Stakeable cryptocurrencies comparison

What are they, and what do they want?

In this post, I present a highly subjective ranking of Proof of Stake cryptocurrencies. My inspiration stems primarily from a couple of shower thoughts. The first being that Proof of Work is indeed unsustainable. Obviously, this is not an original thought of mine, but the more I think about it, the more it seems to be true. Whilst I do not think Proof of Work will die before I do, it feels natural to look for alternatives, which brought me to discover Proof of Stake. Again, that is not my idea, but it is a charming idea, so I will roll with it for now. My second thought came when my wife and I were looking at stock savings accounts, and I realised that the Bitcoin I have mined with my new GPU has even worse interest rates than the Yen in my bank account. Sure, Bitcoin is projected to rise in value, but the same is true for most cryptocurrencies. Rather than just sitting on the Bitcoin and then see how far it can rise, or converting the Bitcoin to Yen, pay taxes, then invest the remains in an index fund or the like to get returns, perhaps staking can be a good option. However, even if we look only for Proof of Stake options, there are still heaps of cryptocurrencies to choose from. That is where I had my third thought, that money for the sake of money is rather lame, so I would look at the story behind the numbers. Why are the cryptocurrencies here? What is their purpose beyond profits? Why pick this one over the next one? In addition, I will look at the staking process and its requirements to say something about how difficult, or easy, it is to stake your coins once you have them. This is a relevant question for a scrub like myself. One thing to keep in mind is that most, if not all, coins can be staked using staking pools, a solution that can circumvent most of the barriers that make staking difficult. However, I will not look at third party staking pool services in this post, rather I will consider the native staking options built into each platform.

Note that this ranking is not intended as a guide for those who are looking for the quickest way to get rich. Currencies are listed by their sense of purpose, and ease of staking. This is of course highly subjective, and opinions in this post are based on information from the different currency’s official web pages. Considering this is the internet, it is possible that the developers, or their marketers, are full of crap and do not even intend to live up to their promises, but this post is based on the bold assumption that they are decent people with the best intentions. With that in mind, on to the ranking.

1. Reddcoin

What is it?

Reddcoin markets itself as “the social currency”, and the idea is to integrate a tipping feature in social media platforms so that anyone can send a tip to anyone as a reward for a great post, or comment. To facilitate this microtransaction behaviour the blockchain has fast transactions of one minute, and low to zero transaction fees. The absence of both mining and transaction fees is compensated by a yearly inflation of 5%, with no supply limit. These 5% are distributed as rewards to the stakers.

How does one stake it?

Staking Reddcoin is as simple as downloading their latest software wallet, the Reddcoin Core Wallet, and putting some Reddcoin in it. First, the wallet needs to download the entire transaction history. This took my old laptop about 2 days, but uses surprisingly little disk space. Coins will “mature” 8 hours after you put them in the wallet, and the wallet will stake mature coins automatically as long as the application is open, and the transaction history is fully up to date. Keeping the wallet open uses very little resources, so one can stake on any device with a stable internet connection. A mobile wallet with staking functionality also seems to be on the horizon. If your wallet goes offline, it simply stops staking until it gets back online. 

Why this rank?

Reddcoin tops this ranking simply from ease of staking. Just download their wallet, add funds, and wait, it does not get simpler. Whilst still pretty much unknown to the public, I like that they have a clear niche, which could be an advantage over the many other chains that seem to compete on pretty much the same field. Another thing that counts positively for Reddcoin is that they are the only entry on the list that is upfront about their monetary policy, and how staking rewards are distributed.

2. Polkadot

What is it?

Polkadot is a blockchain that is interesting exactly because there are so many other blockchains to choose from. Simply put, Polkadot aims to be the connection between different blockchains. Through something called a Bridge, Polkadot is able to connect more tightly to external networks than blockchains normally are, which allows for richer interaction between the different systems. They also promote something called Parachains, more or less independent blockchains that run in parallel to their main Relay Chain, whilst sharing the security of the Polkadot network. This can be a great idea, because the security of a blockchain depends on the size of its network.

How does one stake it?

The Polkawallet, Polkadot’s official wallet, is a mobile wallet that seems to have all the functionality required to stake your DOT. One thing to note about Polkadot is that their consensus mechanism is not plain Proof of Stake, so the staking options might be a little different from other currencies. 

Why this rank?

Polkadot scores well on concept. If any number of networks do well, there will be a need to harmonize their interaction. If Polkadot can deliver on this promise, they should have a bright future. Also, full staking features in the native wallet count positively.

3. Cardano

What is it?

Cardano is a blockchain built on science. Whilst it is built on many of the same principles, and with a similar purpose to Ethereum, it aims to do better through more scientific methods of development, and more democratic processes. Their purpose is to make the world a better place, and to empower the many. Their currency, Ada, is much like Ethereum’s Ether, meant to be used with the variety of applications that will be built on the Cardano network. Additionally, since Ada is a stake in the Cardano network, it can be used to participate in votes on the future direction of the network. The issue for Cardano is probably how to distinguish itself from Ethereum. It puts a lot of emphasis on being the best, as in the most secure, the most reliable, built on the most well grounded theories, and so on. However, a layman like me has no way to tell if this is actually the case, I can just take other people’s word for it. So it seems to be a better version of Ethereum, but the question is whether the improvements will be enough to make up for Ethereum’s head start.

How does one stake it?

Cardano promotes two ways to stake your Ada. You can set up a Stake Pool, or join a Stake Pool. The easiest way is of course to join an existing Stake Pool, and both of the native wallets recommended on Cardano’s official site appear to have built in functionality to help you find a pool, and delegate stake to it. Setting up your own Stake Pool seems to be a somewhat complicated process, and staking on behalf of others comes with a certain amount of responsibility, but it is also possible to run a private Stake Pool just to stake your own coins. If you want to create your own pool, you might be incited by the fact that there is no lower limit on your own stake, the pool requires very little hardware resources, and there appears to be no economic penalties for going offline, apart from loss of potential rewards. Rather, pools are ranked on various criteria to promote the best performing pools, so if your performance is inconsistent you are likely to attract less stakers.

Why this rank?

Cardano is perhaps doomed to be compared to its older brother Ethereum, but at least on this ranking it comes out on top, much because the staking features seem a lot more matured. The low threshold for setting up one’s own Stake Pool also counts positively.

4. Binance Coin

What is it?

Binance is a big cryptocurrency exchange platform that also handles exchange from and to fiats. They have their own currency, Binance Coin, native to the Binance Smart Chain. It actually looks like they have two blockchains, the Binance Smart Chain, and the Binance Chain, not smart edition. On the smart chain, Binance Coin can be used with various apps that reside on the chain. As Binance is an exchange, their coins can also be used to pay for transaction fees on the network.

How does one stake it?

Binance has made a slight twist to the consensus algorithm, so that it runs with only 21 Validator nodes on the entire network. These 21 Validators are elected from the available Full Nodes based on who has the most stake in their pool. Setting up a full node seems to require some technical skills, decent hardware, and a minimum stake of 10000 BNB. The easier alternative is to Delegate your stake to an existing Validator. This seems to be a relatively simple process, available from several wallets, and the Binance official page has guides on how to do this. The only thing to keep in mind here is that staking locks your coins for a period of time, so you need to wait before using them for something else.

Why this rank?

Whilst Binance Coin seems very legit in isolation, it sort of just comes across as “we can do our own blockchain too” kind of exercise. The fact that they can might be some of the charm about cryptocurrency in general, but I just do not feel it on this one. Considering Binance is already pretty big their coin might be a pretty good investment, but for the purposes of this post they end up a little on the weak side.

5. Ethereum 2.0

This is sort of the elephant in the room here, but the list would not be complete without Ethereum. I say this because Ethereum is not really Proof of Stake yet, it still relies mostly on Proof of Work, but the transition to Proof of Stake started with Ethereum 2.0 Phase 0 in December 2020, and staking Ether is already possible. 

What is it?

Ethereum is actually a software platform that comes with blockchain technology and its own currency, Ether. The idea seems to be that one can create and run entire applications on the Ethereum network, and our imagination is the limit. This could for example be used to provide banking services to people who do not have access to conventional bank accounts, a noble goal indeed. Applications built on Ethereum pay a fee in Ether to give the network incentive to run them.

How does one stake it?

To stake Ether one sets up a Validator Node. In order to do that it is required to make a deposit of 32 Ether, and then perform various setup operations, by the looks of it the client is not plug and play. The recommendation is to use dedicated hardware, and that is somewhat understandable when they point out that the current blockchain requires about 400GB of storage, where they recommend SSD, and this is estimated to grow by as much as 1GB per day from now on. It is also worth noting that after the Validator is online you will receive penalties for going offline, roughly equal to the rewards for staying online. A final thing to consider is that the stake cannot be withdrawn before the current Mainnet has merged with the Beacon Chain, a process that is supposed to take place within a few years, but the date is not fixed yet. It is probably safe to say that running one's own Validator is not for everyone.

Why this rank?

I am tempted to say “unfortunately”, but Ethereum staking just does not seem to be for the masses, yet. Most people cannot afford 32 Ether, and their approach to pools is very hands off. Additionally, there is the fact that we do not know when we can withdraw our funds. In its current state I simply cannot recommend staking Ether, unless of course you are hellbent on sitting on them for years anyways.

Closing comments

As I explore more blockchains and currencies, I will add more entries to this post. If you have a suggestion, please leave a comment and I will take a look.