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Staking

Staking and Delegating: What you need to know!

What you need to know! 🕵️‍♂️

Staking can be understood as a new type of cryptocurrency mining and investment approach. It is the most popular alternative to Proof of Work and allows for a more fair system where anyone can take part in processing transactions and earn rewards.

To take part in a Proof of Stake network, the participant must purchase and stake a certain amount of the cryptocurrency used in the network. Network participants (called validators in a Proof of Stake blockchain) are then rewarded based on their stake in the network and the amount of work that they do within the blockchain.

Proof of Stake vs

Proof of Work 🦾

Both Proof of Work and Proof of Stake are blockchain consensus protocols. Proof of Work was the first consensus protocol implemented in a blockchain when Bitcoin was introduced to the general public in 2009.

How Each of Them Work🤔

In a nutshell, Proof of Work involves miners in the network competing with each other to solve a difficult mathematical puzzle. The miner who solves the puzzle first is rewarded in cryptocurrency coins native to the blockchain. However, a problem started to arise as the adoption of blockchains that use Proof of Work grew: the collective energy demand of all of the miners in the ecosystem started putting strain on the global energy supply. This strain has led to a large criticism of Proof of Work blockchains. Also these protocols are limited in scalability. In order for blockchains to scale, it became clear that a new consensus protocol was required.

A Solution To the High Energy Demand 🌎

This is where the Proof of Stake consensus protocol comes in as a less energy-intensive consensus protocol. Instead of the miners in the network using large amounts of electricity to take part in the competition to solve the mathematical puzzle to earn a reward, the miners (called validators in Proof of Stake) each receive a portion of the unprocessed transactions to process. Subsequently, the validators are rewarded based on the amount of work that they do. which is taking part in the consensus. Validators are only eligible to participate in consensus with fully staked nodes and a large sum of coins staked to each node is required. So it can be said that a validator is rewarded in proportion to the amount of the circulating supply of a cryptocurrency that they stake.

One reason that validators with larger staking amounts are allowed to run more nodes that process more transactions is because by staking more cryptocurrency in an ecosystem, they have more to lose if they jeopardize the network in any way.

A More Fair System ⚖️

Blockchain was created with the purpose of creating software that has no reliance on a central authority or institution to run, resulting in a distributed system that anyone can take part and have a say in.

However, one facet of blockchain technology that is most at risk of being centralised and monopolised by large institutions is its mining. As you may recall, mining is the process whereby network participants process and verify transactions, receiving a reward for their work within the ecosystem. Mining in Proof of Work involves using computer hardware to solve the blockchain’s mathematical puzzle. As mining popularity grew, so too did the cost of the machines used to mine. This has created a somewhat high barrier to entry for anyone that wants to mine on a Proof of Work blockchain. This is mainly due to the fact that large institutions and high networth individuals purchase all of the available mining hardware, inflating the cost of a single unit of mining hardware. Mining on your own is also no longer feasible, this is because the collective computing power used in cryptocurrency mining is so large. So, any computing power that you have will most likely not be able to compete with the rest of the network. A miner can always join a mining pool, but either way your realised returns are diminished.

Proof of Stake removes the risk of monopolisation by introducing a consensus where work is distributed amongst all of the validators. This allows anyone to take part in validating transactions.

An Example of Proof of Stake👇

A well-established cryptocurrency project that makes use of the Proof of Stake consensus protocol is Elrond.

The Elrond network is a public blockchain developed to provide more scalability, interoperability, and high throughput. The primary goal was to create a decentralized network that can provide better performance than other competitors like Bitcoin and Ethereum while putting the high standard of user privacy into practice.

For the rest of this article, we will take a look at certain aspects of the Elrond project to explain some need-to-know concepts of Proof of Stake blockchains and cryptocurrencies.

Staking on a Proof of Stake blockchain such as Elrond can be done in one of two ways. You can either be a validator or a delegator. Let’s take a look at both of these methods.

Staking and Delegating: What you need to know!

What is a Validator Node? 🤷‍♂️

A validator node in a Proof of Stake blockchain is like a miner in a Proof of Work blockchain. Both play similar roles in their respective blockchains.

In a Proof of Work blockchain, a miner would purchase mining hardware to take part in the mining process and become a miner. However, in a Proof of Stake blockchain, a person can become a validator by purchasing and locking the minimum amount of cryptocurrency required by the network, called the base-stake. The funds are then locked by a smart contract specifically set up for staking. A node is basically a server setup for the sole purpose of processing and validating transactions on a blockchain. Once the purchased funds are locked up in the node’s wallet, the node can then be used as a validator node.

To be a validator in the Elrond ecosystem, you must be able to run a node and stake 2,500 coins of its native cryptocurrency, called eGold.

Since 2,500 eGold is a large amount and also not everybody wants to run a validator node by themselves the Elrond Network has created a special purpose smart contract to enable pools that stake together. Those pools a run by a staking provider, who runs the nodes for the pool of people staking together and receives a share of the rewards the pool receives. The transactions are all done by a smart contract. So, if you don’t want to run a node by yourself you can delegate 1 eGold or more to a staking provider like ProCrypto.

What is a Staking Provider? 👨‍💼

A staking provider is a company that provides the support and infrastructure needed for you to run a validator node and start earning rewards. The provider simplifies the process of setting up a validator node significantly. They also make sure that your node runs consistently by having the infrastructure in place to minimize the downtime of a node, assuring you that you are constantly earning rewards and you don’t have to take on the hassle of maintaining your own node.

Apart from providing stable infrastructure for a person to run their own validator node, a staking provider also enables a person to become a delegator. Let’s take a look at what delegating on a Proof of Stake blockchain is, specifically looking at Elrond.

What is delegating 🤝compared to staking?

As mentioned, delegation is the second method in which a person can stake on Elrond. It is the process whereby a person delegates eGold to a Staking Provider. The staking provider then runs validator nodes for a pool of delegators.

The network automatically distributes validator rewards and subtracts the fee of the staking provider by means of a smart contract. Delegator rewards are claimable once per day, with no time limit for claims.

Choosing the Right Staking Provider 🔍

When researching the right staking provider there are two important things to keep in consideration before choosing the one that you will use. These main consideration is their infrastructure and their strategy. The better their infrastructure the better they serve the network overall and the more rewards the pool will receive in the long run. Their strategy will tell you where they put their energy to, does that fit to your plans?

Infrastructure 🌁

You want to make sure that the staking provider that you’re thinking of using has good infrastructure in place to host your validator node. Any downtime of your validator node will negatively impact the realised returns of your staking venture. The same happens when their systems can not handle the networks load.

Be aware that a stake can be at risk if the validator gets slapped. You can learn more about slapping in one of our following posts.

At ProCrypto we aim to be great staking provider with stable, efficient infrastructure for the network and you.

What is slashing?

Slashing is a punishment mechanism to improve the networks security and availability. A validator will be slashed when he does not behave consistently or as expected on the network, e.g. when he tries to manipulate.

The penalty most times is a predefined percentage of the validator’s coins, which will be lost when punished.

Slashing is expected to be implemented into Elrond Network with Phase 4. Details are yet to become public.

What Is Top up 🚰

Topup refers to staking more eGold on a validator node in addition to the 2500 base-stake amount required by the Elrond network. A person can either top up a validator node directly by adding eGold to a validator node, or can top up indirectly through a staking pool.

Topping up the amount of eGold on a validator node will earn you more rewards as there is more equity that will be compounded by the Elrond network. However, your APR (Annual Percentage Rate) will gradually decrease. To avoid this gradual decrease in your APR it is recommended that you run more validator nodes instead of topping up the amount of eGold that you have on a single node. For example, instead of having 5000 eGold on one node, it will be more profitable to run 2 validator nodes each with 2500 eGold.

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Staking

Everything You Need to Know About Staking on Elrond Network 📢

The massive popularity of decentralized finance solutions opened a new realm of possibilities in which anyone, anywhere in the world is able to easily gain a blockchain-based source of passive income 💸. Many people consider DeFi to be the next step in the evolution of blockchain technology. But what exactly is so profitable about DeFi, and how can Elrond Network help you improve your decentralized finance earnings?

What Is Staking? 🤔

Staking is by far the most popular way of receiving money in the DeFi ecosystem.

Originally, the only way to profit from traditional cryptocurrencies like Bitcoin or Ethereum was mining crypto. However, mining is not for everyone: it requires a massive energy consumption, expensive dedicated hardware called “mining rigs”, and a lot of technical knowledge.

Staking allows you to gain a source of blockchain-based income comparable to mining, but without any of the requirements of mining. Simply put, delegating to a staking pool is like mining but it doesn’t require any hardware for the delegator, it doesn’t have a high energy cost, and it’s really easy to do.

How Does Staking Work? 🛠

The word “staking” simply means sending a certain amount of funds to a certain address of a smart contract, and keeping your funds there for a period of time.

As long as you keep your funds locked and don’t move them, you are eligible to earn rewards. However, you are still in total control of your tokens: you can withdraw them anytime you want.

When you withdraw your funds you stop staking, which means that from that moment you won’t be able to get any more interest – but you will keep anything that you’ve received until that point.

The Benefits of Staking 📈

Compared to crypto mining, which is costly and complicated, staking is much easier and more efficient. The advantages of staking cause many people to resign from mining, and meanwhile staking is becoming more and more popular.

Simplicity 🧮

The main reason for the immense popularity of crypto staking is how easy it is to profit from it. All you have to do is send some funds to a smart contract and keep the funds locked there for as long as you want. No further action on your part is needed, as you can simply sit back and enjoy your new source of blockchain-based passive income.

Security 🔐

Staking is considered a very safe way of profiting from blockchain technology. Unlike risky methods of earning crypto income such as trading, staking doesn’t include a significant risk. Funds that you keep locked while staking remain protected by advanced cryptographic algorithms securing the blockchain, and it’s practically impossible for anyone to steal them.

Profitability 🏧

Traditional fiat currency systems are very inefficient and costly to maintain, so they don’t allow people to earn a lot. Keeping money on your bank’s savings account will earn you almost nothing. Decentralized technologies are very cost-efficient, so the rate of interest you will be able to receive is higher.

How Can You Benefit From Staking? 🔍

Staking doesn’t require you to have any technical knowledge, and you don’t have to make a significant initial investment either. All it takes to start receiving rewards as a passive income from staking are some cryptocurrency coins like EGLD.

Not all cryptocurrencies support staking. For example, Bitcoin (BTC) doesn’t include the staking feature.

When it comes to the digital assets which enable staking, not all of them are equally profitable. If you want to assure the highest possible rate of income, it’s essential to pick the most innovative DeFi assets that you can stake.

Staking With Elrond Network 🔝

Elrond Network is a next-generation blockchain platform providing the highest grade of decentralized services tailor-fit to suit the needs of the most demanding distributed apps and other enterprise use cases.

Elrond Network is powered by a dedicated digital asset called Elrond eGold (EGLD). EGLD is an asset, which enables you to benefit from staking while enjoying many advantages exclusive to Elrond Network:

Massive scalability 💎

Scalability is the main focus of the Elrond Network infrastructure. Most of the traditional blockchain networks were not designed with DeFi in mind, and the high volume typical of decentralized finance solutions can easily overburden those networks. Unlike outdated blockchains, Elrond Network guarantees superb scalability – you can be sure that you will be able to keep profiting from staking at any time.

Speed & security 🏇🔗

With Adaptive State Sharding Elrond brings a 1000x improvement in throughput compared to previous blockchain iterations. It enables parallel transaction processing. Elrond Network is dedicated to the convenience and safety of users’ funds. Start staking within seconds, withdraw your funds at any time. Rest assured knowing that your funds are protected by military-grade security algorithms 24/7.

Flexibility & productivity 🤸🏻👨🏼‍💻

Elrond Network is dedicated to the core idea of DeFi: allowing anyone, anywhere in the world, to easily regain total control over their finances.

Current Stage of Development ⏳

Elrond Network launched in 2018, and for the past few years, the Elrond team worked intensely to develop Elrond into the most ambitious and innovative blockchain platform in the world.

In 2020, Elrond was one of the first blockchain projects to fully adapt the DeFi vision of empowering anyone, anywhere in the world with easy access to decentralized finance solutions.

Currently, the main focus of Elrond is adding new features enhancing the DeFi functionality of the platform. Staking enables you to easily earn passive income with Elrond.

New DeFi 2.0 features of Elrond will include:

  • ESDT Stable-coins
  • Maiar Exchange
  • Elrond NFT Standard
  • Elrond Launchpad
  • Elrond Swap
  • Elrond Lending
  • Elrond Bridges
  • Elrond Synthetics

Conclusion 📝

Elrond is moving forward very fast. 🚀

The development of the network is very exciting, opening up new possibilities such as participating in the network by delegating EGLD to a Staking Provider.

If you want to learn more about how you can start receiving rewards for your coins by staking on Elrond Network, visit our homepage. 🌐