In Part 1 of the Passive Income with Crypto Series, we talked about the number one method for earning passive income just by holding cryptocurrency. At the time of writing this, one of my favorite cryptocurrencies TRON is undergoing a hard fork. I plan on selling the crypto “dividends” immediately as soon as its listed on an exchange!
In this article, I would like to cover a slightly more advanced method for earning passive income with cryptocurrency called staking. Staking is a method of mining cryptocurrency where a user stakes their coins to help validate new transactions on the blockchain using the Proof of Stake algorithm.
Proof of Stake vs. Proof of Work
Bitcoin uses the Proof of Work (PoW) mining algorithm where an individual's power to successfully mine cryptocurrency increases with more computer processing power. Proof of Stake (PoS) operates similar to PoW, however the miner's ability to successfully mine cryptocurrency increases with a higher amount of coins staked. An individual can only mine or validate new transactions for coins equal to the number of coins they staked. The more coins a user stakes, the higher their power is to verify transactions.
For example, conceptually if a user controlled 25% of all the coins and staked them, they are enabled to mine 25% of all future coins.
Many industry leaders argue that the Proof of Staking algorithm is superior to Proof of Work. There are certainly issues with both. Proof of Work is effective because attackers need to gain 51% of the computing power of the network to hack it. PoW is terrific for large networks like Bitcoin and Ethereum, but not for smaller ones. When Ethereum split into two independent chains – Ethereum Classic and Ethereum – it was more affordable to gain more than half of Ethereum Classic's network computing power and attack it. To date, Bitcoin has stood the test of time and hackers have never successfully attacked it proving the usefulness of Proof of Work.
On the flip side, Proof of Stake eliminates major security issues associated with Proof of Work, such as the 51% attack. If a hacker would like to attack a coin using PoS, they would need to purchase 51% of all the coins. Because the hacker needs to spend a great deal of money to buy coins, it would destroy the incentive to attack the network since the hacker is the majority stakeholder and he would suffer the most.
Whether you prefer PoW or PoS for the security of a blockchain, Proof of Stake is far superior for earning passive income. It requires minimal technical knowledge, and you can get started staking cryptocurrency right away.
Below are three cryptocurrencies I am currently staking and earning passive income.
Best Crypto's to Stake for Passive Income
1) TRON
TRON has been on FIRE in 2019 and has by far given me the most substantial return on investment out of any coin this year.
TRON is an ambitious project dedicated to the establishment of a decentralized Internet and its infrastructure. In 2017, as Ethereum exploded in popularity, the network experienced low transaction throughput times and high transactions fees causing major scalability concerns for widespread adoption. TRON was founded and envisioned as an innovative solution to the scalability challenges faced by Ethereum and other platforms.
To learn more about TRON read my article and see why I think TRON will eventually hit $1. Hint: it’s currently at $0.19 right now!
“From this day on, BitTorrent, whose software has been installed on millions of user devices, will become part of the TRON ecosystem, making TRON the largest decentralized Internet ecosystem in the world.” – Justin Sun
Recently, TRON acquired an enormous company called BitTorrent. Shortly after, BitTorrent airdropped millions of coins to all users of TRON. I was thrilled to receive free BitTorrent and I look forward to future airdrops!
So, how do you stake TRON?
First, you need to purchase TRON on Binance. Binance is easy to sign up and one of the best exchanges with the best liquidity. When purchasing TRON, make sure to set staggered buy orders well below market price. It can be enticing to FOMO when seeing the price go up, but stay patient and get your TRON at the best possible price.
Second, all you need to do is visit tronscan.org and create a new wallet. From there, you can quickly start staking your TRON in less than 5 minutes. For a step-by-step guide on how to do this, I highly recommend visiting: https://medium.com/@TronDotLive/a-step-by-step-guide-to-vote-on-tron-super-representatives-election-19e1eb65dab2
2) NEO
In 2017, perhaps no coin made me as much money without doing a thing than NEO - the true definition of passive income! I sleep comfortably at night knowing my NEO is earning me free GAS.
NEO is a smart contracts ecosystem designed similar to Ethereum. Technically NEO uses a consensus mechanism called Delegated Byzantine Fault Tolerance, but the concept is identical to Proof of Stake. The NEO platform involves two different tokens –NEO and GAS which are both capped at 100 million tokens each.
It may be hard for NEO to replicate its outstanding success in 2017, but its fun to reminisce and look back. In 2017, the cryptocurrency markets as a whole were going vertical. In December, the markets were exploding upwards, and NEO skyrocketed from below $1 to over $115.“GAS is a Cryptocurrency which is distributed by holding NEO in your wallet. GAS is used to fuel transactions on the NEO blockchain. With each NEO Block getting generated, GAS will be distributed to all NEO holders.”
The price of GAS climbed with it. Each day I was waking up with more and more gas, selling it, and buying more NEO which in turn earned me more GAS. A beautiful cycle! If you’re looking for a solid cryptocurrency to stake, then you can’t go wrong with NEO.
So, how do you stake NEO? It's probably the most simple coin to stake in all of crypto.
All you need to do is purchase NEO on an exchange and hold it! My preferred exchange to purchase NEO is Binance, which automatically deposits GAS into my wallet daily, which I can then easily sell. You can opt to hold your NEO in a separate wallet, but I don’t mind holding mine on Binance.
If you do opt to hold your NEO off of an exchange, I recommend the TREZOR hardware wallet as it is by far the most secure. As an alternative, the Ledger hardware wallet is also a solid option.
3) Cardano (ADA)
Last but not least, we have Cardano (ADA). Cardano aka “the Asian Ethereum” is one of my absolute favorite projects in the entire crypto ecosystem. Founded by Charles Hoskinson, a co-founder of Ethereum, he created Cardano to be a more balanced and sustainable ecosystem for cryptocurrencies.
Mark my words; Cardano will be a dominant player in the next Bull Run. In the next few months, Cardano will shift towards a staking consensus mechanism. Turning to staking could drive demand as people move to stake Cardano and in a bull market, could boost ADA to new highs.
There are so many reasons I love Cardano, but the main reason is because of the development team IOHK. They are extremely, extremely solid. Additionally, Coinbase has already announced plans to add Cardano to its platform.
Now is an excellent time to start accumulating Cardano with the price at $0.04. Its all-time high is $1.15 to give you perspective.
So, how do you stake Cardano?
Well, you can’t yet! However, pretty soon people will be rushing to buy Cardano to stake it shortly. I recommend buying Cardano on Binance exchange.
Start Staking for Passive Income Right Now!
There are so many different crypto’s out there that use the staking consensus protocol. While the three I listed here are all high market caps, it could be wise to stake lower market cap coins as well. A staking strategy combining both high and low market cap coins is ideal. Plus, it’s fun to stake low market cap coins because you don’t need a sizeable upfront investment to be successful.
As each day passes, your stockpile of cryptocurrency gets bigger and bigger. After a few years, you could be looking at some life changing money if you stake the right cryptocurrencies. If you're looking to earn passive income, then staking absolutely needs to be a part of your routine.
Let me know if you have any questions and which coins you decide to stake! I can also let you in on some lower market cap coins - leave a comment!
Check out in-depth analysis of my return on investment after staking the Cryptocurrency WAVES for over a year.