A lot of folks new to crypto don't know about the passive income opportunities available with some cryptocurrencies. This article will highlight a few and explain why passive income is available.
What is proof-of-stake?
Proof-of-stake is essentially an alternative to Proof-of-work that uses miners to confirm transactions and support the network. POS costs less energy than POW and uses stake to validate transactions and confirm blocks on a blockchain. To be able to stake a certain coin it is required to have a certain amount on the network, the staked amount cannot be spent. It’s very debatable which one works better, and which one allows a network to be more decentralized and secured although POW has been around for 10 years with Bitcoin and POS is relatively recent, there has been a lot of projects having a hybrid structure with POW and POS. In POS the wallet that holds more coins is the one with more chances for being chosen and receive the transaction fees, in POS there is no block reward.
How does staking generate passive income?
In the same way that Proof-of-work rewards the network contributors with incentives that consist in the block rewards, in Proof-of-stake the incentive to stake is receiving passive income in form of a percentage for the staked amount. This passive income can range between 1% to 50% annually, in some coins even more.
Which Consensus Mechanism provides a better Return on Investment?
For both mechanisms its required an initial investment but for Proof-of-work its required a maintenance on the hardware which adds more costs to the initial investment plus the cost of energy to mine, the electricity prices depends on the country and region, it can go from as low as $531 to $26,170 according with a research made by Elite Fixtures, but on average in the US it costs around $4800. So, in POW before you start getting a pay back of the initial investment you still have monthly costs with electricity and some maintenance costs or upgrade costs with hardware from time to time. In POS you don’t need to spend any special amount on hardware just the minimums required to stake, you don’t lose your initial investment like in POW you just can’t spend it while you are staking. There are a lot of different staking coins with different requirements and different ROI ratios, for example, Ark, PIVX, Reddcoin, Neblio and NEO. Overall POS is more energy-efficient, and it costs less to get start earning passive income.
Are staking coins a better investment in a bear market?
In a bear market prices are down across all coins in some cases more than 90% which usually implies mining at a loss with the electricity costs plus the block rewards are less value. Staking coins provide more value in a Bear Market because the annually percentage of return will help compensate the devaluation of the coin, so what’s the disadvantage to staking coins? when you stake you are investing in a project for the long-term success after all. There are other alternatives, like running masternodes that also give a passive income for example Ambrosus of Supply chain, this one requires 10k AMB but OriginTrail doesn’t require a minimum to be able to start receiving passive income, so for investors with less capital this might a option to consider.
About the author: Afonso Casanova is very passionate about new tech. He is an entrepreneur with a background in finance. Afonso is not a financial adviser and this article does not consist of investment advice, this is only Afonso's opinion.