How would you like to earn a 67 percent return just for letting your altcoin sit for a year? Sound too risky? Okay, how about 25.9 percent?
These are the kinds of returns Energi (67%) and Horizen Securenode (25.9%) offer stakers. They are relatively stable coins with market caps of $110.2 million and $33.9 million respectively. While Energi would require an initial investment of $53,699, Horizen Securenode only asks for $2,346. With returns like these, it’s no wonder staking has been gaining momentum in the altcoin space.
So what’s the catch? Is staking a no-brainer investment vehicle for the average hodler? On the surface, the answers are complicated, but a basic understanding of what altcoin staking is makes the decision much more simple.
What Is Altcoin Staking?
Staking refers to Proof of Stake (Pos), which is used to validate transactions on an altcoin network. It has the exact same purpose as Proof of Work (PoW). Many see staking as a leaner, if not meaner, way to verify transactions.
With PoW, thousands of computers burn enough electricity to power the Czech Republic every day because they’re all competing to solve hashes. With PoS, the staker is chosen based on how much of the coin he or she owns. The staker’s computer is the only computer that has to do any work. No computational competition means less energy expended.
How Staking Works
To illustrate, let’s say an altcoin called SmoothMoney (SMM) is launched. SMM issues 1,000 coins. You acquire 200 coins, or 20 percent, and decide to stake them all. As a result, you have a 20 percent chance of getting the fees rewarded for verifying transactions of SmoothMoney.
While you may not have heard of Energi and Horizen, mentioned at the outset, a more familiar face, DASH, is offering an ROI of 6.50 percent for staking. Given the potential returns, are there any downsides? Check out the pros and cons.
Pros of Staking
- High returns. Altcoin staking offers spine-tingling returns, and the minimum investment can dip down into the single digits.
- Better for the environment. Many are touting staking as the future of the altcoin evolutionary process. Less computational resources removes the ugly specter of energy inefficiency.
- Decentralization. Although bitcoin created a decentralized financial universe, the cost of the mining process for PoW makes it a nonstarter for the regular Joe. PoS allows anybody with a normal desktop to get in the game.
- A seat at the table. Some altcoins give stakers the power to vote on decisions that could affect the future of the currency.
Cons of Staking
- Risk. While you are given a rate of return upfront, the monetary value could plummet along with that of the coin.
- Lack of liquidity. While your coins are staked, you can’t touch them (unless you choose soft staking, which is another animal entirely).
As with any investment, it’s best to resist the lure of sexy numbers and grandiose claims. However, with ample research into the history of a coin, the staking ROI, and the minimum investment required, a decision to stake could be a smart way to diversify a hodler’s portfolio.
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