window pops up with a deposit address as well as lots of other useful info about the coin including which exchanges support these coins - that's important as lots of POS coins are quite small and will not be on the larger exchanges. Any coins you do deposit can also be added to a pool Masternode for greater returns.

There are more than 40 coins listed on Stakecube.

And wait!! 

Besides staking and masternode rewards, there are also interest paying out for BTC, DOGE, LTC and DASH for 7.0++% interest annually. This means, you will get around 0.02% of interest of the coins in your StakeCube Wallet.

StakeCube has its own exchange platform. You can exchange your coins on the platform. 

You can signup here

Shared Masternode

Masternodes are important components in the world of PoS coins and blockchain, their validation and a strong financial tool.

In the course of time, different masternode types have been formed and established, one of them being shared masternode.

Nodes represent a computer or device that connect to any network. For a crypto example, wallets may act as a node, with ability to send or receive data on open ledger blockchains. Consensus based cryptocurrencies offer a incentive for validating transactions, miners and stakers also help the networks become stronger and more secure.

Masternodes, perform special functions including faster transactions, enhanced privacy features and increased network security. Masternodes create greater incentives to the coin holders for validating transactions more efficiently than a common node or wallet.

Shared Masternodes and Proof of Stake pools offer several solutions for some of the problems involved around the cryptocurrency space. Here is some of the issues shared staking services help solve.

Accessibility – To install a desktop wallet, and setting up virtual private servers (VPS) claims hours of time and energy, also included is a moderate learning curve. Anyone who is using pools or shared masternode services saves time, and energy by using a platform with abilities. Shared services that have several coins or tokens listed, offering a robust way to stay diverse, and generate rewards while doing so.

Simple effect – As successful projects grows in value, the collateral cost of masternodes may have a big increase. Dash for example, at one point would cost a buyer over $750,000 USD to obtain a full 1000 coin collateral. becoming far too expensive for the common interest of buyers. On a shared masternode service the collateral of Dash may be broke down into slots or shares, each slot representing a percentage of the total collateral required for a masternode. Collateral on a shared masternode service may be broke down creating affordable shares for most holders. Also ensures the network for these projects will continue to grow and reward all holders.

Mass Adoption – Over the past decade Bitcoin and cryptocurrencies have become increasingly accessible, including more usability with each day that passes, Crypto renegades are removing complexity, by making crypto easier for the average person. Adding more products, and services each year, reward generation has a positive outlook for passive streams via consensus.

Incentives – Each masternode or proof of stake coin offer their own unique reward ratio. Some coins like Dash offering around 6% annually, while other coins may offer 300% or more, these ratios can tie directly to risk/reward outcomes. For proof of stake, pooling coins together generates rewards frequently, therefore creating more efficient stakes, providing holders quicker returns.

The evolution of masternodes, consensus algorithms, peer to peer networks, and cryptocurrencies has evolved along with the internet. The crypto space continues to achieve great things, limitless possibilities for further advancements, including opportunities of a lifetime. Staking pools and shared masternode services will continue to evolve and compete, for the better crypto space entirely.

Interested to join any shared masternode?

Click here for Stakecube.net who is one of the best service provider.