🪙 Cryptocurrency Stacking | Part II
Differences of Delegated Proof-of-Stake
PoS (Proof Of Stake) is similar to direct democracy and DPoS (Delegated Proof Of Stake) is similar to representative democracy.
Classic PoS allows coin holders to engage in “staking.” The coinholder validates transactions, receiving new coins as a reward.
Delegated Proof of Stake makes the distribution of coins and influence in the network more even and provides a greater degree of decentralization. In DPoS blockchains, each wallet with coins on its balance can vote for delegate-validators — computing nodes between which, through a complex algorithm, the right to generate blocks, validate transactions, and receive rewards and commissions for transfers is transferred.
Stacking providers allow you to analyze the current profitability of stacking in the selected network and show other relevant data. Steaking platforms make it as easy as possible for users by charging a small fee on the rewards they receive.
Risks of cryptocurrency steaking
- since steaking participants earn income in the coins of a given cryptocurrency, fluctuations in its exchange rate affect the value of invested funds and the actual profitability of steaking;
- The high staking yields offered by some PoS cryptocurrencies (tens and hundreds of percent annually) are achieved due to the high rate of coin issuance. This often leads to a rapid drop in the market price of the coin and a rapid depreciation of the investment in this cryptocurrency;
- Stakeholder requirements may include locking coins for a period ranging from several days to several months. During this period, the owner cannot withdraw and sell their coins;
- staking cryptocurrencies using staking providers carries all the risks associated with trusting a third party, which could be subject to a hacker attack or misappropriate assets collected from the stackers.
What other types of steaking are there?
In addition to PoS cryptocurrency stacking, there is so-called DeFi-stacking. It consists of blocking different types of tokens (utility and havernance tokens, NFTs) in a smart contract to get a reward or access to some services.
Some blockchain games also offer gaming NFT stacking by paying out gaming tokens as rewards, issuing other non-exchangeable tokens, or granting access to the game in this way.
Which is safer than DEX or CEX?
CEX is a centralized exchange that gives you access to your assets, but you don’t actually own the finances.
DEX is a decentralized exchange, all finances you own are fully under your control.
-The great advantage of DEX-exchanges is that they allow you to trade anonymously, without KYC politics, unlike CEX, which follow strict regulatory procedures. DEX allows you to remain anonymous and trade freely, knowing that your personal information is protected.
-Commissions on centralized exchanges (CEXs) tend to be higher, mainly because they act as a third party to help conduct transactions. This contrasts with DEX, which are known for lower commissions, which is another reason why they are so attractive to traders.
-The main disadvantage of DEX is that if you made a transaction and forgot to specify a code or mistaken wallet — you can forget about the money, because here, as in CEX, no one will help solve the problem and return the money.
