I’ve been spending a lot of time investigating staking as a passive form of crypto income. Yes, I’ve had a big stint with Uniswap and put some BitCoin with BlockFi. I haven’t done yield farming unless Ampleforth counts.
With staking there are essentially two options – give your crypto to somebody else and they will stake it for you (for a price) or do it yourself. As for the former I might try the Synthetix staking soon via Mintr, and maybe some coins I can’t logistically do myself.
Of course DIY staking is far more interesting and a way to learn at the same time. Since I only had a laptop, it was time to upgrade to some better hardware. I’ve made a few $$$ this year in the crypto market it was time to invest some of that cash into something serious (and it’s a great excuse to play with some great hardware).
But what to stake? I’ve been following Staking Rewards for a while, and after much pondering and research I’ve decided on the following:
- Ethereum 2.0
As of 2020-12-18 this is what it is showing for the top 5:
So 2/4 are on the list. Filecoin is a little different in that it is “mining” and works very differently to the others (in that you are offering a service in addition to validating the network). More on that later.
The adjusted reward is the key stat. You are being paid with coins, but what if the inflation rate of that coin is high? Like Fiat currency it becomes worthless.
If that is the case, why am I looking at Cardano? This is a bit of a leap of faith since I think 2021 is going to be a huge year when the Goguen phase brings contracts to the chain. The hardware entry level is not huge and there is a high level of community support. The staking calculator shows a return of >3%, so this might be one to try and buy on a dip and be in it for the long haul…
Why not Polkadot, Tezos Cosmos and all of the others?
For Cosmos there is a high inflation rate (7-13%), validators are limited to 100 and non-ATOM tokens can be used for transactions which isn’t great. A search on “cosmos validators” shows lots of validators who want your ATOMs to stake with them. There is one old link which pretty much says you need a ton of gear, cash and ATOMs to be a validator (you need to be in the top 100) with a data center at your disposal. Not exactly community friendly.
Tezos is similar in that “bakers” need “delegators” in order to validate/bake blocks and earn rewards. There is quite a good article on Staking Rewards here that shows the current state. You need 8000 ꜩ to “bake 1 roll” and that is around $40k USD in today’s prices. And that’s just to get started. You then have to attract delegators to get more rolls so you have a greater chance of baking and validating. Again a ton of gear, cash and Tezos is required (for not a lot of return).
Polkadot also has a high cost of entry. The 350 DOT minimum isn’t an issue but delegators (“nominators”) need to nominate a “validator” and only earn a reward if their validator becomes part of the validators set. That’s similar to Cosmos/Tezos in that to be a validator you need to sell your story.
There were a bunch of other ones considered – Chainlink, Band, Kava, VeChain, Tron, EOS, Elrond, Ziliqa, Ren, Neo, Ontology, Ocean Protocol and the list goes on… (there are hundreds of them). Plus some privacy chains which looked promising such as Loki and PivX (both very community orientated). The above were either too expensive in terms of entry, privacy chains are being removed from exchanges so they will have liquidity problems, or just not “big enough” to invest the time and energy. Plus you need a 3 year plan and there is a large probability that some of these projects just won’t be around then (regardless of how good they are).
Many of the above coins will significantly increase in the next 12 months – it is probably worth either trading or delegating to another provider, rather than attempting to build a validator.
The problem with the early versions of “Proof of Stake” is that they can only have a limited number of validators – most of the ones I’ve looked at have <500 validators and generally far smaller than that. Delegators need to trust a single validator. That doesn’t seem very decentralized to anyone.
Ethereum 2.0 attempts to solve this very difficult problem which probably gives it the best chance of success and that is why it is on the list. BTW the >13% return will probably be a fraction of that by the time you read this. The number of validators is exploding (see here):
Any good returns will be due to an increase in the price of ETH rather than the actual ETH earned. Eth 2.0 is going to be an unstoppable force 🙂
What about Filecoin? The chain relies on “renting” your diskspace to users who which to store decentralized data. 128GB of RAM + a powerful GPU are recommended. Filecoin miners provide services to the network by executing different types of deals and appending new blocks to the chain. It does rely on some heavy duty hardware as described here.
The Filecoin explorer here shows the rewards. If you offer 10TB you can make ~1.5 Filecoin per day. That’s ~500 Filecoin per year:
This is one of the “dark horse” projects. With < 1000 miners this is a great opportunity to get into one of these projects at an early phase (and pay off that expensive server). It will be very interesting to see how this project progresses.
In the next article we’ll start talking about the hardware…