Proof of Stake (PoS) - The simplest method of "mining" cryptocurrencies!
Today's entry will be dedicated "Digging" cryptocurrency is the simplest possible method of so-called consensus Proof of Stake (POS).
In the further part of the text, I will describe how in practice it is engaging your own resources in this method of extracting cryptocurrencies.
I will try to describe it in the simplest language without going into the technical details of this algorithm 😉
But let's start with a short introduction and a few basics that are necessary to fully understand and use the earning potential of this method.
The goal of the consensus algorithm in the public network blockchain* is to allow many different users to agree on the current state of the blockchain even though they do not trust each other or any central authority. This is a difficult problem and it remained unresolved until the Bitcoin network was launched.
Blockchain * - The easiest way to translate Blockchain is a common ledger in which transactions are permanently recorded by attached blocks. Blockchain serves as a historical record of all transactions that have ever taken place, from the genesis block to the newest block, hence the name blockchain - blockchain.
Proof of Stake (Pos)
Proof of Stake is the most popular alternative to the expensive and energy-consuming consensus algorithm Proof of Work (PoW).
Proof of Stake, or Dowód Stawki it is a consensus algorithm that chooses the owner of a new block based on its own bid / fortune.
"Miners" they are remunerated with crypto currencies based on their rate. The rate is used to calculate the amount of currency that you can extract. The more coins you have, the more you gain by extracting them using this protocol.
In PoS, coins are generated for their own possession, so to start mining we need to have the cryptocurrency on the wallet. The more cryptocurrency you have, the more chance you have "Digging out" new.
However, it would not happen that someone has a monopoly on the given cryptocurrency of PoS (The person with the most coins would generate a block after the block, then the monopoly would come from the machine) there are various ways to prevent it, I will describe two, which I consider the most popular:
- The draw
For example, NXT and Blackcoin draw hashes, and the number of random hashs depends on how much money you have in your wallet.
- The "Age" of Monet
We also have the hash lottery, but the coins are older than 30 days. Whenever a coin digs a block, we count her new 30 days.
The key advantages of Proof of Stake
- Energetic efficiency
PoS algorithms are energy-efficient - especially when compared with PoW. Cutting out the energy-consuming extraction process makes PoS a greener option and cheaper to maintain.
Attackers must put their assets (your rate) on the line to try 51 attack. It is a big deterrent. For comparison, the attackers do not lose their equipment when trying to attack PoW systems.
Big mining pools (groups of miners connecting their resources) they can control over 51% of networks with PoW systems, which leads to a very real threat of centralization. This is due to the exponential growth of the prize for investment in PoW systems, in contrast to the linear increase in PoS systems.
How do I get started with Proof of Stake?
The great advantage of this method of extracting cryptocurrencies is the lack of need to have / invest in expensive and power-hungry graphics cards or specialized ASIC type excavators. However, in return we are waiting for the purchase of the minimum amount of a given coin to start the so-called Staking (common name for digging with the PoS method).
Below I will describe the three known methods of extracting PoS and in the further part of this entry I will calculate the exemplary cost of buying coins and their ROI.
- Rent a virtual server type VPS
- Digging in "Cloud" with other users
- Own Server - "Excavator"
Rent a virtual server type VPS
Virtual Private Server (VPS) is a virtual private server that we can rent from a company offering such services. VPS hosting is one of the most popular hosting services that you can choose for your own needs (e.g. website, server for players or as a "miner" for crypto). It uses virtualization technology to provide you with dedicated (private) resources on a server with multiple users.
➕ Relatively low server maintenance costs
➕ Easy server support
➕ Possibility of remote access to the server
➕ Ability to use the server to place Master Node
➖ Lack of full control over the server
➖ Manual wallet updates, etc.
Digging in "Cloud" with other users
Digging in "Cloud" it's different Cloud Mining. It is a process of extracting cryptocurrencies using a remote data center with shared computing power or rate.
This type of extraction in the cloud enables users to extract cryptographic currencies without having to manage the hardware or virtual server. Because the extraction in the cloud is provided as a service, there is usually a certain cost, which may result in lower profits for the miner.
➕ Easy operation (just send our coins to Cloud Mining)
➕ No problems with wallet updates etc.
➖ Lack of full control over the server and our resources
➖ Ability to stay robbed by the creators of the given "Clouds"
Own Server - "Excavator"
The last way to dig PoS is to have your own server. Our server can be our current computer, where we will keep our coins on 24 / 7 wallet included. It is important that the computer has a disk SSD and more memory RAM.
Depending on the number of portfolios you want to fire on the station, the parameters should be larger. Therefore, if you do not have a computer that I could operate in this way, you can submit a separate one solely for this purpose.
Personally, I have already submitted 5 to such stations that I have called PoS Miner - their bare cost was ~ PLN 1,600 with the original windows system ~ PLN 2070. Unfortunately, since then the prices of the equipment have increased several times and now the cost of such a bare station is even over PLN 2,000. To save on the operating system, you can think about installing one of the free distributions Linux eg. mint or debian.
Below I present the parameters of the stations I have made:
- 450 / 500W power supply
- SSD 128 / 500gb
- 4 / 8gb ram ddr4
- the processor is enough i3 last generation
- a motherboard compatible with the processor
Fixed costs are ~ 30 / 40 PLN per month for electricity.
Graphics on individual stations "PoS Miner" they are hand-painted by me and he took the pictures Sławomir Gątkowski z FotogGątkowscy rafia. I also reserve the right to use the name "PoS Miner" for stations of this type.
➕ Full control over equipment and wallets (greater security)
➕ Relatively low start costs (compared to PoW)
➕ Low electricity costs
➕ Poor equipment operation
➕ Ability to use the server to place Master Node
➕ Possibility of remote access to the server
➖ Service (updates, possible repairs, etc.)
➖ A higher starting cost compared to a VPS or Cloud Mining server
Coin costs and potential ROI
"How much will I earn from this?" this is one of the most common questions I hear about crypto-mining and how much of a hard answer to this question when it comes to the method Proof of Work it's with the method Proof of Stake it's a lot easier.
By explaining it in the easiest way possible for PoS, we earn as a bank deposit. When we keep a given amount of coins on our wallet (which must be running, preferably 24 / 7) in return, we receive a certain annual return, which is paid out in tranches. The great advantage of this method is (and cryptocurrency in general) there is constant access to our resources .. So at any time, we can take our funds from the wallet and exchange them for another cryptocurrency or cash in traditional currencies.
An example is a cryptocurrency Nav Coin (NAV)
The annual NAV refund rate is currently 5%.
The minimum rate I suggest to people when choosing a method PoS jest 1000 pieces. Therefore, for this example, I will give calculations.
Having the NAV wallet running for the whole year, we can gain from it 5% from the total number of coins you have. The dug coins are then multiplied by the current course and we calculate how much we have earned, for example, in zlotys or dollars. It is easy to calculate annual output more or less and to speculate on individual course scenarios.
Let's assume that the course NAV to $0.25
1000 coins at 0.25 $ per pc 250 $. We are counting that we have dug out the whole year with breaks 4% = 40 pcs x 0.25 $ = 10 $
However, let's assume an optimistic scenario, where the price NAV he returns to his neighborhood ATH. Let's assume that they are 4$. At this moment, dug 40 pcs x 4 $ = 160 $ additional profit.
It is also worth remembering that our 1000 NAV bought for 250 $ also increases in value when the course goes up. This increases our annual ROI overall.
Other examples of cryptocurrencies that can be excavated in this way are, among others:
Annual extraction = 1-3%
Annual extraction = 5%
Annual extraction = 18% (Every year reduced)
Annual mining = 7,5% (Every year reduced.) The next mining change will be 11.04.2020r and will drop to 5%)
At the end of the word
In my opinion, the method Proof of Stake is still very underestimated.
I think that with time it will be more and more noticed by the little ones "miners“Who can no longer alone compete with large PoW mines and by ordinary people looking for a way to multiply their capital.
Man, I hope that at least a bit I came up with the method of digging PoS and how much you can potentially earn on it. Thus, I encourage you to comment, ask questions and share this post.
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All information and opinions contained in my materials are not investment recommendations within the meaning of the Regulation of the Minister of Finance of 19 October 2005 on information being recommendations regarding financial instruments, their issuers or issuers (Journal of Laws of 2005, No. 206, item 1715)